How to diversify your portfolio for 2021

Portfolio diversification is something all successful traders practice. Unsure where to start? Here’s a look at how you can diversify your stocks portfolio this year.

Diversifying your portfolio

What is portfolio diversification?

Essentially, portfolio diversification is about protecting yourself against risk. The concept can also help you improve your risk adjusted returns. Those are how much profit can you potentially make against your inherent risk.

A diverse portfolio contains open positions across a range of instruments and assets. This way, you’re not overly exposed to a single type of risk. Investors and traders use a multi-asset portfolio to balance potential risks, which can help create higher returns in the long run.

Why should you diversify your portfolio?

In an ideal world, all of your trades will turn a profit. Unfortunately, that’s not always the case. If you’ve put all your eggs in one basket, and gone all out on a single asset, you’re opening yourself up to a potential major loss.

This is especially true if you’re trading CFDs. Because these use leverage, you can open a position using a fraction of the total trades value. Great, but while that can multiply your profits, it can heavily multiply your losses too.

By spreading your capital across a wide variety of assets and sectors, you can protect yourself against this. Potential losses from one area of your portfolio that is underperforming can be offset by profits from other sectors.

This is why investors and traders use a multi-asset portfolio to balance potential risks, which can help create higher returns in the long run.

Picking instruments & assets to diversify your portfolio

There is a wealth of different diversified instruments available to traders who want to create a wide-ranging portfolio.

Equities

The most obvious choice for investors are equities, i.e. shares. It’s important to select a number from across different sectors and geographies, so as to create diversification in your shares. By doing so, you can avoid historic pitfalls.

For instance, tech stocks were hammered when the dotcom bubble burst around 2000. Financial stocks were hit hard during the Great Recession of 2008, thanks to the subprime mortgage crisis. Flash forward to 2020, and hospitality and travel stocks have taken a beating due to Covid-19 pandemic induced lockdowns. Investing across a further of stocks in broad number of sectors can help you mitigate losses.

CFDs

CFDs or contracts for difference let you trade shares without owning them. Instead, you’re trading the difference between price points when the underlying asset moves up or down. The same principles that apply to stocks also apply here: trade CFDs across a number of different sectors or asset classes to mitigate against potential losses. It’s diversification 101.

ETFs

ETFs are exchanged traded funds. They are investment instruments that track a group of markets, instantly offering diversification in one package. ETFs can include a variety of assets, including shares, commodities, currencies, and bonds. They are passive instruments, so they mirror the returns of the underlying market and will not outperform it. They can help diversify your portfolio by giving exposure to numerous assets with a single position, potentially lowering risk.

Bonds

Bonds are fixed-income instruments representing a fixed amount of debt. They are most often issued by governments or corporations, paying regular interest payments until the loan the bond is drawn from is repaid. There are several different varieties of bond, so you could potentially create a diverse portfolio of just bonds.

They are generally considered a more secure investment, due to their comparative low risk. Warren Buffet is a big fan. In a 2013 letter to Berkshire Hathaway shareholders, the investment ace instructed his wife to put 10% of his $80bn fortune into government bonds as a secure way of hedging bets against the future.

Commodities

Commodities are bulk tradeable assets. Think products like oil, natural gas, metals, gold, crops, and so on. Rather than straight up buying the asset in question, you can trade futures contracts, i.e. agreements to exchange an asset for a set price on a set date, to get exposure to commodities. ETFs are often used to provide diversification in commodity trading, as they bundle together a group of commodities together, but you can also explore further by investing in companies involved in the production, mining, and selling of companies.

Asset allocation

Another important part of diversifying a portfolio if asset allocation. A good rule of thumb is not to put too much capital into any one specific sector or asset class. Again, this is all about mitigating your risk. If you had 80% of your capital tied up in a single stock, and 20% spread across multiple asset classes, then the potential losses from the single stock may completely outweigh any profits from the remainder of your portfolio. You could thus end up taking a heavy net loss.

It’s all about balance, which the example diverse portfolio below will show.

An example diversified portfolio

David Swenson, the investor in charge of overseeing Yale University in the US’ investments, is a good example to follow. According to the New York Times, David has managed to get 16.3% annualised ROI on his investments over the past 20 years of managing Yale’s endowment, worth around $20bn.

In that 20 years, we’ve seen some tough market conditions. The Great Recession, for example, put massive, massive pressure on financial markets globally. Through diversification, David’s portfolio has been able to weather such storms, and continues to deliver significant returns.

Here’s what David’s diversified portfolio looks like:

  • 30% – US stocks
  • 15% – International stocks from Developed economies
  • 5% – Emerging markets stocks
  • 20% – Real estate funds
  • 15% – Government bonds
  • 15% – Treasury inflation-protected securities

You’ll note no single choice represents an overwhelming section of David’s portfolio. Any underperforming sector’s losses will potentially be covered by the other parts of the portfolio, thus mitigating the risk factor.

How to diversify your portfolio

Step 1: Open your account

Firstly, you’ll need to create an account with Markets.com.

That way you can get access to our trading platforms and instruments.

You can use the Investment Strategy Builder to power your own investment strategy or use one of our ready-made options to invest with a little extra help.

Alternatively, use Marketsx to select and trade thousands of CFDs across commodities, shares, and more diversified instruments.

