The people running a company and sitting on its boards have an informational advantage over the rest of us. If they are buying or selling shares then I might assume that’s good news if the former, and bad if the latter. The following FTSE 100 stocks have seen appreciable levels of director dealings in the run-up to 2023.
Lloyds shares being bought by directors
A non-executive director of Lloyds Banking Group (LSE: LLOY) bought £198,994 worth of shares in the company on 1 December 2022. Considering that after the transaction the director held £531,662, this was a significant investment. It could be seen as a vote of confidence in this FTSE 100 stock from someone that sits on its board.
Perhaps that has something to do with rising interest rates and how Lloyds is benefitting from them. The bank can pass the higher rates to customers taking loans from the bank. But, it is not passing quite as much on to savers in the form of higher interest rates on their accounts. Thus, analysts believe that for every 0.25% the Bank of England raises the interest rate, Lloyds will earn £200m in income.
At some point though, higher rates might not mean higher income. As borrowing becomes more costly, new loan applications might slow down. As interest payments rise, defaults and write-offs might surge as customers struggle to pay back what they owe. And savers might get fed up and seek other places to put their cash that pay closer to the market rate for interest.
Directors are selling these FTSE 100 stocks
A director of Investec, an asset management firm, sold £7.3m worth of shares in the company last month. In late November 2022, two other directors offloaded £464k worth of shares. An Endeavour Mining board member sold £4.1m of shares in the company on 16 November 2022. Some £2.1m worth of shares in AstraZeneca were offloaded by its chief financial officer on 23 November 2022.
Finally, directors of Sage Group sold £174k of shares in the company on 18 November 2022. A further £358k worth was sold on 6 December 2002 and £197k on 8 December 2022.
What do I do with this information?
A director buying might seem like a fairly unambiguous signal that they think things are going to go well for the company. But, they might be contractually obliged to hold a certain amount of their company’s stock. Perhaps they want to buy to cast the company in a favourable light.
A director selling might be doing so because they think the share price is heading lower. But, they could also have been awarded a significant amount of shares as part of their compensation. As a result, their investment portfolio is highly concentrated in the stock of the company they work for. In that case, selling to diversify is entirely reasonable.
I would not make a decision based on director dealings alone. However, they do form a part of my investment research. So much of investing is about judgement and context. A director selling a chunk of shares at or near an all-time high price without being awarded a significant amount of them in compensation would greatly trouble me and necessitate further research. Smaller, regularly spaced buys would probably not get me too excited.
