CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Thematic Investing with ETFs
Thematic investing and ETFs go hand in hand. Here’s a quick overview of what both entail so you can get started on a theme-led trading or investing strategy.
A look at ETFs and Thematic Investing
What are ETFs?
ETFs are exchange traded funds, a financial product that combines the properties of a funds and equities.
Each exchange traded fund is composed of different assets grouped together. These might be equities, commodities, bonds, or a mixture of all of them. The assets inside an exchange traded fund track the performance of the fund’s underlying market as closely as possible.
An ETF vs an Index fund
There are some similarities between the pair, but ETFs and index funds do hold some key differences. Here’s a very quick outline of what separates the two.
- ETFs can be bought and sold at any time, whereas index funds are only available at the price set at the end of the trading day.
- Exchange traded funds generally require lower minimum investment
- ETFs are typically more tax efficient
For retail investors and traders, an ETF may be the better option, but this of course all depends on individual goals, personal capital expenditure and so on.
Do ETFs pay dividends?
That depends on the type of ETF. An income fund will distribute any interest and dividends back directly to you, as the name suggests.
An accumulation fund, on the other hand, will not pay a dividend. Instead, it will reinvest any accrued gains back into the fund, raising the value of your investment.
Both are valid options, but again it depends on what you are trying to achieve when investing or trading an ETF.
How does thematic investing apply to exchange traded funds?
The beauty of ETFs is that they are perfectly suited to a thematic investing strategy.
By their very nature, they group together specific assets into one product. They offer exposure to trends, industries, technologies and sectors all in one product – ideal for those who do not want to do they analytical legwork associated with other forms of investing and trading.
One thing in common with thematic ETFs is that they tend to be forward-facing. Many of the available funds out there focus on disruptive technologies and trends.
For instance, cryptocurrency and bitcoin is huge business right now, as one of the most popular trends amongst millennial investors. If this piques your interest, you may want to invest in a crypto-themed ETF.
A space travel-focussed ETF will cover numerous assets around space exploration, i.e. companies that offer commercial space flight, rocket engine manufacturers, raw materials suppliers, and so on.
Cathie Woods’ ARK series of technology-driven ETFs are the perfect example of themed funds. Each is split into different niches and ideas based around disruptive technologies:
- Fintech innovation
- Autonomous technologies & robotics
- Next generation internet
- Genomic revolution
So, for example, the fintech innovation fund is based on “innovative and disruptive financial technologies.
“Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer-facing platforms, and new Intermediaries”.
By packaging assets in the fintech space together into a single tradable asset, investors in that ARK ETF would be gaining exposure to multiple assets and mitigate their single stock risk.
How popular are thematic ETFs?
Very. In Europe alone, thematic ETFs attracted a record €9.5bn in new assets across 2020, bringing the total assets under management (AUM) for thematic funds up to €22.7bn – an all-time high.
In the US, thematic ETFs AUM stands at $183 billion, according to Global X’s Q1 2021 thematic investing report. That represents 2% of the US’ total ETF sector, but, crucially, 7% of revenue. That may look small, but growth has been massive.
Global X reports that US thematic exchange traded funds’ assets under management has risen 430% since Q4 2020. The volume of inflows has tripled since 2019. Aggregate AUM reached $133.1bn at the end of Q1, up 28% from the $104.1bn AUM achieved at the end of Q4 and exceeding the broader US ETF industry’s 7% q/q gain.
There are now 163 thematic exchange traded funds listed on US exchanges – an increase of 13 over Q4 2020. None have been closed either.
In terms of returns, we can look at the performance of some European ETFs to see what makes them a popular choice for retail investors. Some of the funds with the highest ROI include:
- iShares Global Clean Energy ETF (INRG) – 120%
- WisdomTree Cloud Computing ETF (WCLD) – 92%
- VanEck Vectors Video Gaming and eSports ETF (ESPO) – 68%
Risks of thematic investing with ETFs
As with any financial product or asset, the value of an ETF can rise or fall. As such, you can lose money, so only invest or trade if you are comfortable with any potential losses.
There are risks around liquidity too. A surge in investor interest in a specific sector may cause a rally in a fund’s underlying index or component assets. If this is the case, investors may start selling their holdings, and trigger a liquidity shortage. The fund would have to be rebalanced accordingly to protect against this.
As ever, due diligence and research are important here. Make sure you do yours before committing any capital.
Thematic investing: cryptocurrencies
Cryptocurrencies are the focus of our latest thematic investing guide. Should you be putting your money in cryptocurrencies? What are your options? Have a read to find out.
A look at cryptocurrencies
What is a cryptocurrency?
Cryptocurrencies are digital currencies that can be exchanged online for goods and services. Another name for a crypto coin is a token. Cryptos are bought using real currency via exchanges or are tradeable via contracts for difference (CFDs).
Blockchain technology powers cryptocurrencies. Think of this a bit like a digital ledger. It manages and records crypto transactions. A blockchain is decentralised and is spread across many different computers. New tokens are generated using a process called mining. It’s essentially a complex computational algorithm that, when solved, creates a new token.
