Top shares at tax year midpoint – investors show preference for UK financials and travel stocks

• 5 October marks six months since the start of the 2023/24 tax year
• Travel, income and financials are the top share picks from HL clients in this period
• Telecoms stocks have also been popular in the first half of the tax year as valuations come under pressure

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

Income options

“UK investors are showing a clear preference for UK income options, with high street banking giant Lloyds finding itself among the most popular shares this tax year. While it’s nice to be picked first for portfolios, there are some underlying trends supporting this popularity.

As one of the UK’s biggest retail banks, Lloyds has seen its valuation come under renewed pressure as higher interest rates raise questions about the broader economic trajectory, to which it’s highly exposed. A softer landing would hold it in good stead and reduce the likelihood of onerous impairment charges being recognised in readiness of a jump in unpaid loans.

The bank’s ability to pay dividends is supported by a healthy capital position though, and as a well-trusted household name, investors seem to have made the decision to make the most of a reasonable dividend yield at a sensible entry price.

Income’s also a primary reason for British American Tobacco’s prominence. The maker of Lucky Strike is dealing with the fact fewer people smoke these days. But it’s been able to ramp up its prices because Tobacco users are some of the least price sensitive consumers going, which feeds into BATS’ ability to spend £5bn a year on dividends. At a time when capital growth predictions remain so uncertain, securing a 9% dividend yield is an alternative way to make shares a more attractive addition to a diversified portfolio.

Aerospace

It’s been a bumpy ride but both easyJet and Rolls Royce have found their way into investors’ portfolios this tax year. There has been an about-turn in the way travel spend is categorised, with forward bookings and consumer behaviour showing that travel is a priority, rather than fully discretionary as it was before the pandemic.

A large portion of Rolls Royce’s revenues are determined by how long its long-haul aircraft engines spend flying and a broad-based recovery in aviation has sent the shares soaring, and they’ve more than doubled in the last ten months and investors have clearly tried to catch the shares on the upswing. easyJet’s shorter-haul focus has benefitted from a best-in-class position thanks to its attractive routes and superior airport destinations. 

Fundamentally there are storm clouds gathering though. Although the Bank of England has paused its interest rate hiking cycle, household finances are under a lot of strain – and this will get worse before it gets better thanks to the UK’s high mortgage exposure. While great work has been done, travel-focused stocks may find the runway is a bit shorter than initially thought and this could lead to short-term volatility. These success stories act as an important reminder to invest with the long-term in mind, rather than trying to ride what could be a cresting wave.”

HL data