Ownership of UK Quoted Shares: 2010

• At the end of 2010 the UK stock market was valued at £1,777.5 billion

• Rest of the world investors owned 41.2 per cent of the value of the UK stock market at the end of 2010, up from 30.7 per cent in 1998

• Other financial institutions held 16.0 per cent of the value of the UK stock market at 31 December 2010, up from 2.7 per cent in 1998

• UK individuals owned 11.5 per cent of the value of the UK stock market at the end of 2010, down from 16.7 per cent in 1998

• At the end of 2010, insurance companies held 8.6 per cent and pension funds held 5.1 per cent by value. These are the lowest percentages since the share ownership survey began in 1963

• 44.9 per cent of the shares by value were held in multiple ownership pooled accounts where the beneficial owner is unknown. These have been allocated to sectors using further analysis of share registers; updating the previous allocations which date from 1998

Figure 1 shows how the value of UK quoted shares was distributed between sector of beneficial owner at 31 December 2010. The table compares 2010 with ownership at the end of 1998 and 2008. For these estimates multiple ownership pooled accounts and excluded shares in paper form have been allocated to the most appropriate sector.

When referring to the UK stock market, this covers the total value of UK shares listed on the London Stock Exchange. Between 1 January 2009 and 31 December 2010 the value of all UK ordinary shares quoted on the London Stock Exchange increased by £619.7 billion to £1777.5 billion, an increase in value of 53.4 per cent.

Since the 1980s, UK stock market indicators have generally risen over time. However from 1995 they show much sharper movements reflecting global events. Figure 2 shows the FTSE 100 index, the most widely used UK stock market indicator, from 1983 to 2010. The first sharp rise in the FTSE 100 between 1996 and 1999 was during the ‘dot-com bubble’. When the speculative bubble burst the FTSE 100 index fell over the period 2000 to 2003 by around 50 per cent. After this event, the UK stock market increased until the financial crisis began in late 2007. Subsequently, the FTSE 100 index fell by around 40 per cent before recovering again. The two events of the dot-com bubble and the financial crisis have also meant that the FTSE indices have shown less of an upward trend since 1995.

The registered owners of shares, whose names appear on the share register and on CREST, are not necessarily the same as the beneficial owners who ultimately own the shares and receive the dividends. In particular, since dematerialisation of shares in 1996 there has been a growing trend towards investors using pooled nominee accounts.

At the end of 2010, 44.9 per cent of the total value of UK shares was held by multiple ownership pooled nominees and a further 16.2 per cent held in paper form. In order to identify the true beneficiary, further analysis was conducted on a sample of accounts with percentage splits for sector ownership derived accordingly. The estimates for 2010 incorporate these new assumptions about the members of multiple ownership pooled nominee accounts. These changes make comparison between years difficult. See methods section of the Background Notes.

The percentage of pension funds ownership within the pooled nominee accounts is significantly lower than was assumed for the 1998 results onwards (7.7 per cent for 2010 compared with 50 per cent for 1998). One contributing factor may be pension funds attempting to address their funding shortfalls by moving away from a reliance on returns generated from investment in equities to lower risk strategies. Alternatively, UK pension funds may be investing in overseas equities rather than UK shares.

The proportion of UK quoted shares (in terms of value) owned by rest of the world investors has increased substantially since 1963 (See Figure 3 and Table A). By 1998 holdings had increased to 30.7 per cent. The 21st century continued to see increases, with holdings highest in 2008 at 41.5 per cent. The large increase since 1994 partly reflects the growth in international mergers and acquisitions, and the ease of overseas residents to invest in UK shares. Since 2006 the holdings have levelled out at around 40 per cent.

The proportion of shares held by individuals (Figure 4 and Table A) has declined since 1963 when individuals owned 54.0 per cent of UK quoted shares in terms of total value. Their percentage holdings reached a low of 10.2 per cent in 2008, however by 31 December 2010 this had risen to 11.5 per cent. This may reflect the relative strength of equities as an alternative investment compared with low interest rate returns on savings.

Included in individual ownership are shares owned by company directors and those in privatised and demutualised building societies which are still owned by individuals.

Many individuals also make investments in ordinary shares through unit trusts. However, holdings via unit trusts that are not quoted companies are not included.

The proportion of shares held by insurance companies (Figure 5 and Table A) grew from 10.0 per cent in 1963 to a high of 23.6 per cent in 1997. Since this time, insurance companies’ holdings have continued to fall, reaching 8.6 per cent in 2010. This is the lowest recorded percentage of holdings by insurance companies since 1963. This fall could reflect insurance companies switching from UK equities to alternative investments. The ONS statistical bulletin MQ5: Investment by Insurance Companies, Pension Funds and Trusts shows that by the end of 2010, insurance companies investments in UK mutual funds had overtaken the value of their direct holdings.

For 2010, MQ5 reports investment in UK quoted shares by insurance companies at £217.5 billion, £63.9 billion higher than reported here. The differences could possibly be attributed to funds and other investment instruments run by insurance companies, which the 2010 share ownership categorises as other financial institutions. In addition, the analysis of share registers to identify true ownership of pooled nominee accounts classed pension funds run by insurance companies as pension funds, whereas on CREST any non-pooled holdings of this type would be categorised as insurance companies.