Over 10,000 different digital currencies are traded. The current total market cap, as of June 3rd, 2021, is above $1.5 trillion. While there is no such thing as the best cryptocurrency, some tokens are much more popular than other. Bitcoin is the world’s most popular and acts as a market bellwether. When its price rise, so too do other important tokens. The opposite is also true, as we’ve recently seen a big crash in Bitcoin prices.
As of June 3rd, 2021, the top five cryptocurrencies by market cap are:
- Bitcoin – $706.1bn
- Ether – $317.5bn
- Binance Coin – $62.1bn
- Tether – $61.7bn
- Cardano – $56.4bn
Cryptocurrency prices & volatility
Cryptocurrency prices are some of the most volatile of any tradeable asset. This cannot be stressed enough. Just recently, the price of Bitcoin collapsed following outside influence. Elon Musk and Tesla’s decision to U-turn on accepting Bitcoin as payment, plus a crackdown on crypto mining in China set prices spiralling.
Bitcoin reached an all-time high in April when it broke above $64,000. Just a couple of weeks later, the world’s most popular cryptocurrency was trading below $31,000 for the first time since 2020. Its total market cap went from April’s $1.2 trillion reading to the $706bn figure mentioned above.
This kind of volatility is inherent to cryptos. There is a lot of supply and demand at play here, but digital currencies are certainly less stable than say gold or equities. Potential profits can be very high, but the losses can be huge.
Always do your research before you commit any capital. Trading and investing is inherently risky, but more so with cryptocurrencies. Only invest or trade if you are comfortable taking any potential loss.
Investing or trading cryptocurrency
A couple of options are available to you.
Firstly, there is physically buying the tokens to store in a digital wallet in the hope they grow in value. Many investors are turning to cryptocurrency as a store of value, turning away from traditional assets like gold.
You must be very careful with this approach. Crypto investing can be a rollercoaster ride. One minute prices are nudging all time highs; the next billions have been wiped off open crypto positions.
If you do not wish to own any coins, but still want to trade cryptocurrencies, you may wish to look at contracts for difference. CFDs allow you to trade cryptocurrencies without owning any underlying assets. You instead trade on margin. This can allow you to open a position for a fraction of its total value – but you would be susceptible to higher losses.
You may also want to look at stocks based around the crypto industry as well. For instance, Coinbase went live with its initial public offering in April. Coinbase is the largest US cryptocurrency exchange, where users buy and sell bitcoins in a similar fashion to stocks listed on various global exchanges.
Volatility has struck again here, though. Because Coinbase is so tied in with the performance of cryptos, and especially Bitcoin, its share price rises and falls in line with the wider cryptocurrency market.
For example, when it went public, Coinbase’s initial share price was above $400. It’s currently trading at around $235. Despite this, according to Marketsx’s in-platform sanalyst tool, Coinbase is still considered a “buy”. It has a lot of potential to gain value alongside a recovery in cryptocurrency prices.
There is no best cryptocurrency. There are no best cryptocurrency stocks. What is a good or bad choice for your portfolio depends on your individual capital and your attitude to risk.
Remember: cryptocurrency prices are subject to high volatility, so only invest or trade if you can afford any potential losses.
Thematic investing: investing in technology
Our next instalment in the thematic investment series looks at which tech stocks to buy. Investing in technology can pay dividends – but it can also prove tricky too.
Thematic investing: tech stocks
Investing in technology: what you need to know
Technology is an all-encompassing term. It covers an enormous range of sectors. Everything from your smartphone to electric vehicles to productivity, and more besides sits within the technology sphere. Even companies like Disney, with its Disney+ streaming service, or Amazon with its Amazon Web Services offer, are considered tech stocks.
The best tech stocks to buy will be entirely up to you and what your investing or trading goals are. Be aware that, because of the sector’s diversity, there are many different types of company with differing compositions, market caps and characteristics within the technology space.
Some might be multi-billion-dollar behemoths like the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). Others might be market disruptors like Uber or Spotify. Some firms will be well established with vast cash reserves. Others might up-and-comers might be burning through capital but with rapid share appreciation to match.
That said, tech stocks are amongst some of the best performers. Indices dedicated solely to technology and related firms offer some considerable potential returns for instance. The Nasdaq 100, listing the top 100 US tech stocks for example, is up over 43.8% as of May 25th 2021. The Dow Jones US Technology Index is also showing similar numbers, up 47.92% year-to-date.
Remember the risks when searching for tech stocks to buy
Technology is all about innovation. It never stands still. Because of that, even the best tech stocks can be a risky investment. Huge capital investment is needed to ensure a company’s solutions and products remain at the head of the pack. A company can disappear completely if a rival develops a product or service consumers and the market prefer.
Some tech firms’ valuations have been questioned too. We mentioned Uber earlier. That’s a company that has admitted it may never be profitable. Is that worth the risk for investors?
Then there are general economic patterns to consider. When times are tough, luxury items like brand new smartphones may not sell well. Thus, the manufacturer’s share price may fall, along with companies supply components and raw materials needed to build a new smartphone.
When times are good, and consumers have more cash to spend, there might be higher demand.