Step 2: Choose your assets

Remember, variety is the spice of life, and the same is true with portfolio diversification.

Over 2,200 CFDs are available on our platform, covering all the major asset classes.

Think about what you want to achieve, and also your commitments and budget. You may want to diversify your portfolio without investing too much. Consider your risk too. Do you have enough capital to trade comfortably?

With that in mind, consider your assets. Do you like the look of oil futures and gold? What about US technology stocks on the Nasdaq vs FTSE 100 performers from the UK? Geography and sector will all play into your decision making here, but as we’re talking about diversification, it’s an idea to take a broad brush and choose from a range.

Always do your due diligence before investing though.

Step 3: Open your positions

Use our platforms to place your first trade.

Step 4: Monitor your positions

Monitoring and evaluating your diversified portfolio very important if you want your trades and investments to succeed. This is not a one-time thing. You must keep things balanced.

Keep an eye on your investments to ensure you’re not exposing yourself to risk you are uncomfortable with.

You might have personal matters that impact your risk tolerances, such as a change in financial circumstances, or your long-term goals might change. In more extreme cases, the risk profile of your assets might change, i.e. a stock market crash.

It’s also necessary to know when to close a position. Be sure to keep up to date with any changes in market conditions, so that you know when it’s time to close your trade. Once you close one position, it’s a good idea to look at how you will readjust your portfolio.

TSLA share price: What to watch from Q1 Tesla earnings

Tesla (TSLA) is due to release first-quarter 2021 results on Monday Apr 26th, after the closing bell. Consensus estimates indicate earnings per share (EPS) of $0.79 on revenues of $9.92 billion.

The company plans to webcast the conference call with analysts after the quarterly results at 17:30 (EST).

Tesla earnings: what to watch

Autopilot

A fatal crash in Texas has thrust the safety of the company’s Autopilot system into focus. Although it is understood no one was at the wheel at the time. Autopilot is not meant to be left to control the vehicle exclusively, however there are concerns that some drivers have misunderstood the functionality of the system. Meanwhile it appears that the autopilot function was not engaged at the time of the crash. CEO Elon Musk tweeted on Monday: “Data logs recovered so far show Autopilot was not enabled & this car did not purchase FSD. Moreover, standard Autopilot would require lane lines to turn on, which this street did not have.”

Deliveries

Earlier this month Tesla reported record Q1 sales, delivering 184,800 vehicles, more than double the 88,400 reported last year and about 10k ahead of expectations.

The strong first-quarter delivery numbers could send the stock nearly 15% higher, Mizuho Securities said earlier this week as it raised its price target on Tesla to $820 from $775.

“With a strong start to the year, we see upside to the TSLA 831K consensus deliveries given proposed Biden infrastructure package with $100B in EV rebates and potential extension and expansion of EV credits,” the analyst note said.

Bitcoin

The addition of Bitcoin to the Tesla balance sheet this year portentous. The stock is down ~13% since the SEC filing on Feb 8th, but has recovered about 30% since hitting a low around $560 at the start of March to trade at $744 by the time the market opened on Thursday, Apr 22nd. Mizuho are unfazed by the crypto exposure: “TSLA regulatory credit sales and Bitcoin could be NT tailwinds, offset by near-term product/mix headwinds.”

China

Tesla has been forced to make a grovelling apology after a backlash from the state-run Chinese media following customer complaints. This is important – China is a key market for Tesla and other automakers who are seeking to tap the growing EV market in the world’s second-largest economy. Tesla has made a big investment in local production, which seems to be paying off. Tesla reported sales of $6.7bn in China last year, making it the second biggest for the firm after the US, whilst the Model 3 sedan was China’s best-selling electric vehicle in 2020. Meanwhile the Model Y is also proving popular, with production for the domestic market rising to 34,635 units in March, almost double the level in February.

Competition

The competition is getting fiercer for Tesla, and it remains the case that the chief bear thesis on the stock is that current valuations imply a massive market share gain from the traditional OEMs. Given the pace of progress they are making on the EV front, it seems hard to justify the Tesla multiple even allowing for ongoing sales growth and margin improvements.

This week’s Shanghai auto show displayed the range of competition from local Chinese rivals such as Xpeng, Nio and Geely. Mercedes recently said it will launch a range of new electric vehicles, including a battery-powered version of its S-Class saloon, in the next 18 months. Other rivals like BMW, VW and Audi have also seen their electric vehicles met with approval. For Tesla, things are only going to get tougher.

Analysts are still split on Tesla stock

Analysts are mixed on Tesla earnings.

Hedge funds remain sellers

Hedge funds are Tesla stock sellers.

 

Take a position on Tesla ahead of its earnings report and start trading now.

