Seasoned investors often approach the markets with a long-term view, using short- and medium-term volatility to buy into the themes they believe will pan out over many years. While identifying these trends is difficult, tuning out the noise can reveal what’s to come, possibly resulting in significant gains.
As we move through the second quarter of 2022, let’s highlight five of the most popular investment trends right now — looking at several themes that show significant potential for growth.
1. Inflation protection
Americans are paying more for everyday items as inflation hovers near its highest level since 1981, according to Labor Department data. With a rapid surge in the cost of living, investors have turned to inflationary hedges like gold to keep up with rising prices.
Gold has historically been a safe-haven asset for investors because its value tends to rise along with inflation. In addition, in times of political unrest or heightened volatility, bullion acts as a portfolio diversifier because of its low correlation to the stock market.
For example, during the financial crisis in 2008, gold prices rose 2 percent while the S&P 500 index plunged 37 percent.
There are multiple ways to gain exposure to gold, from directly purchasing the metal to more indirect methods like owning shares of public mining companies. However, the most efficient approach for most retail investors is likely to invest in gold exchange-traded funds (ETFs).
Popular gold funds like the SPDR Gold Trust (GLD) are investments backed in physical gold, and its performance is highly correlated to gold spot prices. Others like the VanEck Vectors Gold Miners ETF (GDX) track a basket of public mining companies. You can also choose to make a similar investment in silver.
Apart from gold and other precious metals, investors can stay protected against inflation by considering assets like Treasury inflation-protected securities (TIPS) or other savings bonds like I Bonds, which currently have a yield north of 7 percent.
2. ESG investing
The disruption and uncertainty caused by the global pandemic ignited a renewed interest from investors, consumers and employees to favor those corporations that prioritize environmental, social and governance (ESG) causes. Beyond profits, these enterprises have agreed to focus on long-term value creation over short-term gains.
And those choices appear to be paying off. According to Morningstar, global demand for sustainable investments hit a record in 2021, reaching $2.7 trillion.
By creating societal value through sustainable practices, shares of these corporations also tend to be more resilient than their peers.
For example, research from Bank of America shows that shares of corporations with solid ESG practices tend to be less volatile, have higher three-year returns, and are less likely to declare bankruptcy.
One way to invest in socially conscious companies is through ETFs like the iShares MSCI USA ESG Select ETF (SUSA), which tracks an index of highly rated ESG companies. Some of the names on the list include American Express (AXP), Accenture (ACN), Disney (DIS), Home Depot (HD) and Hasbro (HAS). Other options include the iShares Global Clean Energy ETF (ICLN) or the SPDR S&P 500 ESG ETF (EFIV).
Purpose-led organizations hope to set the pace for a better future. By focusing their efforts on reducing carbon emissions, minimizing waste, advancing social issues, and fostering equality, equity and inclusion, among other noble causes, these corporations are redefining the role of business in society.
3. Artificial intelligence
The technological revolution has brought artificial intelligence (AI) to the forefront of society, making a reality of what was previously only imagined. With AI disrupting many aspects of our lives, the new technology could become the most influential industry of the century.
At its core, AI attempts to replicate human intelligence in a computer or machine with faster speed and greater accuracy. So as these systems become more intelligent, AI becomes more powerful, with its uses and applications impacting nearly every industry.
Analysts at International Data Corporation (IDC), a provider of market intelligence, predict that by 2024, worldwide revenues for the AI market could top $500 billion, logging a five-year annual compound growth rate of 17.5 percent.
AI is everywhere. Whether it’s Apple (AAPL) using facial recognition software to unlock iPhones, companies like Samsung (SSNLF) building smart appliances such as refrigerators and washing machines, or robo-advisors leveraging automated algorithms to optimize investments, the technology is all around us.
For most retail investors, there’s a chance you already have exposure to AI, as many large U.S. public companies are either already using it or are actively looking to invest in the technology. But for those seeking more direct exposure, some notable names include Intuitive Surgical (ISRG), Upstart Holdings (UPST), Intel (INTC), Trimble (TRMB) and Brooks Automation (BRKS).
4. The metaverse
The future of the internet includes virtual worlds where humans can interact without the confines of physical space. And according to analysts’ estimates, these virtual environments could be the next big investment opportunity.
Thanks to greater computing power, faster internet connectivity, and other technological advancements, tech companies are developing ecosystems where people can shop, play, exercise, learn, and experience most life activities digitally. Facebook, for example, has rebranded its name as “Meta” (FB) and plans to invest billions in its ambition to build the metaverse.
As audiences for these virtual environments grow, so does the interest from corporations trying to capitalize on this trend. Art gallery Sotheby’s (BID), for example, announced last year that non-fungible tokens (NFT) sales reached $100 million and began operating Sotheby’s Metaverse, a new virtual gallery in Decentraland, a 3D virtual world. Similarly, Nike recently announced the expansion of its digital footprint through the acquisition of RTFKT, a virtual sneaker company.
Likewise, Microsoft (MSFT) has set in motion the acquisition of Activision Blizzard for $68.7 billion in the most significant gaming deal in history — and a big bet on the expansion of the metaverse.
Among other investment opportunities, some analysts point to NVIDIA (NVDA), a semiconductor company that powers computer graphics, as a potential winner from the growth of the metaverse. In addition, Autodesk (ADSK) and Unity Software (U), software makers that allow architects and designers to create 3D models, and cloud-technology provider Fastly (FSLY) are also top names in the space.
For those looking for broader exposure, Roundhill Ball Metaverse ETF (META) offers an efficient and easy way to invest in metaverse-specific stocks.
5. Investing in music
The music industry is entering a new golden age with technology disrupting how listeners consume music, from concerts in virtual reality to accessing any song at any time. As listeners tune in, Goldman Sachs estimates that music revenue could reach $131 billion by 2030, supported by a spike in music streaming across the globe.
A combination of broader access to bandwidth and rapid innovation has enabled brands such as Apple, Spotify (SPOT) and YouTube (GOOG) to redefine the music experience.
For musicians, streaming platforms hold a wealth of information on listeners’ habits, guiding emerging artists in deciding tour locations, pitching new songs to producers, gathering demographics about their audience, and even raising money for new projects. Spotify alone hosts over 380 million listeners in 184 markets. These efforts create additional revenue streams in royalties for music owners such as Warner Music (WMG).
And then there are live-event companies like Live Nation Entertainment (LYV), which owns Ticketmaster. Others like Madison Square Garden Sports (MSGS) and Eventbrite (EB) could also benefit from an uptick in attendance for in-person events.
Beyond investing in public companies, some investors have turned to crowdfunding companies like SongVest and Royalty Exchange to buy and sell music royalties at auction. These fintech companies estimate the value of a music catalog, determine the number of units available, and create a listing through public offerings. Investors then receive quarterly or biannual payments for their investments, similar to stock dividends.
For those more in tune with the industry, memorabilia and even musical instruments, such as vintage guitars and pianos, become collectors’ items over time, sometimes fetching tens of thousands of dollars (or more).
In short, some investors believe the music industry could become the next big hit for their portfolios in the years ahead.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.