We being to the fore key technology trends that will impact your investment perspectives in the year ahead.
Investing can be a deeply personal thing tied to your life goals, with your life stage dictates your appetite for risk. Maybe you’re looking to grow a little nest egg for retirement, or saving up for that new home or racy car, or just investing to build wealth. Whatever your personal objectives, perhaps this is the time to revisit your investment strategy, with 2023 on the horizon.
The investment trends we have highlighted below can act as inspiration for your own plans. And while they represent a risk and an opportunity, they can help set up your investment roadmap for the financial journey ahead. After all, while the global markets have navigated a bit of turbulence, some clouds have a silver lining. You just have to look hard enough for it.
Real Estate, the Real McCoy
Real estate is an asset class whose allure has never faded away for mainstream investors. But to be honest, investing in it remains out of reach for the average Indian, particularly in the major metros where prices have skyrocketed in recent years.
Enter Real Estate Investment Trusts (REITs). This is not a new asset class, but one with a lot of potential for growth in the months and years to come. By pooling resources and then investing it in real estate, REITs help investors earn capital appreciation and dividends.
REITs were red-hot in 2021, and saw some cooling-off in 2022, one can expect it to rebound in importance as the global economy starts to find its feet again.
Going aggressive on passive investing
For years, a debate has raged around active versus passive investing.
While active investing tends to focus on individual securities with fund managers looking to outperform indices, passive strategies generally involve purchasing shares of index funds or groups of stocks, such as ETFs.
Globally, passive investments have had a strong showing, with more than 80% of active funds have underperformed their benchmarks globally.
That underperformance, along with lower costs, has pushed the investors towards low-cost passive opportunities like Exchange Traded Funds (ETFs).
In India, passive assets under management have witnessed a CAGR growth of over 55% over the last 5 years, and have almost doubled over the past year. Don’t pass up this passive opportunity without giving it a second look.
Go Green with ESG funds
With companies putting ESG at the very top of their agenda, in the boardroom or in action, it makes sense to consider investing in ESG funds to diversify their portfolio.
Global ESG equity products nearly doubled in assets from 2019 to 2021, and most outperformed, with a three-year median return of 8.5%, until 2022. This meant that they were outperforming the benchmark by 2.3 percentage points, and the broader global large cap equity peer group by 1.2 percentage points.
2022 hasn’t been as much of a success, by those standards. In the second quarter this year, the median return for the global ESG equity peer group was -15.6%, 6 basis points better than the MSCI ACWI index. For the first half of 2022, 78% underperformed the benchmark, with the median underperforming by 2.5 percentage points. However, this leaves headroom for growth, and investors putting their faith in these funds are those looking to build a sustainable portfolio, and one that resonates with their world view. That they will grow in years to come is a tertiary benefit.
The Rise of Robo-Advisors
Robo-advisors are one of the fastest-growing trends in investment management. And the reasons for this are clear; not everyone can afford the services of a dedicated wealth or fund manager, so younger clients or those with smaller portfolios turn to it as a cheaper alternative.
Experts estimate that robo-advisor AUM growth will continue to increase, due to low management fees and sound investing strategy. Statistica estimates $1.16 trillion US robo-advisor assets under management in 2022. With a projected annual growth rate of 13.5%, digitally managed assets in the US should reach $2.19 trillion by 2027. Even so, this is a mere fraction of the $58 trillion wealth management market, leaving a lot of room for growth.
Bloomberg Intelligence predicts that over the next ten years, millennials will control about 5x more wealth than they have today. And with a lot of them turning to robo-advisors, it could well be an age that witnesses the rise of the machines. We, for one, welcome our robot financial advisory overlords.