Deliveroo serves up cold fare as debut misfires, European equities flat

Shares in Deliveroo got off to a horrible start on the market, declining 23% in early trade to £2.95 after pricing at £3.90. It’s a very big early move lower and there will be chatter about what this says about the broader market, investor appetite for listings, the state of the UK economy etc, etc. So what does it mean? Firstly, I’m sightly surprised there is not more of a stabilisation effort here. It reflects the cautious approach big funds have shown to the stock amid concerns about working practices and governance. A lot of the big UK funds are not on side, which was failure number one. Will Shu could have avoided that by going for a premium listing and eschewing the tech stock desire for a dual-class structure that leaves power with the founder. Old City habits die hard, despite what the FCA wants to do. There could be implications for the plans by the government and Lord Hill to loosen listing rules – but probably not material. If anything it might make some want to get change faster so these kind of tech stocks can be indexed – it hardly shows off London as the place to list a tech stock. Retail may also have been put by some of the negative chatter on social media and in the press – the narrative has been negative really since it came out with the IPO. Chiefly though it reflects the fact that even pricing the IPO at the bottom of the range, Deliveroo was demanding too high a price tag for a loss-making delivery platform in a very competitive space with a questionable path to profitability. The books were covered, it was just plain mis-priced.

Talking of greed…Goldman Sachs has some serious chutzpah. The Archegos scenario went something like this: Bankers at the venerable New York institution discussed the hegde fund’s positions with fellow prime brokers on Thursday. Four of the six committed to avoiding a disorderly unwind – they would work together to avoid fire sale. GS was not one of those four and by Friday morning had lined up blocks to unload and leave others holding the bag. Nomura flagged it would lose $2bn, Credit Suisse losses could be double that. Swiftly Goldman analysts downgraded Nomura to neutral and cut their price target on CS by almost 10%. Regulators are looking at the behaviour of prime brokers. And this at a time when the US Supreme Court is hearing a case dating back to the Great Recession, in which shareholders Goldman lied when it made claims like “Integrity and honesty are at the heart of our business”.

Markets have thus far shrugged off the fallout from the fire sale. There will be more shares to be sold to get these off the books of banks, but the market seems largely unperturbed for now. What worries some is the fact that there is bound to be over-geared funds out there and this is not even a bear market.

Bonds have come back into focus as the benchmark US 10-year yield rose to 1.77%, rising 6bps to its highest since January, with the 2s10s spread up above 161bps, the widest since 2015. Rising bond yields and Yesterday’s pop dragging the Nasdaq 100 down by 0.5%. The Dow slipped 100pts from its record high, while the S&P 500 was off by 0.3%. Stocks in Europe have got off to a very muted start to trading after rising in the previous session.

Month-end, quarter-end: It’s been a decent start to the year despite some gyrations. The DAX has rallied over 9% this quarter, whilst the FTSE 100 has risen almost 5% and FTSE 250 is up 5.3%, with a gain of 3% in March. The S&P 500 is over 5% higher, whilst the small cap Russell 2000 has rallied over 11%. Hit by rising bond yields, the Nasdaq Composite has risen by just 1%, while the Nasdaq 100 of the largest tech/growth names is flat on the year. This is a sign of the kind of moves we have seen in bond yields in the context of an expected post-pandemic reopening and the reflationary backdrop as stimulus feeds through.

Meanwhile, Ryan Cohen is pulling something off. Shares of GameStop rose 7% after the company announced the appointment of Elliott Wilke as chief growth officer, after a seven-year stint with Amazon. The company also named Andrea Wolfe, former Chewy vice president of marketing, as vice president of brand development. Another Chewy alumnus, Tom Petersen, who was the vice president of merchandising, joins GameStop as vice president of merchandising. The calibre and experience of these and other recent appointments adds further credence to the belief GameStop could turn its e-commerce offering around and may support the fundamental thesis on stock. A long, long way to go however and we haven’t even spoken about execution risk.

Elsewhere, Bitcoin trades close to record highs a little under $60k this morning. Gold is testing key long-term trend support as yields have moved higher. The US dollar is off a little this morning but still very close to its Nov high. EURGBP has cracked the 0.8540 support again but is not moving decisively on the breach.

EURGBP has cracked the 0.8540 support again.

OPEC+ preview: Saudis continue to take the strain

OPEC+ meets this week after its surprise decision to extend production cuts through April. Prices enjoyed something like a Suez Canal ‘put’ but this is fading fast. A pullback in prices since the last meeting has rather vindicated OPEC’s decision to maintain production curbs. Overproduction vs cut promises at the start of the year are a factor, and OPEC will want to stress the importance of compliance. Prices declined since the March meeting amidst liquidation of speculative long positions as the pandemic worsened in Europe and lockdown restrictions were reimposed. It’s likely that given the retreat in prices OPEC+ will stay the course and Saudi Arabia will keep cutting the additional 1m bpd.

With the Saudi unilateral cut in play, Russia’s influence is not what it was a few months ago. So, while Russia will be watching for US shale output (Baker Hughes rig count has risen for 8 straight months), the Saudi aim of prioritising prices over market share ought to win out. For now US shale output is not rebounding significantly. Meanwhile, the JTC reported Tuesday that cumulative excess production of OPEC+ rose to 3m bpd through February, up from f 2.8m bpd in January.

Watch for the UAE as it has recently spent big on increasing its production capacity. Its new Murban benchmark launches this week. Also look to overproduction by Iraq and rising output from exempt countries Libya and Iran. And we will be watching for whether Russia – which is increasing output by 125,000 bpd in April from 9.18 million bpd in February – is allowed to further raise production in May.

WTI (May) showing double bottom support around the $57.40 level but the 200-period SMA on the 4hr chart proving to offer resistance near-term as it meets the $62 horizontal round number.

