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.
-
Nvidia's earnings live: China trade the key question for semiconductor giant’s resultsNvidia's shares have opened strongly ahead of its earnings, as analysts question whether Blackwell sales can make up for lost China revenue following Trump’s trade crackdown
-
8 of the best lakeside properties for saleThe best lakeside properties – from a house on the southeastern shore of Loch Lomond, to a 15th-century hall overlooking a lake in King’s Lynn, Norfolk
-
'Pension funds shouldn't be pushed into private equity sector'Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
-
A fund that looks past the short term in AsiaGrowth should remain strong, but successful managers also need to focus on governance. Here's how to find active opportunities in Asian markets.
-
Can new management turn RIT Capital around?After several years of poor performance, there is growing evidence that RIT has turned the corner, says Max King
-
Is BlackRock World Mining gearing for a recovery?Opinion After a frustrating year, BlackRock World Mining is positioned for growth and to capitalise on the sector's recovery
-
Majedie sees an impressive turnaround under MaryleboneMajedie Investments, a once-ailing trust has seen its discount shrink to almost nothing under its new manager, Marylebone Partners
-
Should you continue to hold Smithson Investment Trust?Opinion Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.
-
Baillie Gifford trusts gain from SpaceX valuation – what does it mean for investors?Baillie Gifford's funds have gained from Elon Musk’s relationship with US president-elect Donald Trump. Are private investments really a safe bet?
-
Has RIT Capital fallen out of favour?
RIT Capital saw its discount soar amid weak returns, and investors remain sceptical of a turnaround