Inflation woes play a part too. As recently as late May 2021, we’ve seen tech-sell offs generated by fears that inflation may bite into tech manufacturers and providers’ profitability. This was triggered by a spike in bond yields and general uncertainty around the economic picture caused by the global Covid-19 pandemic.
All investing and trading is risky. Investing in technology can prove doubly so. Only invest or trade if you are comfortable with any potential losses. Do your research and understand how to pick stocks before committing any capital.
What are some of the best tech stocks to watch?
Again, what is the best stock will depend entirely on your individual budget and circumstances. Consider a wide range of different sectors and industries covered under the tech umbrella.
Diversification, i.e., getting exposure to several different industries, stocks, and sectors, is used by investors to mitigate risk. If one stock performs badly, the theory goes, the other stocks or assets in your portfolio can help protect against that by performing well.
With that in mind, the below may be tech stocks to buy if they meet your individual criteria.
AMD makes semiconductors and micro-components used to build everyday essentials like phones, laptops and so on. Its main product line covers graphics cards, microprocessors and motherboard chipsets.
As of May 25th, 2021, AMD stock was up just over 47%. It also looks like it has a bright future. Latest quarterly earnings saw AMD revenues expand 93% year-on-year, reaching $3.45 billion. Operating income for the quarter was $662 million while net income was $555 million – a 243% increase from the prior year.
We mentioned earlier how technology companies must invest heavily to keep up with the pace of innovation. In the case of AMD, its investments are a form of protection. Due to intense demand, chipset raw materials are at a premium right now. To avoid shortages, AMD recently inked a $1.6bn wafer supply deal with GlobalFoundaries.
GlobalFoundaries will be supply necessary components between 2022 and 2024 under the terms of the deal. AMD is now developing second and third generation Epyc server chips – a product of high interest to AMD customers.
According to the Analyst Recommendations tool on the Marketsx trading platform AMD is rated as a buy by 52.9% of analysts.
Apple is one of the most recognisable brands on the planet. As tech companies go, they don’t come bigger than the Californian company. Its clean-cut branding combined with a reputation for innovation and useability make its products hot property. Because of that, Apple often makes an appearance amongst the best tech stocks.
Apple’s latest round of earnings, coming in April 2021, saw the company enjoy yet another blowout quarter. Companywide sales were up 54% y-o-y. iPhone sales shot up 65.5% during this period, spurred on by the launch of the new iPhone 12. Mac and iPad sales outperformed even Apple’s flagship product, notching impressive 70.1% and 79% annualised growth.
In monetary terms, total revenues were up 53.7%, totalling $89.58 billion. Earnings per share (EPS) beat expectations at $1.40 vs. the estimated $0.99.
Apple stock is up across the year. It was trading for around $80 in May 2020. Flash forward to May 2021, and AAPL is exchanging hands for about $126. Analyst forecast is bullish with analyst consensus heavily weighted towards buy.
ASX-listed Xero is carving out a position as a global leader in cloud accounting.
In its 2021 financial year, the Wellington, New Zealand-based software supplier, managed to expand its subscriber base by 20% to 2.74 million worldwide. Stand out geographies included:
- 17% growth in UK customers – 720,000 subscribers
- 18% growth in US customers – 285,000 subscribers
- 40% growth in Rest of the World customers – 175,000 subscribers
Growth is carefully pared with stock performance. It’s something to consider when investing in technology stocks. Xero’s average annual 25.1%, which ranks better than 85% of the companies in Software industry, according to analysts GuruFocus.
The 3-year average Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) growth is 86% – better than 97% of software companies profiled by GuruFocus. Taxes, Depreciation, and Amortization
Xero’s future is entirely focussed on expansion. It regularly tells investors it has a preference to re-invest cash generated to drive long-term shareholder value. But because it reinvests so much, Xero may not have major profitability going forward. Something to consider.
Investing in technology: reiterating the risks
When looking at tech stocks to buy or trade, consider the risks. While you can make money, there is a risk of capital loss. Do your research before committing any capital and only invest if you are comfortable with any potential losses.
Thematic investing: tackling climate change
In our latest thematic investment guide, we look at the wider climate change picture.
How to invest in renewable energy & firms tackling climate change
The wider environmental picture
Our previous thematic investing guide to renewable energy flagged some of the companies specifically fighting the green fight through power generation. Climate change is not just about sustainable energy, though. Lots of moving parts comprise the anti-global warming engine.
Worldwide, masses of time and energy is being poured into combatting global warming. In the first few months of his Presidency, Joe Biden has pledged to increase funding into clean energy sources, reduce the US’ carbon footprint, re-enter the US into international climate accords.
The 2016 Paris Climate agreement, where 197 nations pledged to limit warming temperatures, is rightly seen as a watershed moment in the history of global change. But there is still more to be done.
That’s why, while it’s important to continue to invest in renewable energy, other companies are doing important work outside this sector. Electric vehicles, for example, are one way of tackling rising emissions. Less fossil fuel burned to power vehicles should greatly reduce greenhouse gas volumes in the atmosphere.
Q1 2021 EV sales were up 81% in the US. In China, they are up 239%. The likes of Tesla, NIO and Toyota are real pioneers here, pushing either fully electric or hybrid technology to new areas. Legacy carmakers like Renault, Peugeot, Audi, Ford, and VW are pushing ahead with integrating more EVs into their product lines.