Investing money for beginners: a handy guide

Investing can be a great way to grow your capital. If you don’t know how to get started, check out our guide on investing money for beginners to find out what you need to know. 

Investing money for beginners 

What is investing? 

You might be asking yourself “how can I invest my money? What even is investing? Where do I begin?”.  

We know investing can be intimidating if you’re a newcomer, so let’s start with the very basics. 

Investing is the act of buying securities with the hope that their value will grow over time. Securities are a mixture of different assets which includes company shares, commodities, index funds, ETFs, and so on. We’ll cover these later in more detail.  

The ultimate goal of investing is to put together a portfolio of assets that will maximise profits over the long term while mitigating risk. 

Please note, that while investing can make you money, you can also lose capital if investments go wrong. It is risky, so please bear that in mind before you begin your investment journey. Only start if you can afford any potential losses. 

Do you need a lot of money to start investing? 

It’s a popular misconception that you need millions in the bank to be a successful investor. This isn’t true. You can start investing for £500 or under. It’s basically up to you how much capital you commit to building your portfolio. The practice is open to everyone. 

Why is investing worth it?

Whether you want to simply make money or tuck your some away for a retirement nest egg, or grow your capital for another reason, investing can be a smart move – provided you actively keep on top of your investments and manage your risks. 

At present, investing may be able to make you more money than by putting your money in a savings account. In the UK, for example, the current base rate, a benchmark rate used by lenders, is 0.1%. Banks use this to set their interest rates on savings accounts. So, at the current 0.1% rate, your annual return on every £100 would be 10p. 

With market interest rates so low and the average dividend yield on a FTSE 100 stock around the 3% mark, it’s safe to suggest that equities have higher chance of giving better returns on investment (ROI), albeit they also come with the risk of falling value. Stock markets around the world have been on strong upward trends over the last century.  

Let’s look at an example. If you had invested £100 into an S&P 500-tracking mutual fund in 1989, and reinvested the dividends, that would have grown into £1785 over 30 years to 2019. The same amount put into a UK savings account across the same period would have grown into £364. Investing in the tracking fund would have created 390% more profit.  

What can you invest in? 

When looking at investing money for beginners, it’s important to see all the different assets available. Here we’ll look at some of the most common options available to novices and seasoned pros alike.  

Stocks for beginners 

Stocks are probably the most well-known asset class. When buying a company’s shares or stock of a company, you are buying a small part of that company. That means you are now officially a shareholder. You are then entitled to capital appreciation and dividends. 

Dividends are a portion of a company’s profit paid back to investors. They’re basically a reward for keeping faith and capital invested in a business. Because they offer more pay back on top of capital appreciation, i.e. stocks rising in value, dividend stocks are often popular with investors.  

Not every company pays dividends. Sometimes they can’t afford to. Others may prefer to reinvest profits back into the business.   

Stocks for beginners can be intimidating. How do you know which to choose and which to avoid? We advise undertaking careful research when picking stocks and shares to add to your portfolio. Be aware that share prices can go down as well as up. Unexpected events outside your control can affect company performance, and thus their share price. 

Diversification can help lower your risk, but we’ll cover that later. 

Bonds 

Did you know the first ever official government bonds were issued by the Bank of England in 1693 to raise money to fund to the Nine Years War? Bonds have been around for centuries and are essentially loans given by governments or businesses to raise funds. 

Investors who buy bonds get a fixed-interest rate. This is paid either monthly or quarterly for the duration of the loan. Investors receive money back at the end of the loan period, which typically ranges from three months to 20 years. 

Because bonds sit higher in the capital structure than stocks, bondholders get paid first. That usually means bonds are a safer investment than shares. However, because this is still a loan-based investment, there is a risk the issuer, i.e. the company or government, may fail to pay back at the end of the loan period.  

It’s important to look at a bond’s risk status before adding it to your portfolio. These can be found through credit rating companies. A bond with a rating of A or above would be considered a good investment and is likely to offer inflation-beating ROI. 

Commodities 

Commodities are tangible assets. There are plenty of commodities out there, with the most common being crops and agricultural products like soybeans, oil & gas, metals, and gold. Commodities tend to be listed on special exchanges. They can also be very expensive. An oil futures contract, for example, would cover a thousand barrels of oil. With the current oil price of $61 for a barrel of WTI, you’d be paying $61,000 for a futures contract. Not something we’d recommend when discussing investing for beginners. 

Because of the price and complexity involved, novice investors should avoid physically buying commodities. Instead, you can get exposure to them in different ways. You might want to buy stocks of companies involved in commodities production, like Esso or Chevron for oil, for instance. Groups of commodities are also bundled together in some exchange traded funds (ETFs).  

ETFs 

ETFs are made up of a group of assets, such as stocks from companies working in related sectors, commodities, bonds, or a mixture of different asset classes. The assets inside an exchange traded fund help track the performance of the fund’s underlying market as closely as possible.   

By investing in an ETF, you can gain exposure to an entire sector with a single trade, instead of investing in individual stocks. Some contain thousands of assets, whereas others are much smaller and more focussed.   

ETFs are listed on exchanges unlike other funds.  

Exchange traded funds are great for keeping up with trends. For instance, the ARK series of funds group together technological pioneers in various sectors like healthcare, disruptive technologies, fintech, and automation. 