Pension funds holdings of UK shares by value

Since the high point of 1992, the proportion of shares held by pension funds (Figure 6 and Table A) has been falling. Fund managers have broadened their portfolios to seek higher returns and to spread risk.

Between 1998 and 2008, it was assumed that 50 per cent of the value of shares held by multiple ownership pooled nominee accounts would have underlying ownership by pension funds. This was based on analysis of share registers in 1997. For 2010 an exercise to update the sector allocations was completed. This analysis of pooled nominee accounts suggests that now only 7.8 per cent of their holdings are pension funds. This has had a large impact on the results given that over 40 per cent of the value of UK quoted shares is held in pooled accounts. Consequently, comparisons in the intermediate years between 1998 and 2010 should be made with caution.

Other financial institutions held 16.0 per cent (£284.5 billion) of the value of UK quoted shares at 31 December 2010 (Figure 7 and Table A). This includes the holdings of many banking groups as the ultimate parent company is frequently not classified as a bank. Also included are new types of investment not elsewhere classified such as hedge funds.

In the 1990s these other financial institutions held a small percentage of UK quoted shares by value (2.7 per cent in 1998). This has continued to increase throughout the last decade. The analysis of pooled nominee accounts identified several new types of investment vehicles which could have contributed to the rise since 2000. This could be attributed to the popularity of these as a way for individuals to invest in a diverse portfolio. However there could be a classification issue, where in some instances funds offered by insurance companies could be classed as other financial institutions or insurance companies.

ONS intends to discuss this possible classification issue with Euroclear, the primary data source provider, to ensure the beneficial categories continue to meet National Accounts requirements.

Government intervention in financial institutions

The financial crisis of 2008 led to unprecedented government intervention in the UK financial industry.

There was initial recapitalisation of The Royal Bank of Scotland Group plc (RBS) in November 2008 with a further injection in 2009. The recapitalisations of LloydsTSB Group plc and HBOS plc took place in 2009. Government also participated in two subsequent recapitalisations of Lloyds Banking Group plc in 2009. On 31 December 2010 these interventions equated to shareholdings valued at £53.6 billion. For further information of the treatment of government interventions see the ONS article Public Sector interventions in the Financial Crisis.

The sample for 2010 share ownership included most companies in the FTSE 100 at 31 December 2010. An analysis of holdings in these companies has been carried out, and grossed to cover all FTSE 100 companies. FTSE 100 companies comprised 81.7 per cent of the total value of the stock market at the end of 2010.

Figure 8 and Table 9 shows, as a percentage, the value of funds invested by each beneficial holder split between the FTSE 100 and smaller companies at 31 December 2010. 69.1 per cent of individuals’ holdings by value were with FTSE100 companies with the remaining 30.9 per cent in other companies. The UK individuals’ holdings in other quoted companies was higher than average because this includes paper holdings by company directors. 84.6 per cent of the rest of the world shareholdings in UK quoted companies were with FTSE100 companies. Overseas investors were likely to be attracted to the biggest companies, many of which have an international presence. Private non-financial corporations (PNFCs) include shares held in treasury by some of the largest PNFCs where they buyback their own shares in order to subsequently either distribute to employees or cancel them. This is why 93.8 per cent of the shares held by PNFCs, in terms of value were within the FTSE 100.

Of public sector holdings nearly 100 per cent are with FTSE 100 companies. This is due to the government interventions in Lloyds Banking Group and Royal Bank of Scotland group, the value of which dwarf any other central government, local government or public corporation share holdings.

Estimates of the shareholdings by industry of issuing company are provided in Table C.

On the 31 December 2010 the value of all UK quoted ordinary shares was £1,777.5 billion. Of this, the rest of the world held 41.2 per cent (£732.6 billion). ONS does not have access to the geographical details for each account on CREST, except for EU non-EU split. Therefore for non-pooled accounts, country ownership has been assigned within the rest of world category based on information from previous share ownership surveys. For large excluded shareholdings in paper form this information is obtained from company websites.

Many of the rest of the world holdings are held in pooled accounts, and these holdings were identified through analysis of pooled accounts for a sample of share registers. From this analysis of pooled accounts, estimates have been made for UK shareholdings by the global region of the owner. The table below shows the percentage breakdown of the total rest of the world shareholdings in UK shares by value.

North America held 56 per cent of the total £732.6 billion rest of the world holdings of UK shares. North American investors increasingly invest directly in the ordinary shares of UK companies listed on the London Stock Exchange. Several UK companies also have American Depositary Receipt (ADR) programmes established for North American investors to trade foreign shares and receive paid dividends in US dollars.

In previous ONS share ownership releases, it was assumed that North American holdings would be clearly identified and therefore holdings by the other global regions were uplifted to take account of the shareholdings where the country of beneficial owner was unknown. Therefore it is difficult to make comparisons with earlier years.

European holdings of UK shares at 31 December 2010 stood at 28 per cent. Asian holdings of UK shares were 11 per cent.

ONS plans to examine further the geographic split before the next release.