We also see big tech firms doing their bit. Amazon, Alphabet and Facebook have all made strong carbon neutrality commitments. For instance, Amazon head honcho Jeff Bezos launched a $10bn climate change fund and committed the e-commerce behemoth to clean up its supply chains. Alphabet and Facebook are looking for renewable sources to power their energy-hungry data centres and have pledged to continue to invest in renewable energy.
Here are some stocks from firms helping to combat climate change that wouldn’t look out of place in a green-themed investment or trading portfolio.
Thematic investing: climate change focussed stocks to watch
NIO stocks have actually been sliding at the time of writing as part of a wider tech sell-off in response to rising US inflation and bond yields. But there are reasons to be cheerful regarding the Chinese EV manufacturer’s future.
Its Q1 2021 earnings report, released in late April, showed an impressive 19.5% rise in gross margin, beating market estimates, and coming in 3% higher.
Improved sales data shows NIO is on a growth footing too. The company sold 44,000 vehicles in 2020, 108% more than in 2019.
A small unit count initially, especially compared against someone like GM, which sold over 2 million vehicles in the same period, but the growth is the important factor here, not the total number of units sold.
In Q1 2021, NIO had already sold 20,600 vehicles. That’s a 423% increase. The automaker is also launching three new models, including an SUV, this year to gain ground in several market segments.
Factor in estimates that China, already the world’s largest automotive market, is expected 13 million annual EV sales, along with the emergence of China’s middle class, makes NIO an EV stock with plenty of juice left in its batteries.
TPI Composites is a wind energy stock that is looking positively breezy. The firm produces blades for wind farms and other pieces of equipment for wind farm construction and operation.
TPI notched record revenues in its Q1 report, totalling $405 million. This represented a not insubstantial 13% increase against Q1 2020. The company produced 814 sets (a set has three wind blades) this quarter, which was 11% more than the same period last year.
The firm has spent large sums in the past couple of years to improve its manufacturing output. It now has production facilities in the US, Mexico, China, and India, putting it squarely in regional supply chains. TPI is also now looking to reduce its costs going forward, putting it back on the path to profitability.
In sales terms, TPI’s first-quarter net sales had increased by $48 million to $404 million – a 13.5% increase when compared to net sales of $356 million over the same period in 2020. It also recorded a 12.7% increase in turbine blade sales to $42 million.
Of course, TPI is up against some stiff competition in the form of firms like Vestas, but its combination of higher sales and a commitment to reducing operating costs point toward higher profits moving forward. TPI is one of the wind energy stocks to watch.
As stressed earlier, when you’re looking at thematic investing, don’t just stay within renewable energy stocks or wind energy stocks. Think of the wider picture. Companies that have committed to renewable energy may not be suppliers or producers themselves.
Take Google owner Alphabet for instance. The tech giant has long been praised for its sustainability commitments. By 2020, Alphabet claimed it was running on 100% renewable energy. Its data centres are some of the most water-efficient in the world, using 80% less H20 than the typical centre. Alphabet has plans to build more.
Alphabet’s earnings beat estimates in the first quarter of 2021. Revenues grew 34%. YouTube ad revenue was up 50% year-on-year. Earnings per share came in at $26.29 per share against the expected $15.82.
Alphabet’s core business is not related directly to clean power generation. However, it’s a good example of a major corporation with a proven track record of delivering on its emissions-cutting promises. Therefore, it would not be out of place alongside other more-focussed stocks in a climate change combatting portfolio.
Remember the risks of investing in renewable energy & climate change stocks
Whether investing in wind energy stocks, renewable energy, or companies working to fight global warming in general, remember the basic risks. Investing and trading are both inherently risky. Only invest or trade if you can afford to take any potential losses.
Thematic investing: electric vehicles
Electric vehicles are gaining traction among car owners, legislators, and fleet operators worldwide. Can the same be said for investors? In our latest thematic investing guide, the spotlight turns to EV stocks.
EV stocks & why you should consider them
Goodbye ICE. Hello EVs
More and more EVs are appearing on the world’s roads. Drivers have long enjoyed the freedom of movement afforded to us by Nicolaus Otto’s people-empowering invention but the internal combustion engine’s days are numbered.
The environmental cost of fossil-fuel-powered engines is getting heavier. Slowly, but surely, the chug of a diesel engine or the throaty roar of a high-powered V8 will disappear from our roads.
The changeover may be coming even faster than that. Reports indicate the EU will move to ban sales of new ICE vehicles as early as 2025. The UK has brought its ban forward to 2030. The book is closing on petrol and diesel. The next chapter begins with lithium-ion battery-powered machines.
Proliferation is not total. ICE still dominate everyday driving, but EVs sales continue to grow year-on-year, quarter-on-quarter.
More pure EVs and plug-in hybrid models are on the roads in key automotive markets. 245,000 fully electric models, plus 515,000 hybrid vehicles, were registered in the UK by the end of April 2021, for instance, representing just over 13% of all registered vehicles.