Planning your investment strategy 

An important tip for investing money for beginners is to think carefully about your goals. Instead of asking yourself “how do I invest my money?” ask yourself some of these questions below: 

  • What do you hope to achieve with investing?  
  • Where do your interests lie?  
  • Which assets interest you? 
  • How much are you willing to invest?  
  • How much can you afford to lose? 

It is recommended when investing in the stock market to hold onto assets for at least five years for to benefit from any significant ROI. 

Our Investment Strategy Builder is designed to help put together a tailored portfolio that works for you. If you’re unsure about starting your journey on your own, feel free to reach out to us and start using our Builder. We may be able to help you reach your goals. 

Investment portfolio diversification 

We often say, when picking stocks for beginners, that diversification is a good idea. Many of the most successful portfolios are comprised of lots of different asset classes. 

Portfolio diversification is all about improving risk-adjusted returns, or how much profit you can potentially make versus how much risk you take.  

A diverse portfolio contains open positions across a range of instruments and assets. This way, you’re not overly exposed to a single type of risk. Investors use multi-asset portfolios to balance potential risks, which can help create higher returns in the long run. 

David Swenson, the investor in charge of overseeing Yale University in the US’ investments, is a good example to follow. According to the New York Times, David has managed to get 16.3% annualised ROI on his investments over the past 20 years of managing Yale’s endowment, worth around $20bn. Here’s what his portfolio looks like: 

  • 30% – US stocks 
  • 15% – International stocks from Developed economies 
  • 5% – Emerging markets stocks 
  • 20% – Real estate funds 
  • 15% – Government bonds 
  • 15% – Treasury inflation-protected securities 

No single choice represents an overwhelming section of David’s portfolio. Any underperforming sector’s losses will potentially be covered by the other parts of the portfolio, thus mitigating the risk factor. 

Investing money for beginners: A final word on risk 

We hope this guide to investing for beginners has been helpful, but we have to stress the potential risks once again. Your money can go up, but it can also go down. Diversify your portfolio, monitor your investments, and do everything you can to mitigate risks if you want to be a successful investor.  

WeWork to go public via BowX SPAC

WeWork is to go public via a SPAC merger with BowX Acquisition Corp in a deal valuing the company at around $9bn. Shares in BowX (NASDAQ: rose 5% in pre-market trade to above the nominal $10 it listed at. The move will allow WeWork to trade a publicly-listed stock without the kind of scrutiny that kyboshed its abortive 2019 listing. The $9bn is substantially below the roughly $47bn discussed when it filed for its 2019 IPO.

The deal is funded by $483m in cash raised by BowX plus $800m in private investment from investors including Fidelity, BlackRock and Starwood Capital. The deal provides WeWork with about $1.3bn in capital “which will enable the company to fund its growth plans into the future”, it said. Upon completion, the company will have approximately $1.9 billion of cash on the balance sheet and total liquidity of $2.4 billion, including a $550 million senior secured notes facility to be provided by SoftBank Group.

As noted on Tuesday, WeWork announced losses of $3.2bn last year as it pitched for a SPAC listing and $1bn investment. This was a narrowing from $3.5bn burnt in 2019 because it slashed capex to the bone, cutting investment from $2.2bn to $49m. Occupancy fell to 47% from 72%, but the company expects to rebound to 90% next year, which seems optimistic. As does an expected doubling of revenues to $7bn by 2024. We looked at the leasing structure back in 2019 in some depth and it hard to see how WeWork will gain more customers as the effects of the pandemic seem set to linger. In particular, having had experience of the WeWork goldfish bowl cubicles, they are exactly the opposite of what workers will desire as they return to offices – more open plan please.

As noted on Tuesday: Investors who might have got swept up in a WeWork IPO in 2019 will be grateful the listing got pulled. Now they get another chance to get burnt by WeWork’s ambitions. SPACs mean it’s even easier to go public and I’m sure they will find some willing backers for this serviced office provider tech platform. The pandemic has radically transformed the services office landscape from 2019 but WeWork has also been forced to change for other reasons too and is more streamlined than the bloated entity it once was, but it remains overly optimistic both about its prospects and those of the market in which it operates. It’s just all too easy with a SPAC and only underlines the concerns about this craze and the misallocation of capital it is fostering.

Elsewhere, GME stock trades +6% in pre-market after yesterday’s 52% jump. Dow and S&P 500 futs suggest Wall Street will add to Thursday’s gains. European stocks are holding onto early gains and trade broadly positively. Eyes on US bank stocks after the Federal Reserve said Thursday they can accelerate dividend and buybacks after June 30th as long as they pass the latest round of stress tests. US 10s trade up at 1.675% post the 7-year auction yesterday.

In FX EURGBP is the one to watch as the pair takes a fresh look at the key 0.8540 support, with little in the way below this to block a move to an 82 handle.

Stocks look to rally but eyes on yields again

The change in tone from the White House in the last 65 days has been striking. Joe Biden held his first press conference as President yesterday and the atmosphere could not have been more different to Trump’s combative ‘you’re fake news’ and ‘you’re fake news’ pressers. The 78-year-old lacked energy but appeared relaxed; the press was respectful, happy to give him the benefit of the doubt. Mr Biden said he would run in 2024 – aged 82 – and committed to 200m vaccinations in 100 days. He wasn’t asked about the coronavirus – perhaps the one thing he most wanted to talk about since the programme of vaccinations is going so well. Across the pond things are not going so well. EU leaders failed to agree on a way to deliver extra vaccines to member states in the most need. Austria won’t back a deal that excludes them.  

