Seasoned investors often approach the markets with a long-term view, using short- to medium-term volatility to invest in themes they believe will develop over many years. While it’s hard to identify these trends, ignoring the noise can reveal what’s to come, which can lead to significant gains.
As we navigate the fourth quarter of 2022, let’s highlight five of the most popular investing trends right now – looking at several themes that show significant growth potential.
1. Inflation protection
Americans face higher prices for a slew of items as inflation hits its highest level since the early 1980s, according to data from the US Department of Labor. With the cost of living rising, investors are looking for ways to protect their purchasing power.
Treasury Inflation-Protected Securities, or TIPS, and Series I bonds are two simple ways to protect your savings against the costs of rising inflation. Both securities are issued by the US government and are designed to reflect the inflationary environment. The nominal value of TIPS increases with inflation, while I bonds have a variable interest rate that adjusts to the current level of inflation. I bonds currently carry an interest rate of almost 10%, but this rate will be set at a new level at the end of October.
Equities have also proven to be an effective hedge against long-term inflation. Companies that have pricing power can pass on higher costs to their customers, allowing them to maintain or even increase their profit margins over time. In the short term, however, concerns about inflation can spook investors and cause stock prices to fall.
Gold has also been considered a traditional hedge against inflation and is often seen as a store of value. But unlike stocks, gold produces nothing for its owners. You won’t receive growing dividends over time like you would with a large stock portfolio. Gold investors can buy the physical asset or invest using exchange-traded funds (ETFs).
2. Switch to online shopping
More and more retail spending has moved online from physical stores since becoming available in the 1990s. Online sales accounted for 14.5% of total retail spending in Q2 2022 , according to the US Department of Commerce. This number has steadily increased over time and looks set to increase further in the coming years as more and more shopping categories move online. Items once thought to be immune to the online shift, such as cars and furniture, have become major e-commerce businesses as consumers have shown they appreciate the convenience and selection offered by online shopping.
You can invest in this trend by owning stocks of individual retailers such as Amazon (AMZN), Wayfair (W) or Carvana (CVNA), or by owning funds that track the online retail industry. Two funds to consider are the ProShares Online Retail ETF (ONLN) and the Amplify Online Retail ETF (IBUY).
While most people think of online-only businesses like Amazon when they think of e-commerce, some traditional retailers have also invested in their online businesses. Companies such as Walmart (WMT) and Target (TGT) have created extensive online offerings to complement their physical stores. Both companies have seen online sales grow faster than their store sales in their most recent quarters, a trend that could continue for years.
3. Artificial Intelligence
The technological revolution has brought artificial intelligence (AI) to the forefront of society, bringing to life what was previously only imagined. With AI disrupting many aspects of our lives, the new technology could become the most influential industry of the century.
At its core, AI attempts to replicate human intelligence in a computer or machine with faster speed and greater accuracy. So, as these systems get smarter, AI becomes more powerful, with its uses and applications impacting nearly every industry.
Analysts at International Data Corporation (IDC), a market intelligence provider, predict that by 2023, global AI market revenue will reach $500 billion, with the market growing at an annual rate of 20% over the next five years.
AI is everywhere. Whether it’s Apple (AAPL) using facial recognition software to unlock iPhones, companies like Samsung building smart devices like fridges and washing machines, or robo-advisors using algorithms automated to optimize investments, technology is all around us.
For most retail investors, you may already have exposure to AI, as many large US public companies are already using it or are actively looking to invest in the technology. But for those looking for more direct exposure, some notable names include Intuitive Surgical (ISRG), Upstart Holdings (UPST), Intel (INTC), Trimble (TRMB) and Brooks Automation (BRKS).
4. The Metaverse
The future of the Internet includes virtual worlds where humans can interact without the limitations of physical space. And according to analysts’ estimates, these virtual environments could be the next big investment opportunity.
Through greater computing power, faster Internet connectivity, and other technological advancements, tech companies are developing ecosystems where people can shop, play, exercise, learn, and experience most activities. of life digitally. Facebook, for example, has changed its name to Meta Platforms (META) and plans to invest billions in its ambition to build the metaverse.
As the audience for these virtual environments grows, so does the interest of companies trying to capitalize on this trend. Sotheby’s Art Gallery, for example, announced last year that sales of non-fungible tokens (NFTs) had reached $100 million and began operating Sotheby’s Metaverse, a new virtual gallery in Decentraland, a virtual world 3D. Although 2022 has been much tougher for NFT sales as the prices of cryptocurrencies and other speculative assets have fallen.
Nike (NKE) has also invested in the metaverse through NIKELAND, a digital world built on the Roblox platform. Nike uses the space to launch virtual products and has held events with athletes such as NBA superstar Lebron James. In March, the company said nearly 7 million gamers from 224 countries had visited NIKELAND since its launch in November 2021.
Similarly, Microsoft (MSFT) has launched the acquisition of Activision Blizzard for $68.7 billion in the largest gaming deal in history – and a big bet on expanding the metaverse.
Among other investment opportunities, some analysts are pointing to NVIDIA (NVDA), a semiconductor company that powers computer graphics, as a potential winner in the growth of the metaverse. Additionally, Autodesk (ADSK) and Unity Software (U), software companies that enable architects and designers to create 3D models, and cloud technology provider Fastly (FSLY) are also prominent names in the domain.
For those looking for broader exposure, Roundhill Ball Metaverse ETF (METV) offers an efficient and easy way to invest in Metaverse-specific stocks.
5. ESG investing
The disruption and uncertainty caused by the global pandemic has sparked renewed interest from investors, consumers and employees to favor companies that prioritize environmental, social and governance (ESG) causes. These companies focus on issues that matter to all stakeholders and may sacrifice short-term benefits for long-term impact.
The fund industry has jumped on investor interest in sustainable investing. Funds focused on ESG investing managed about $2.7 trillion in 2021, according to Morningstar.
By creating societal value through sustainable practices, the stocks of these companies also tend to be more resilient than their peers.
For example, Bank of America research shows that stocks of companies with strong ESG practices tend to be less volatile, have higher three-year returns, and are less likely to declare bankruptcy.
One way to invest in socially responsible companies is to use ETFs like the iShares MSCI USA ESG Select (SUSA) ETF, which tracks an index of highly rated ESG companies. Some of the names in the fund include Microsoft (MSFT), Apple (AAPL), Home Depot (HD) and Tesla (TSLA). Other options include the iShares Global Clean Energy ETF (ICLN) or the SPDR S&P 500 ESG ETF (EFIV).
Purpose-driven organizations hope to set the tone for a better future. By focusing their efforts on reducing carbon emissions, minimizing waste, advancing social issues, and promoting equality, equity, and inclusion, among other worthy causes, these companies are redefining the role of business in society.
However, it should be noted that increased corporate attention to environmental issues does not necessarily mean the death of traditional energy investments such as oil and gas. In fact, over the past year, the energy sector has been the best performer in the S&P 500 thanks to a rise in oil and gas prices.
Note: Bankrate Brian Baker contributed to an update for this story.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Further, investors are cautioned that past performance of investment products does not guarantee future price appreciation.