Investment Opportunities 2023
14 December 2022
The long run is the most important thing
When I reflect on the last 18 months, it’s been a time when the pendulum of investors’ emotions has swung from a fear of missing out to hopelessness. As inflation surged and a tragic war broke out in Europe, equity and fixed- income asset prices declined as risk aversion rose.
Yet, in the process, asset prices have retreated to more reasonable valuations. What matters at times like this is the long run, and in the long run the stock prices of companies trading at today’s levels are likely to get more valuable, just as robust companies are likely to continue to pay the coupons on their bonds.
That means 2023 looks like the best time for a while to invest for the long-term, buying the diversified spread of investments that’s likely to form the bedrock of your portfolio for many years to come. Indeed, following the recent inflation and geopolitical shocks, investments made today seem likely to prosper over time. Of course, there are no guarantees in investing but it’s a general rule among the most respected investors that the best time to buy is when others are selling.
What’s more, the new year might see a continuation of the tenuous recent improvement in the mood of financial markets. Indeed, inflation appears to be easing a little in the United States and Europe, just as the risk of the war in Ukraine spreading to a regional conflict seems to be reducing.
So, what to buy? Among VanEck’s ETFs, the current strongest current inflows are into the VanEck Morningstar Developed Markets Dividend Leaders ETF, VanEck Emerging Markets Local Currency Bonds ETF and the VanEck Rare Earth and Strategic Metals ETF*. Investors are seeking out high income from dividend stocks and emerging markets bonds, as well as the exceptionally high returns delivered when demand for commodities is not met by supply.
Diversification is the only free lunch
Yet the recent turmoil in stock and bond markets has served as a reminder of the power of diversification – known as the investor’s only free lunch. For investors taking advantage of today’s risk aversion for investing long term, the best way to do so is to build a diversified portfolio that spreads risk across a range of investments. Doing so could reduce the volatility of your investment portfolio, potentially smoothing its returns over time
Known for democratizing investing, ETFs are an increasingly popular way for investors to build diversified portfolios. With their relatively low fees and a large range of investment options, they bring the kind of diversified portfolios that once only large institutional investors could achieve in reach of the retail investor.
I always describe a pyramid when I am asked how to structure a long-term investment portfolio. At its base sits the foundation of your portfolio – a highly diversified mix of stocks, bonds and real estate. In the middle, there is normally a smaller allocation to income investments. And, at the apex, you can add even smaller allocations to themes shaping our society, such as sustainability and technology, which might be higher risk but equally offer the chance of higher performance
Figure 1: A pyramid portfolio
ETFs for a ‘pyramid’ portfolio
At VanEck, we have ETFs for all layers. At the pyramid base, our multi-asset ETFs are spread across stocks, bonds and real estate. For the middle layer, the VanEck Morningstar Developed Markets Dividend Leaders ETF is far and away the best performer in its peer group over the year to the end of November, having returned approximately 15%* whereas few of its competitors have even generated positive returns. Lastly, for the top layers, you could choose the VanEck Hydrogen Economy ETF as a play on the energy transition, our Future of Food ETF for alternative meat and sustainable nutrition, our Semiconductor ETF to benefit from the digital revolution or our Rare Earth and Strategic Metals ETF because these commodities are essential for the manufacture of many modern technologies*.
Do note that these ETFs entail specific risks, such as sector concentration risk, the risk of investing in smaller companies, technology risk or emerging markets risk. Investors must always read the legal documentation before investing.
Tumultuous times remind us of perpetual truths. As I look forward to 2023, I cannot make any short-term predictions about the direction of markets with great certainty. But I can say that over the long term, the moments when risk aversion rules have rarely proved a bad time to buy.
* Past performance is not guarantee of future returns.
Sources: Bloomberg, Illumina.
VanEck Asset Management B.V., the management company of VanEck Hydrogen Economy UCITS ETF, VanEck Semiconductor UCITS ETF, VanEck J.P. Morgan EM Local Currency Bond UCITS ETF, VanEck Rare Earth and Strategic Metals UCITS ETF (the "ETFs"), sub-funds of VanEck UCITS ETFs plc, a UCITS management company incorporated under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETFs are registered with the Central Bank of Ireland and track equity indices.
VanEck Asset Management B.V., the management company of VanEck Morningstar Developed Markets Dividend Leaders UCITS ETF (the "ETF") and VanEck Multi-Asset Conservative Allocation UCITS ETF (the "ETFs") sub-funds of VanEck ETFs N.V., a UCITS management company incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). The ETFs are registered with the AFM and track equity indices. The value of the ETF’s assets may fluctuate heavily as a result of the investment strategy. If the underlying index falls in value, the ETFs will also lose value.
Investors must read the sales prospectus and key investor information before investing in a fund. These are available in English and the KIIDs in certain other languages as applicable and can be obtained free of charge at www.vaneck.com, from the Management Company or from the following local information agents:
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FOR INVESTORS IN SWITZERLAND: A copy of the latest prospectus, the Articles, the Key Investor Information Document, the annual report and semi-annual report can be found on our website www.vaneck.com or can be obtained free of charge from the representative in Switzerland: First Independent Fund Services Ltd, Klausstrasse 33, CH-8008 Zurich, Switzerland. Swiss paying agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zürich.
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This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.
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13 October 2022
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