Maxim Manturov, Head of Investment Research at Freedom Finance Europe, outlines the key trends for investors to take notice of in the first half of 2023
From technological advancements impacting businesses and individuals across the globe to macroeconomic ripples that are influencing the decisions of bankers and consumers, 2023 is already a year of trends and transformation.
It’s essential that investors are in tune with significant global trends in order to protect and make the most of their investments. Maxim Manturov, Head of Investment Research at Freedom Finance Europe has identified the key trends impacting markets and how investors can strategically leverage them.
Unsurprisingly, high interest rates are having an impact on the market. The Federal Reserve raised interest rates to levels not seen since 2007 as an inflation control measure, and financial institutions are set to benefit. This is in part because financial institutions will be able to charge higher interest rates on loans, and companies with low debt and large cash reserves can earn higher returns on their cash balances. Technology and healthcare, which have substantial cash reserves, are two sectors that are also likely to see positive effects from high interest rates.
Investors might consider Exchange-traded funds (ETFs) such as XLF for finance, XLV for healthcare and XLK for technology. The bond market is also expected to be impacted by rising interest rates, which will provide investment opportunities for those investing in fixed-income and long-term bonds.
Artificial Intelligence (AI) has recently taken centre stage across most sectors, in part due to the prominence of ChatGPT from OpenAI, and it is already predicted to become one of the most significant industries of the century. By 2024, the AI market is expected to generate more than $500 billion in global revenues, with a five-year compound growth rate of 17.5 percent thanks to its varied usage, from developing unmanned cars to drug development. ETFs such as BOTZ, ARKQ and ROBO provide retail investors with a simple way to invest in AI stocks.
The metaverse has become a buzz phrase in recent years. With more computing power, faster Internet connectivity and other technological advancements available to people, technology companies are developing ecosystems where people can shop, play sports and learn and experience most of life’s activities digitally. This is considered by many as the future of the internet and could be the next big investment opportunity.
Meta (FB) plans to spend billions to create a metaverse, while Microsoft has invested heavily into its future metaverse plans by acquiring Activision Blizzard. Investors may be interested in companies such as NVIDIA, Autodesk, Unity Software and Fastly, which are all likely to benefit from virtual world growth.
Inflation protection is a trend that is high on the agenda of many investors. Inflation is at its highest level in decades almost everywhere in the world, causing concern among investors wanting to protect their money. However, there are many options on the table for those wanting to combat inflation, including investing in Treasury Inflation-Protected Securities (TIPS) and Series I bonds issued by the US government, which adjust for inflation.
Stocks of companies with price power are also an effective inflation protector in the long term, but in the short term fears of continued inflation can cause stock prices to plummet. Gold is also an option, but it offers no return.
Finally, environmental, social and governance (ESG) investing has become increasingly popular and will continue to be a priority as investors, consumers and employees favour companies that prioritise ESG responsibilities over profit. Interestingly, by prioritising responsible business practices, sustainable companies tend to be more stable and successful than those that are not. Corporations with strong ESG practices tend to be less volatile, have higher three-year returns and are less likely to go bust.
Investment in ESG companies has grown to $120 billion in the first half of 2022, with total assets invested reaching $2.5 trillion, and this trend is likely to continue into 2023. Investors can support socially conscious companies through ETFs like the iShares MSCI USA ESG Select ETF (SUSA), which tracks a list of highly rated ESG companies. This ETF includes well-known companies such as Disney, American Express, Accenture, etc. By focusing on reducing their carbon footprint, waste and promoting social issues such as equality, fairness and inclusion, these companies are changing the perception of business in society and seeking to make a positive impact.