 

Equity indices are on the front foot this morning after a directionless, choppy merry-go-round of a week. The major bourses edged up by around 0.5-1% in early trade, with the FTSE 100 recovering the 6,700 area and the DAX north of 14,750. The bounce comes after shares on Wall Street staged a late rally yesterday that snapped a two-day losing streak. The S&P 500 closed up 0.5% at 3,909, erasing a 0.9% intraday loss at one point. The Dow Jones Industrial Average rose 200 points, having at one stage been down almost 350pts. US futures indicate Wall Street will open higher.

 

The Suez Canal remains blocked and it could take weeks to sort out. A high tide this weekend may dislodge it sooner but no one seems to know for sure how long it could last. Shipping companies are starting to reroute LNG around the Cape of Good Hope. Caterpillar said it is facing shipment delays and may airlift parts. It’s reportedly costing $400m an hour in delays. WTI crude retested the week’s lows around the $57.30 region yesterday afternoon before rallying to $60.  

 

The US jobs market continues to show signs of strength: initial unemployment claims fell to 684,000 last week, the lowest since the start of the crisis a year ago. Nonfarm payrolls next Friday ought to show another handsome rise in new jobs in March similar to the +379K print last time. UK retail sales bounced back in February, rising 2.1%. Online rose to make up a record 36.1% of all sales but overall retail sales were down 3.7% from a year ago.  

 

Today we have US personal income (seen –7.3%), personal spending (-0.8%), PCE inflation, the Fed’s preferred gauge, (core deflator seen at 0.1%), the Michigan Consumer Sentiment survey (+83.6%) and the Bank of England’s Saunders gives a speech on “Supply and demand during and after the pandemic”. 

 

Watch yields again after another weak 7-year auction in the US. The yield on the 10-year Treasury is back above 1.66% following the auction, which again showed soft demand for the 7-year paper. The auction of $62 billion in 7-year notes took a yield of 1.3%, more than 10 basis points above February’s soft auction, whilst the bid-to-cover of 2.23 was also low.  

 

Funds and games 

 

Deliveroo has hit an ESG wall: the company lost another potential investor as L&G joined Aberdeen Standard, Aviva and M&G in saying it will not take part in the IPO next week. Funds are worried about things like the dual class share structure as well as workers’ rights, not to mention the path to profitability. It seems to be very good at delivering food and very good at burning cash. Institutional support is not necessary to get this IPO off very nicely for Shu and Amazon, but I would be questioning the sustainability of the kind of valuations an £8bn+ market cap implies. 

 

GameStop shares rallied over 50% on Thursday after their 30% decline post-earnings earlier this week. For this we can thank/blame Jefferies analysts Stephanie Wissink and Anna Glaessgen, who raised their price target on the stock to $175 a share from $15, hailing the company’s push towards online sales. “Our thesis is simply that rebalancing sales away from video game software/hardware will deliver superior gross margins,” they say, adding that “if the company “successfully sheds its retail heritage” and morphs into a digital commerce powerhouse its valuation could rival other purely online businesses. Meanwhile Wedbush raised its PT to $29 from $16 and Telsey Advisory cut its from $33 to $30. Quite where these numbers come from, I have no idea. Who needs a Monte Carlo valuation…? 

 

Talking of which…Cathie Wood’s space-focused ETF could launch as early as next week, Bloomberg reported. It comes as Wood’s own star shines a little less brightly after the flagship Innovation ETF fell by almost 30% in the last month. The ARKX fund will invest across four areas: Orbital aerospace companies that launch, make, service, or operate platforms in orbital space, which include things such as satellites and launch vehicles; Suborbital aerospace companies are similar, but not as high in the sky, and might include drones, air taxis and electric aviation vehicles; Enabling technologies companies are those that create the kit for aerospace operations, including artificial intelligence, robotics, 3D printing, materials and energy storage; Aerospace beneficiary companies are defined as those that stand to benefit from general aerospace activities, a diverse group that includes agriculture, internet access, global positioning systems (GPS), construction and imaging. Space is clearly going to be one of the most important areas for investors in the coming decade, with exposure to a broad range of technology players in this arena offering good optionality on the future of space travel and the commercial returns that it should deliver. 

Deliveroo IPO date and how to trade shares

Deliveroo has set a price range for its shares of between £3.90 and £4.60 per share, implying an estimated market capitalisation of between £7.6 billion and £8.8 billion.

The company will issue 384,615,384 shares (excluding any over-allotment shares) and expects to raise £1bn from its IPO. Even at the lowest end of the range, it would be the largest listing in London for a decade and Europe’s largest this year.

Amazon has a 15.8% stake in the company but it plans to sell 23,302,240 shares for between £90.8 million and £107.2 million, depending on where the IPO prices. Chief executive and founder Will Shu will sell 6.7m shares, leaving him a remaining stake of 6.2% of the company, worth around £500m.

