Five trends for fund investors to watch in 2022
There is no crystal ball for investment, but these trends could help fund investors prepare for what comes next.
French philosopher Simone Weil once said the future is made of the same stuff as the present. So I’m going to abstain from any 2022 futurology and will instead pose five questions most private investors would be well served to ponder as we go into the new year.
From tech to VCTs
Do US technology growth stocks have much further to run? The average price/earnings (p/e) ratio of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) is over 40. They may be overvalued by traditional metrics, but the continued flow of money into them shows investors don’t care.
If the secular drivers pushing these types of shares higher stay in place, it has implications for UK venture capital trusts (VCTs). These tax-efficient venture funds are not the same as the US tech giants. They have their own unique selling points. However, if tech trends remain strong, I think UK investors will put even more money into the next round of VCTs. Most of the experts I’ve spoken to in the field believe the first quarter of 2021 will be a bumper year.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Conversely, if you think the US initial public offering (IPO) pipeline will shut and tech stocks will tank, now is probably not a great time to be backing VCTs.
Consider alternatives
Are you ready to take the plunge into alternatives? There has been an explosion of alternative funds listing on the UK market, ranging from renewables and infrastructure funds to music royalty funds and shipping funds. There are also veteran private equity funds such as HgCapital, Harbourvest, and Oakley Capital. Institutions and wealth advisers remain dominant on their share registers, but their managers have reported increasing interest from private investors. The consensus among most institutions is that anything between 10% and 40% of their portfolios can be exposed to alternatives, and private equity specifically. By contrast I would suspect most private investors have less than 5% exposure to private equity in their portfolios.
Time for the UK to shine
UK-focused funds had a decent 2021, but will they do better in 2022? The average UK-focused fund returned 18% compared to 12.5% for global equity funds in 2021, according to Numis. UK all-companies funds returned 16.6%, and UK smaller-cap funds 21%. But, over the last five years, global equity funds have delivered a 102% total share price return while UK funds have produced returns of 54%. Most strategists believe the UK equity market is undervalued and UK equities are certainly under-owned by most large institutions.
ETFs go active
Will you consider an actively managed exchange traded fund (ETF)? ETFs are largely thought of as passive investment vehicles that track an index and that certainly used to be the case. However, the growth of thematic funds has paved the way for more concentrated portfolios of stocks – sometimes comprising no more than 30 to 50 shares – whose indices tend to be actively constructed. The next step was to get an active manager to run the portfolio. A few active ETFs have emerged in the UK and Europe, but I expect an increase in issuance in 2022. They are already a big thing in the US: roughly two thirds of all the ETFs launched in 2021 were actively managed.
Getting into crypto
My last question pertains to the most alternative asset class out there: cryptocurrencies or digital money. How will UK private investors choose to build their exposure to these investments? Many are interested but don’t know how. Do they hold the currencies directly or in a diversified fund, or invest instead in the new digital infrastructure behind them? I believe it won’t be long before someone launches an investment trust or active ETF that invests in and across currencies and the decentralised finance system behind them.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
-
US election: Trump is back - what does it mean for your money?
Trump is back, but what does his election victory mean for your money and which stocks are tipped to do well?
By Kalpana Fitzpatrick Published
-
M&S smashes profit expectations on the back of strong food sales
Marks & Spencer’s half-year profits rose 17.2% to £407.8 million, well ahead of the £359 million analysts were forecasting
By Chris Newlands Published
-
Invest in Hilton Foods: a tasty UK food supplier
Hilton Foods is a keenly priced opportunity in an unglamorous sector
By Dr Matthew Partridge Published
-
HSBC stocks jump – is its cost-cutting plan already paying off?
HSBC's reorganisation has left questions unanswered, but otherwise the banking sector is in robust health
By Dr Matthew Partridge Published
-
Lock in an 11% yield with Sabre
Tips Sabre, a best-in-class company is undervalued due to low profits in the motor insurance industry. Should you invest?
By Rupert Hargreaves Published
-
Byju’s – the startling rise and fall
India’s educational technology start-up Byju's attracted big-name backers and soared to vertiginous heights during Covid. It has now plummeted. What happened?
By Jane Lewis Published
-
A bull market on borrowed time
While the US enjoys a bull market, it may not last. Will the US rate cut push stock prices down?
By Alex Rankine Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published
-
How will the UK gambling sector be hit by the Budget?
There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
By Dr Matthew Partridge Published
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
By Dr Matthew Partridge Published