The markets in 2023 have painted a confusing picture for investors.
The Fed’s ongoing monetary tightening, a meltdown in the bond market, sluggish recovery in China, and renewed geopolitical conflict in the Middle East have been some big spoilers this year. Yet savvy investors may be able to see through the turmoil to seize unique opportunities.
If successful in identifying critical secular or cyclical trends, retail investors can pivot their portfolio to suit prevailing market conditions, possibly resulting in significant gains.
Here are three investing themes that have been trending this year and may, depending on their individual outlook, act as suitable plays in the current climate.
AI
Artificial intelligence (AI) has been the runaway success story for tech investing this year.
Investor enthusiasm for companies in the space has powered this year’s bullish gains. Stocks like Nvidia have spearheaded the charge, having soared over 75 percent this year.
Although AI has been a great bet so far this year, there could be some price correction pain in the short to medium-term horizon. Some economists, like Hubert de Barochez of Capital Economics, warn the AI hype will likely create a price bubble similar to the dotcom bubble of the 1990s.
Yet, in the long term, like the internet before, AI looks set to unleash monumental levels of growth. McKinsey Digital estimates generative AI could push global corporate profits up by $4.4 trillion annually. Hopping aboard this secular train early may really pay off.
For many investors, targeted exchange-traded funds (ETFs) may be the simplest way to get AI exposure to their portfolio. AI-themed funds include Global X Robotics & Artificial Intelligence ETF (BOTZ), ARK Autonomous Technology & Robotics ETF (ARKQ), and ROBO Global Robotics and Automation ETF (ROBO).
Active ETFs
A sort of hybrid between passive index trackers and mutual funds, active ETFs are having a moment.
Morningstar Data shows actively-managed ETFs grew 14 percent in the first half of the year, while passive ETFs grew at 3 percent.
Active ETFs follow the same investing premise as a typical fund – they have managers who proactively fine-tune their allocation fin to beat market averages. Yet, being in an ETF wrapper, they have lower management costs and are more liquid and accessible to investors.
Large fund managers are offering market participants a range of new funds to consider. JPMorgan, in particular, is promoting the trend. The bank already has the largest active ETF on the market, the JPMorgan Equity Premium Income (JEPI), worth $30 billion in assets under management. It has converted many of its mutual funds to ETFs this year.
The rise of active ETFs coincides with the steady decline of mutual funds. Once the bulwark of a retail portfolio, research shows the traditional managed fund structure continues to fall out of favor with various investor groups, including the young, the wealthy, and active households.
Bitcoin
Despite taking a hit in the crypto market crash that followed the collapse of FTX last year, Bitcoin has bounced back in a big way in 2023. After starting the year down around 16,000, Bitcoin is now trading above $34,000, marking year-to-date gains of over 100 percent.
Bitcoin’s latest surge, triggered by misplaced online speculation the Securities and Exchange Commission (SEC) was to approve BlackRock’s spot bitcoin ETF application, has renewed investor confidence in the coin despite the fact regulators have not yet given the green light to the highly-anticipated fund.
Others see Bitcoin’s price climb as linked to its popularity as a safe-haven asset in the face of excessive government debt levels, shaky equity and bond markets, and bursting geopolitical tensions.
Bitcoin stands apart from the rest as the largest and longest-standing of all cryptocurrencies. For investors who want to go long on an alternative asset as a hedge against an increasingly fragile traditional financial system, Bitcoin remains appealing.
Conclusion
While these three investing themes offer potential for outsized returns going forward, nothing is certain in markets. Past or recent performance of an asset cannot be taken as a guarantee of future results. Consulting with a financial advisor before making portfolio adjustments could be prudent.