In China, pure battery-powered car sales were up 113% in Q1 2021, with 333% more hybrids being sold in the same period. Overall EV sales in the US in the first quarter of 2021 shot up 81% too. The appetite for electric power is spreading among vehicle owners.
Tesla is arguably the most visible electric vehicle brand. Its optics are massive, especially with relentlessly self-publicising CEO Elon Musk in the driver’s seat. That said, the race is on to develop hybrid and electric vehicles by legacy marques, as well as new badges hoping to overtake Tesla.
It was Toyota that really got the hybrid trend rolling with its iconic Prius model, launched for worldwide sales in 2002. Now, all the major marques have at least one hybrid model in their range or adding one.
Even luxury brands like Aston Martin are in the act. The “big three” of hypercars, the Porsche 908, Ferrari La Ferrari and McClaren P1, are all hybrid-drive vehicles for example.
Ford has even transferred its iconic Mustang name to a new electric model, launched in 2020. Renault has plans to resurrect its cheeky-but-charming 5 as a full EV too. VW is planning for its ID range of four electric models will be the core of its range as it pivots towards full electrification.
The list of car manufacturers making the jump to electric power is extensive, but here are some stocks below to keep an eye on.
EV stocks to watch
Beginning with the biggest name in EVs, Tesla shares have been a bit of a journey across the year so far.
The Elon Musk-controlled marque was soaring, closing January 2021 at $883 – an all-time high.
Now, a combination of concerns over criticisms from the Chinese market, fatal accidents caused by Tesla’s autopilot system, rising competition, and questions over the brand’s acquisition of $1.5bn worth of Bitcoin cryptocurrency, has caused Tesla’s share price to drop. As of May 21st, Tesla stock was trading at around $593.50.
Despite this, Tesla increased vehicle deliveries in Q1 2021. Net income hit $438 million during the quarter. Earnings of 93 cents per share on $10.39 billion in revenue.
New Tesla models are on their way. An updated version of the flagship Model S sedan is coming soon. The Model X SUV will start rollout in Q3 2021. It has also weathered the EV chip shortage by pivoting to new suppliers, meaning manufacturing can continue relatively undisturbed.
However, if you are considering investing in Tesla stocks, make sure to do your research. Michael Burry, the hedge fund guru who gained fame for exploiting the 2008 Financial Crisis, is shorting $534m worth of Tesla shares, indicating he thinks further stock price declines are on their way.
A bumpy ride may be ahead for Tesla – but its major brand recognition and positive financial outlook may help steer it back on a growth footing in 2021.
Nio is not the largest Chinese electric automaker, but it is making big waves.
Q1 2021 saw NIO deliver just over 20,000 vehicles – a more than 400% y-o-y increase. NIO has already delivered about 95,000 vehicles in total in the year so far. It is leading the way in China’s electric SUV market too, selling slightly more than 7,100 in April, outpacing Tesla.
In terms of prices, NIO shares are showing similar volatility to Tesla. Since the start of 2021, NIO stock is down 37.5%. Year-to-date, however, NIO share price has soared 870%. Market cap stands at around $55bn. Currently, NIO stocks are trading at around $34.50.
So where next for NIO? It’s already showing impressive sales growth figures. China is already the largest auto market in the world. It’s forecast to become the largest EV market too, accounting for 40% of the 31.1m global EV sales Deloitte predicts for 2030.
For NIO, being a native Chinese brand is a huge advantage here. It is protected by domestic laws favouring homegrown brands over foreign marques like rival Tesla. It already holds 23% of the electric SUV segment too. If it can maintain deliveries, NIO and its shares may look very positive in the future.
The above EV stocks are manufacturers that deal exclusively in pure electric, battery-driven vehicles. Volkswagen is a legacy marque. While it has made substantial headway in introducing its ID range of electric cars, it is still a manufacturer of ICE-powered machines.
That said, it has an aggressive electrification plan in place. A new factory has been built dedicated solely to EV production at its Wolfsburg campus. It’s even pushing for one million EV sales by the end of 2021, with the ID.4 model identified as VW’s electric golden goose.
VW shares were up 62.3% from the start of 2021 to the beginning of April, reaching $258. As of May 21st, the share price had grown further with VW shares changing hands for $272. Optimistic electric vehicle sales are potentially powering this growth. VW may be on course to outsell Tesla in 2022 if it can maintain successful sales.
Here’s the rub. While Tesla had an enormous head start over legacy manufacturers, once the full weight of Toyota, VW, GM, Ford and so on is turned towards non-ICE cars, it will be difficult to match their potential output. These are companies with already massive manufacturing capabilities and the capital to invest in new factories and product lines as we’ve already seen. Therefore, don’t think of single-play manufacturers when looking at EV stocks. Remember established automakers too.
Risks in investing & trading EV stocks
Whether a newer brand or a legacy marque, always remember trading EV stocks comes with inherent risks. Market volatility has been seen in the electric vehicle space. While profits can be made, you can also lose money. Always do your research and only invest or trade if you are comfortable taking any potential losses.
Thematic investing: mining stocks
With the recent commodities boom, and even before, traders and investors alike have been adding fresh seams of mining stocks to their portfolios.
