Over the past year, there’s been a definite increase in investing in the retail space. When I talk about retail investing, I’m referring to normal people like you and I buying and selling stocks. If we rewind a couple of years, there was some interest. But recently, thanks to easier access to brokerage accounts and greater news coverage, interest is up massively. Thanks to this, there’s one FTSE 100 stock that I think could be a good buy because it’s taking advantage of this boom.
An investing facilitator
The FTSE 100 stock I’m talking about is Hargreaves Lansdown (LSE:HL). It’s one of the largest UK retail investing platforms. On the website I can buy stocks, mutual funds, bonds and much more. It also offers Stocks and Shares ISAs, give me a convenient one-stop-shop for my portfolio. The share price is up 2% over the past 12 months.
The company has been around for a long time and is entrenched to such an extent that it’s one of the first results that comes up (alongside competitors eToro and Plus500) when searching the web with search terms like “buying stocks UK“. This has allowed it to benefit from rising interest from retail investors in buying FTSE 100 and other stocks.
HL makes money from charging a fee per transaction on stocks. It also runs its own mutual funds, and so makes money through commissions too. In essence, a higher active number of investors, along with higher assets under management equals higher profits.
Recent results showed this. Assets under management grew by 16% versus 2019, to £120.6bn. In the second half of 2020, over 84,000 new clients were added. For H2, this enabled profit before tax to rise by 10%.
I think the outlook for 2021 remains positive. H1 2021 results will include the increased trading from the rise of ‘meme stocks’ such as GameStop. Although I don’t know what the markets will throw up in H2, I doubt that volatility around FTSE 100 stocks is going to seriously subside.
Potential risks of this FTSE 100 stock
One risk to my view is the cyclicality of this retail boom. It could last for another year and beyond. Or we could see investors pull their money out, especially if we get another stock market crash. As retail investors are usually less experienced and less tolerant to holding losses, people could get burnt and close their accounts.
I accept it as a risk, but this is linked to the broader market, something no one can predict. As we currently stand, new retail investors will be happy with the FTSE 100 stock market performance over the past year. Their accounts with HL will likely be in profit. If anything, these clients are probably over-trading, earning higher fees for HL in the process.
Another risk would be reputational damage similar to what the brand experienced with the Woodford scandal in 2019. Some argue that a lack of oversight into the operations of the funds from HL was to blame for not spotting any issues. Also, if the business was picking up fees from offering the fund, it’s a bit of a conflict of interest.
Iet overall, I think the retail boom will continue, and expect HL results to continue to improve. As a result, I’d look to buy the FTSE 100 stock now.
