Investors hold their nerve amidst market volatility

January's financial troubles, which included falling oil prices, Chinese market turmoil and imminent Fed rate hikes, have been seen as a buying opportunity among investors. On the Interactive Investor platform, there was, on average, a two-to-one ratio of buys to sells.

Rebecca O'Keeffe, head of investment at Interactive Investor, comments: "The intense volatility throughout January ultimately meant that most long-term investors ended up underwater, but for active traders it provided significant opportunities as well as risks.

"Amid heightened uncertainty over the fate of oil prices, Chinese growth and the possibility of further US rate hikes, the risk of further market declines remains significant.

"However, it is always darkest before the dawn, and those investors who have bought in at attractive valuations over the past month may ultimately prove to have been inspired."

Commodity stocks dominate

Among active Interactive Investor traders, financial and commodity stocks dominated market interest. Royal Dutch Shell was one of the five most-traded stocks on the platform.

"Shell had already promised to 'at least' maintain the generous dividend in 2016," says O'Keeffe, "so a prospective yield of over 10% was too good to miss. Remember, Shell hasn't cut the dividend since World War II."

Lee Wild, head of equity strategy at Interactive Investor, comments: "Record losses at BP illustrate just how difficult the oil industry is right now. Weak oil prices make the profit outlook for Shell unclear and the share price vulnerable near term.

"That said, oil is a cyclical industry and both oil prices and profit will recover at some point. There'll also be huge savings from the merger with BG, which has now received shareholder approval.

"Investors are clearly betting we're near the bottom. Shell's share price rocketed 21% in the last week of January!"

Bank shares have also suffered in the wider market sell-off, and interest rates remaining lower for longer is typically unhelpful for lenders, says Wild.

Lloyds proved popular

"Still, plenty of Interactive Investor users saw an opportunity to pick up Lloyds shares in January on the cheap, paying prices last seen in the summer of 2013.

"Despite moderating their expectations, City analysts still think they're worth considerably more, and there's a prospective dividend yield of over 6%."

Chancellor George Osborne announced that the Lloyds retail share offer will be delayed until markets settle down and the government can guarantee a profit on its remaining stake in the high street lender.

The top two most traded funds were Woodford Equity Income and Fundsmith Equity. They experienced significant inflows, as investors looked to take advantage of the sharp retreat in share prices.

O'Keeffe concludes: "Our investors' preferences confirm some of the major trends currently occurring in fund management.

"At a time when some major hedge funds have closed to external investors as their high management cost structure struggles to be justifiable in a world of low returns, a shift towards low-cost passive investment can clearly be seen.

"Two Vanguard low-cost tracker funds featured in our investors' top 5 most traded funds over the month of January."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.