Unfamiliar with what they offer and how to pick them? Take a read of our thematic investing guide to the world of mining.
How you can invest in mining stocks
Digging into the mining sector
Metals and minerals are key components of modern economics and manufacturing. The world can’t turn without them.
As such, mining firms’ goods often go through periods of intense demand. We’re seeing this with right now lithium, for instance, thanks to the increasing global shift away from ICE-powered cars toward electric vehicles. Lithium is an important ingredient in battery construction, so the metal is in high demand.
Taking a wider view, the mining industry is forecast to grow worldwide at a CAGR of 7% from now until 2025, according to Research & Markets. By that time, the sector will be worth a total of approximately $2.5 trillion.
For 2021, y-o-y growth is looking particularly strong, forecast at 12.4%, giving the mining sector a value of $1.8 trillion by the year’s end.
But there’s the rub. Mining is a cyclical industry. It rises and falls according to the whims of the market. If manufacturing is down, for example, then demand for metals and minerals usually falls too.
Mining is also capital intensive. It can cost hundreds of millions, even billions, of dollars to set up new operations or to refurbish existing mines. Timing is everything. In the past, mining firms have poured money into new mines, only for them to come online just as a market downturn kicks in.
Mining stocks, therefore, require a bit of deeper digging before investors or traders start buying. In the long term, you’d need ideally be investing in miners that are capable of weathering economic storms. Strong balance sheets and low production cuts are key markets to watch for.
If you’re pursuing a short-term strategy, then you’ll need to do some more immediate research.
Gold mining stocks, for instance, will be tied in with the gold price. Prices hit record highs in August 2020, reaching over $2,000, but have subsequently retreated, although gold did crack the 100-day moving average to take prices above $1,800 on May 6th, 2021.
At the time of writing, copper is breaking all-time high records as part of a global commodities rally. Iron ore and steel are at peaking too, and aluminium continues to build on significant gains.
But while these sectors are rising, others could be looking at long term decline. Take coal stocks for instance. While coal remains an important resource in the developing world, especially China, coal’s share of global power generation is forecast to fall to 22% by 2040. That’s still quite a significant chunk, but the greener the world gets, the less it will rely on coal for power. As such, coal miners may incur substantial drops in their revenues, profits and share prices as the 21st century progresses.
Choosing mining stocks
We touched on this earlier, but two key takeaways when looking at mining stocks are:
- Low production costs – Running a mine is expensive, so “low” is a relative term here, but you should be eyeing up companies that run mines as efficiently as possible. Try and avoid those with outdated equipment or ageing extraction sites. It is not a hard and fast rule, but generally speaking, a mining firm with low production costs can stay profitable during weaker cycles.
- Strong balance sheet – A miner with a strong balance sheet will, in theory, offer competitive earnings per share. Look for those companies with investment-grade bond ratings, high borrowing capacity, manageable debt and plenty of liquidity.
Potential mining stocks for your portfolio
Canada’s Barrick Gold is one of the largest gold miners in the world and a global leader in copper production too.
Its balance sheet has been bolstered in recent years by several mine sell offs. The company instead is focussing on its “Tier One” operations. These are mines that produce more than 500,000 ounces annually with at least 10-year lifespans, delivering total cash costs per ounce in the lower half of the industry cost curve.
Feeding into this strategy is the current commodities boom with gold, and especially copper, performing strongly. Barrick’s Q1 2021 earnings, reported on May 5th, showed an 8.8% year-on-year increase for the quarter ended March 31st, totalling $2.96bn. Profit came in at $538m ($0.30 per share), against $400m ($0.22 per share) in Q1 2020.
As a gold mining stock, Barrick is the perfect example of low-operating costs combined with a strong balance sheet. But it’s also an example of how cycles can affect mining stock prices. In this case, Barrick sold less gold by volume in Q1 2021 than the previous year, but because of the increase in gold prices, it was able to turn a higher profit.
When undertaking thematic investing, don’t just limit yourself to miners and mineral extractors. Consider business areas around mining, like machinery suppliers, IT solutions and software producers, or, in the case of Australian multinational Orica, explosives.
Orica is the world’s largest commercial explosives manufacturer. The last three years have not been kind to the share price, dropping a cumulative 25% in that period.
At the start of April, Orica shares had dropped 16% y-o-y. As of May 7th, 2021, however, its share price had begun to rise once more.
This may be in line with the global mining growth forecast by Research & Markets amongst other commentators. More mining activity points towards a higher demand for mining-tooled explosives. Orica also appointed a new CEO, Sajeev Gandhi, in February 2021, which may have started to boost investor confidence.
In the long term, Orica investors are up 1.1% per year over the past five years up to 2021. Looking to the short term, the explosives mining sector is up 40% according to Simply Wall Street. Paired with expected growth in mining overall, Orica could be one to watch.
Rio Tinto is a global mining leader. With operations mining iron ore, gold, copper, diamonds, its portfolio ensures a steady supply of revenues, and its size and general management expertise helps it weather market downturns.
At the time of writing, as mentioned above, the world is experiencing a commodities boom. This has paid off for Rio Tinto, with its core businesses of copper, iron ore, and gold benefiting from the uptick in global metal prices.