The IPO will take place on Wednesday March 31st, with unconditional dealings – the point where retail investors can start trading – begins on April 7th.

Accompanying the latest update on the pricing of shares, Deliveroo said the total value of transactions (GTV) were up 121% year on year in January and February. This marks a significant acceleration from the +64% growth run rate through 2020 and indicates that the £5bn estimated GTV in 2021 could be exceeded. GTV comprises the total food basket, net of any discounts and consumer fees.

How To Trade Deliveroo Shares

Before the IPO: Our Deliveroo Grey Market is open for trading now and until the IPO takes place.

After the IPO: Go long or short on Deliveroo shares with a CFD or spread bet (UK only) account.

Open your account today to start trading.

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) 
  • E-commerce 
  • Blockchain 
  • 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. 

Cryptocurrency update: Bitcoin breaks $61,000, Tesla & BTC, and NFTs, NFTs, NFTs

Another week, another BTC high, which looks like good news for Elon Musk and Tesla. Elsewhere, NFT fever sweeps across cryptos, but will that affect prices?

Cryptocurrency update

Bitcoin new record high

Bitcoin spiked on Saturday 13th March, crossing the $60,000 barrier for the first time, and reaching above $61,500 before pulling back.

At the time of writing, Bitcoin futures were trading back around $55,000.

So, what was behind this fresh Bitcoin rocket ride? It’s our old friend institutional support. Chinese software firm Meitu is the latest in a long line of companies snapping up digital tokens for their treasuries and putting support on BTC prices.

Meitu has picked up $17.9m in Bitcoin but also bought $22m of Ether in the same transaction, which is fairly interesting – most probably because Ether is cheaper per-unit than Bitcoin, but still has a lot of institutional interest.

JPMorgan has also stated it’s launching a structured investment product featuring indirect exposure to cryptocurrency markets for its clients by the end of March. The investment bank’s structured debt product will maintain stock holdings in companies that have their own exposure to BTC. Retail and institutional investors would then have the opportunity to buy into the debt issuance with a minimum investment of $1,000 without direct BTC exposure.

There’s a long, long list of supporters of BTC has it continues to shift from outsider alternative currency to mainstream token. JPMorgan and Meitu are the latest names to join it, while Deutsche Bank and others have been there for a couple of months now.

Another factor that could be playing into a new BTC rally is Joe Biden’s mega stimulus package. $1.9 trillion in extra stimulus is coming to the US economy with $1,400 going to US citizens. Could some of that be pumped into retail cryptocurrency investment?

At its highest, Bitcoin’s market cap reached $1.14 trillion – more than the entire GDP of Indonesia or Mexico. Volatility is the fundamental characteristic of Bitcoin, however. After its most recent rally, when it smashed through the $50,000 barrier, BTC retracted down to $33,000 before rising again. It’s a heady rollercoaster ride, but one that encourages shorting. Some sort of stability would be nice.

While institutions are jumping aboard the Bitcoin/crypto train, regulatory reform is in the break car, desperately trying to put a slowdown on the market before investors go off the tracks. India, for instance, is proposing a strict cryptocurrency ban, wanting to prohibit “possession, issuance, mining, trading and transferring crypto-assets”, according to Reuters.

This regulatory tug of war will be ongoing, but it doesn’t really seem like it’s going to slow BTC volatility in the short-term.

Tesla makes big BTC profit

The shadow of Elon Musk looms large over the cryptocurrency world. The man with the itchy Twitter finger’s influence on price movements and crypto legitimacy has been seemingly all pervasive in recent months. When news came his carmaker Tesla had sunk $1.5bn in BTC in its last financial update at the start of February, it caused a stir. Is that a smart move for a EV manufacturer to be exploring? Apparently so.

With BTC breaking over $61,000, Tesla’s move to fill its coffers with digital coinage looked like a good one.  At that high, Tesla was up $1.2bn on its BTC trade.

Companies storing spare cash in securities like Treasury bills is nothing new. But Treasury bills are usually nowhere near as volatile as cryptocurrencies. It’s hard to argue with the results, but there are some lingering questions.

The $1.2bn crypto profit is more than Tesla has made from selling cars across the last decade, nominally the core mission of Tesla as a company. Of course, launching a new car marque into a congest marketplace takes massive overheads. You’ve got spend money to make money (and cars), but the ratio of investment to profit from digital tokens Tesla just showed versus its central business function is an interesting one.

Will Tesla move more of its capital into digital currencies? How will this affect its core business? What will the market think?

Tesla’s shares dropped by 20% after its BTC play was revealed, falling from $863 per share to around $694 at current levels, suggesting it doesn’t think too kindly on Tesla doing this. Musk has essentially tied Tesla and BTC together at the hip with such a move, which may have caused investors to question Tesla’s ongoing growth strategy.

In the short-term, it has paid off, but is it really sustainable for Tesla to pour money into BTC – especially with rivals like Lucid Motors gaining traction, and legacy car manufacturers making in roads into the EV segment. It’s one to watch for the future.

Could NFT upswing lead to higher crypto prices?

NFTs are getting more headlines recently, following a $69m purchase of a digital graphic from Designer Mike Winkleman, aka Beeple, by the pseudonymous founder of NFT-fund MetaPurse MetaKovan.

