Investment Ideas for 2021
Max Joyston continues his introduction to investing for students by looking at stock exchange-traded funds (ETF’s) as a beginner’s route to investing.
Following on from my previous article ‘Student Investing for Beginners’ where I introduced the stock market and suggested stockbrokers to invest in – my favourite being Trading 212 – in this article I’d like to look at key investment themes to help you get started!
I will look at different stock exchange-traded funds (ETF’s) to buy. Through buying ETF’s you are buying a basket of shares or bonds. Advantages of ETF’s over picking individual stocks include the ability to diversify risk – investing in sectors or themes rather than individual stocks which tend to result in less volatile returns. It also provides simplicity with no need to learn and research market fundamentals to get stock picking right. Leading investor Warren Buffet suggests this route for beginners or those who do not want to put in the time to research.
iShares Global Clean Energy ETF
This ETF tracks the S&P global clean energy Index, providing exposure to wind, solar and other renewable energy companies across the world. Top holdings include Plug Power and Solar Edge Technologies. There are three reasons to be optimistic on renewables shares for 2021:
The Clean Energy industry should benefit from Government support – President Biden has an ambitious clean energy plan including a $2 trillion investment and many governments around the world have made zero carbon emissions pledges by 2050. With only 11% of global primary energy in 2019 coming from renewables, drastic action is needed – directly benefitting renewable firms and subsequently the clean energy ETF. One thing is for certain – a shift towards the uses of clean energy over fossil fuels. Technology is making renewables more and more affordable as the years go by, and with this industry in its infancy, this ETF has huge upside potential.
This ETF is also set to benefit from a shift in consumer choices. We are seeing increasing consumer demand for renewable energy usage. Boosted by government subsidies, dropping costs and a growing consumer preference in saving our planet, consumers are buying more electric cars and installing more solar panels. This trend is likely to continue.
We can also observe a trend to net zero portfolios. Investing in renewables is starting to be seen the morally correct choice to make with major banks pledging to reduce or reach net zero financed emissions by certain dates. To achieve this, more investments into environmental stocks will be needed. Wall Street could be set to throw money at anything green to achieve these pledges. Why not act before most of these major institutions and be early to the trend?
Invesco EQQQ Nasdaq- 100 UCITS ETF
This ETF aims to track the Nasdaq- 100 index which includes the 100 largest non-financial companies by market-capitalisation trading on the Nasdaq exchange. It is dominated by the technology sector but also includes healthcare, industrials, and consumer goods. Its top holdings are Apple, Microsoft and Amazon.
This index has seen excellent returns – rising 561% since 2010 in comparison to the S&P 500’s 310%. Just because the Nasdaq has risen faster than the S&P500 is not a good enough reason on its own to suggest this will continue, but it is important to understand why it has outpaced it. This is in part due to a relentless growth in technological advancements, and its ever-increasing participation in our everyday lives – dictating the way we work from Zoom videos over the pandemic, to our entertainment, with uses of Netflix and Facebook spiking. If you think this trend will continue, this is the ETF for you.
Furthermore, the Nasdaq has benefitted from the low interest-rate environment we have found ourselves in ever since the 2008 financial crisis. With the FED seeing interest rates remaining near-zero through to 2022, this environment is likely to continue. Low rates favour growth stocks which typically make up this ETF as growth stocks are valued on future earnings in comparison to value-stocks which are valued by strong balance sheets and the dividends they produce. Low rates signal a weakened economy and with the US economy struggling, company profits are bound to lag in 2021 and so could the S&P 500 index price.
iShares MSCI China A ETF
Naming another ETF, this one tracks an index comprised of large market-cap domestic Chinese equities. Top holdings include Kweichow Moutai (the world’s largest liquor company) and China Merchants Bank.
China’s economy has seen exponential GDP growth since 1990 and is projected to surpass the US economy over the next two decades. Its high growth projection does not translate to its stock valuations, seen as cheaper than US equivalents with lower price-to-earnings ratios – leading to many investors believing Chinese stocks will outperform their US counterparts in the next couple of years.
This ETF is also a great way to diversify risk as the Chinese stock market is not correlated to the US one. Furthermore, whilst the rest of the world struggle to deal with the coronavirus pandemic and are experiencing L or K shaped economic recoveries, China can boast a V shaped one (their economy grew 2% in 2020). Their economies are open in 2021 and can continue their exponential growth rates – this ETF provides perfect exposure to benefit from this growth.
One of the most successful investors, Warren Buffet, advises: ‘for most people, the best thing to do is to own the S&P 500 Index Fund’.
I advise a split of a third between each of the three ETF’s listed above but then again, what the hell do I know? I am just a second-year undergrad whose watched the Wolf of Wall Street a few too many times. Air on the side of caution – you must do some research yourselves. One of the most successful investors, Warren Buffet, advises: ‘for most people, the best thing to do is to own the S&P 500 Index Fund’.
This article is general information and not a recommendation to act. Please seek independent investment advice before entering into any financial transaction. Investments can go up as well as down.