In terms of shares, Rio Tinto has been building on solid gains across 2020, which are being further reinforced by strengthened commodities trading. In the six months leading up to April 23rd, RIO shares had jumped 40%, reaching around 6000p on the FTSE 100. Flash forward to May 10th, RIO was trading at approximately 6660p.
Forbes reports the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, has forecast similar advances for Rio Tinto over the next 6 months. Returns could potentially be as high as 12% across 2021.
Rio Tinto improved its dividend in February 2021 reflecting strong trading across 2020. The dividend hiked 26% to 557 cents per share after the miner added a special pay-out of 93 cents to the full-year dividend of 464 cents.
In addition to solid trading and the bump from heightened commodity prices, other aspects are at play helping reinforce RIO. It has made strides towards cutting carbon emissions, for example, and is even aiming at net-zero carbon emissions by 2050. That plays well with environmentally conscious investors.
Mining stocks – caution still advised
Remember: investing and trading comes with risk. You can make money, but you can also make substantial losses. When investing in gold mining stocks, or other mining company shares, be sure to do your due diligence. Only invest if you can afford to take any potential losses.
Thematic investing: renewable energy stocks
The world is starting to invest in renewable energy. You can too. From wind energy stocks to utility firms, we take a look at some of the key clean power stocks that could perform well in the short and long term.
How you can invest in renewable energy
The case for green power
Global governments have committed to slashing their carbon emissions. The UK and US are both gunning for net-zero CO2 emissions by 2050, while the EU has pledged to cut its own greenhouse gas output in half by 2030.
We’ve also seen countries in areas like Central America go all in on renewables, adopting mass solar, wind and hydro power for their national grids. Billions is being pumped into large-scale solar farms throughout the Middle East too with Saudi Arabia, Dubai, and Abu Dhabi leading the way.
Pressure is mounting on China to cut the use of coal-fired power stations over the next decade to meet climate goals.
The historic 2016 Paris Climate agreement was a major step towards a greener future. Under its protocols, signed by 197 nations, the world essentially pledged to limit global temperatures no more than 2°C higher than pre-industrial levels. A lofty goal, to be sure, but one that could pay dividends for investors and traders.
The investment behind this worldwide initiative is nothing short of gargantuan. Joe Biden’s presidency alone is pushing through $2 trillion worth in clean energy projects and investments. Since 2019, over $54bn has been spent by the EU and UK on wind power development alone. China’s figure is over $100bn.
Climate change is one of the biggest challenges the planet faces. Countries are likely to continue to invest in renewable energy into the 21st century.
Using Britain as an example, the UK’s renewable market is expected to grow at a CAGR of other 9% from now until 2026, and that’s just one nation amongst many.
We can also see commitment to new green power generation infrastructure by looking at capacity installation. In total, 260 GW of renewable capacity was installed in 2020 – a 50% y-o-y increase.
As such, wind energy stocks, solar, and other green power sources could be poised to benefit greatly in the short and long term. See below for some renewables stocks that could be worth adding to the portfolio of the environmentally-conscious commodities investor.
Renewable & wind energy stocks to watch
Brookfield Renewable Partners
Brookfield Renewable Partners is one of the world’s largest publicly traded clean power suppliers. It has a multi-pronged approach to renewable energy, developing and supplying solar, hydro and wind power, as well as offering energy storage functions.
The bulk of Brookfield power is purchased under long-term, fixed rate deals, giving the firm steady cash flow. It also boasts a strong balance sheet and a BBB+ bond rating from S&P – one of the highest awarded to a renewables firm.
Currently, Brookfields believes it can pump around $800m-$1bn worth of liquidity into fresh projects from now until 2025. Estimates suggest annual cash flow growth per share of 11% to 16%, supporting yearly dividend increases between 5% to 9%, making it one to watch.
Vestas Wind Systems
One the key wind energy stocks is Vestas.
It’s a bit of a behemoth when it comes to wind power, being a cornerstone turbine supplier to on and offshore projects throughout the world, including three upcoming projects in Australia totalling 420 MW. The Danish firm is also mulling over expanding its footprint in the UK’s offshore sector.
In 2020, Vestas revenues grew by an impressive 22%, with its bottom line amount too €771m. Profitability did dropped by 25%, to €750m, caused by Covid-incurred costs. Deliveries, however, increased over 2020, with Vestas delivering 17.2 GW of capacity to project sites across the world – a 34% year-on-year rise.
Vestas’ €43bn project backlog is enough to inspire major confidence. It has increased dividend by over 5% in 2021, making the company one of the few renewable energy stocks with a pay-out (although its yield is less than 1%).
NextEra Energy powers 5.5m Florida homes with a combination of wind and solar and claims to be one of the world’s largest suppliers of wind and solar-generated power.
The company has been pumping cash into its renewables subsidiary over the past decade. Under its Florida Power & Light utility provider, the firm will be piloting something new for Florida: a “green hydrogen” plant, generating clean gas production via solar power, set to go live in 2023.
What’s more, NextEra has snapped up desirable acreage throughout the Sunshine State. It has plans to develop these key sites over the next 20 years.