An NFT is a non-fungible token, a not-so-sexy name for assets sold on blockchains. This includes artwork, music, digital collectibles, virtual items for video games like weapons or skins, and even tokenised real-world assets like designer trainers, cars and property.

Everyone is getting in the act with Kings of Leon releasing their latest album via NFTs and Elon Musk’s (who else?) Wife Grimes selling $6m worth of artworks on blockchains via NFTs.

Non-fungible tokens are bought with cryptocurrency. For instance, MetaKovan picked up Beeple’s “Everdays” with $69m worth of ETH.

NFTs are valuable because they prove an artwork’s scarcity. “Everdays” is a one-off, thus its value was huge – although that is partly tied into a broader discussion on the value of art, which we won’t dive into here.

Depending on the type of NFT sold, the purchaser would become the sole owner. So, using “Everdays” as an example, MetaKovan is that artwork’s sole owner.

In the case of the Kings of Leon release, buying it as an NFT would mean you own a digital copy of the album, like you would if you were to buy it off iTunes or pick up a physical copy.

Cryptocurrency update: ETH spike predicted, Goldman lead forecasts merger & UNI surges

In this cryptocurrency update, Goldman Sachs predicts big things ahead for digital currencies, ETH could rise with a new network upgrade, and UNI breaks into the cryptocurrency top ten.

Cryptocurrency update

Is ETH about to soar?

A change in the way ETH tokens are processed on the Ethereum blockchain could feed into higher prices for the crypto going forward.

A proposal, called EIP 1559, has been accepted by the network’s developers that will increase the scarcity of ETH tokens. Under the change, the platform will burn a small amount of Ether every time that the currency is used to pay gas fees on a transaction. Gas fees are small fees applied whenever a transaction is processed on the Ethereum blockchain.

As this process involves destroying ETH tokens, analysts believe the resulting reduction in supply will support the price of ETH. Less tokens, coupled with growing demand, means more scarcity, and could mean higher prices.

Higher demand comes from the fact the new proposal will also go someway towards standardising gas fees. At present, Ethereum users feel there is too much guesswork on gas fees. Many turn to external trackers to find out daily fee levels. With more clarity, more users could start using the Ethereum blockchain for their blockchain needs.

ETH has already made considerable gains across the last 12 months – even outpacing Bitcoin in terms of growth. This time last year, ETH was trading at around $200; now, it is over $1,700. In percentage terms, that’s growth of 750%, compared against Bitcoin’s 530%.

EIP 1559 is scheduled to go live in either July or August when it will be bundled into a wider Ethereum network upgrade. It’s possible that the crypto may enjoy further price increases in the run up to EIP 1559’s release and after too, should its implementation go smoothly.

Goldman digital lead says more cryptocurrency infrastructure mergers are coming

Matt McDermott, Global Head of Digital Assets for Goldman Sachs Global Markets Division, has said that banks and institutions like Goldman may be under more pressure to grow their crypto businesses, highlighting mergers and acquisitions as the way to do it.

Speak in a company podcast, McDermott said: “This is a fast-evolving landscape where the crypto incumbents have certainly made huge progress over the last couple of years. There is an expectation from clients now that the incumbent banks will develop their offerings to satisfy that demand. And so, certainly anticipate a certain amount of consolidation across that space.”

Goldman has already pledged to update its cryptocurrency trading desk offering and has stated it will start offering CME bitcoin futures and non-deliverables, in a bid to disseminate “Bitcoin content” to institutional clients.

Institutional support for BTC is rapidly expanding; from Elon Musk’s Tesla investing in $1.5bn of the crypto, to Deutsche Bank creating new digital currency assets and services. This is only a very small slice of the institutional-level support cryptos are beginning to enjoy. Expect a lot more in the future.

According to a recent Goldman Survey, 40% of Goldman’s institutional clients already have exposure to crypto, either through holding the asset directly, derivatives or securities products. A further 32% were most interested in prime brokerage for physical or spot to gain exposure to cryptocurrencies.

“Talking to clients, they’re much clearer on why they want to invest. Really what they’re interested in is broader market behaviour. And really identifying what are the most efficient ways for them to get exposure and to think about hedging,” McDermott said.

“In terms of kind of institutional demand, we have seen no signs of that abating,” he said.

UNI breaks into crypto top ten

UNI, the native token for decentralised exchange and app UniSwap, has enjoyed a rally in the last week.

According to Messari rankings, UNI is now the 8th largest cryptocurrency in the world by market cap. Following last week’s 50% price increase, UNI is worth a total of $17.7bn at the time of writing.

This continues a major spike observed across March 2021. Between March 4th and March 5th, UNI’s market cap grew from $8.8bn to $14.7bn. UNI is also now the only Decentralised Finance (deFi) application (dApp) token to make it into the top ten.

UNI is also ranked as the second-largest Ethereum-based asset currently in existence, with Tether Dollars (USDT) holding the place as the largest Ethereum-based asset in the world.

Record increases in UniSwap trading value is probably the key factor behind UNI’s surge. Each week in the month of February brought with it a new all-time high for trading volume on the exchange, ending the month with a record-breaking $31.9 billion in trading volume.

An upgrade to the UniSwap platform, “V3” is on its way too, which may have also contributed to the impressive market cap rise.

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