In the short term, NexEra’s investments should power earnings growth of at least 6% to 8% per year through 2023. The firm could also increase its dividend by about 10% annually through at least 2022.
Want to invest in renewable energy? Remember the risks
While in the long term, the world is shifting towards a cleaner, greener future for energy generation, please be aware that all investing and trading is risky.
Whether you want to add wind energy stocks to your portfolio, or you’re looking at renewable utility suppliers or solar companies, bear in mind your investment can go up or down. You can lose more money than what you started with.
Only invest or trade if you are confident you can afford any losses.
Thematic investing: Tech & and the Fourth Industrial Revolution
New technology impacts our lives daily, but what about investing. The fourth revolution is coming and may present some of the best investment opportunities for you.
Thematic investing & the Fourth Industrial Revolution
What is the Fourth Industrial Revolution?
You might be asking yourself “why should I invest my money in this sector?”. Thematic investing is, like the name suggests, picking stocks and companies to invest in based around a particular theme. In this case, we’re talking about the Fourth Industrial Revolution (4IR).
This is all about disruptive technologies; technologies that change the way we live and the way we work. That includes things like:
- Artificial Intelligence (AI)
- The Internet of Things and great device connectivity (IoT)
- Social Media
- Healthcare & genomics
- Electric vehicles (EVS)
- Cloud computing
How widespread will the 4IR be?
Unlike other industrial revolutions which tended to be local (think the UK’s massive steam-powered mills and factories in the North of England), the Fourth Industrial Revolution is well and truly global. Today’s advancements in interconnected technologies mean communicating and working with partners around the world has never been easier.
4IR looks like it could be one of the best investment opportunities because it is likely to touch all areas of the economy. When you’re using your smartphone to shop online, facetime a friend or relative, or use any app, you’re already feeling its effects.
The Covid-19 pandemic has blended with FIR to push remote working platforms like Microsoft Teams and Slack to the forefront of people’s working days. Tesla is pioneering electric vehicles, not just in personal transport, but also in developing electric trucks for transport & logistics purposes.
AI, big data and increasingly powerful computing power has also seen a huge rise in data sciences and analytics in any number of fields, for good or for ill. Burnley FC might be using AI to help scout the next generation of football players for its academy, while others have used it to sway elections – who else remembers the Cambridge Analytica scandal?
Advances in robotics is making manufacturing faster, as well as changing up warehousing operations. Ocado, the UK online grocery retailer, has pumped substantial money into proprietary warehousing robotics technology for instance.
The World Economic Forum Founder and Executive Chairman Professor Klaus Schwab, a former engineer, believes this is only just the beginning.
In his book which gave FIR its name, Professor Schwab said: “Prior industrial revolutions liberated humankind from animal power and made mass production possible and brought digital capabilities to billions. This fourth industrial revolution is fundamentally different – characterised by a range of new technologies that are combining the physical, digital and biological worlds. It is impacting all disciplines, economies and industries, and ultimately may even challenge ideas about what it means to be human,”
We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.
The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as AI, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”
So, what does this mean for people exploring thematic investing? Are there any stocks to watch out for? How can you get involved in this worldwide event from an investors’ standpoint?
Finding the best investment opportunities in the Fourth Industrial Revolution
Thematic investing is summed up by Exchange Traded Funds (ETFs). These are funds that track markets and indices based around a theme, grouping together stocks based on that theme. Investing in such a fund gives you exposure to a number of stocks at one time, without relying too much on any individual stock.
In this space, there are many ETFs available. The ARK Innovation ETFs from stellar investor Cathie Wood’s ARK are a good case study here. There are five current ARK exchange traded funds:
- ARKQ – ARK Autonomous Technology & Robotics ETF
- ARKF – ARK Fintech Innovation ETF
- ARKK – ARK Innovation ETF
- ARKW – ARK Next Generation Internet ETF
- ARKG – ARK Genomic Revolution ETF
There are other, new funds that are offering investors the chance to invest in a cluster of 4IR stocks. The VanEck Social Sentiment ETF, which is listed as BUZZ on the New York Stock Exchange, lists many tech and social media companies pioneering Fourth Industrial Revolution industries.
What’s interesting is the BUZZ ETF also uses 4IR tech to select its constituents. An AI algorithm scours the internet to find stocks that are causing the most positive buzz on social networking and news websites. Those getting praise from investors are added – provided they have a minimum market cap of $5bn.
You may also wish to invest in a single company, rather than a stock. If you were looking at 4IR thematic investing, then you’d be looking at companies involved in the sectors mentioned earlier in this article. So, for EVs, you might want to consider Tesla, e-commerce you might pick Amazon, or big data you might invest in Palantir.
A diversified portfolio would be a good approach here. Diversification means your portfolio would not lean too heavily on a single stock. With the variety of sectors falling under the 4IR umbrella, there are still ways to invest thematically without overexposing yourself in one particular direction. A mixture of ETFs and stock picks may present the best investment opportunities for you, should you decide to pursue such a strategy.
Of course, any investment strategy, requires careful analysis and research. It also comes with inherent risk. The value of your investment can go up or down. You could come away with less money than you deposited. Always do your due diligence prior to committing any capital and monitor your open positions carefully.