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by E. Eder and C. Platt, Euro am Sonntag
C.orona has turned our lives upside down and brought us a number of changes. But many of the things that currently appear to us to be a change would, in the opinion of many experts, have come sooner or later anyway. Experts consider the pandemic to be merely an accelerator of trends that emerged before the crisis.
The digitalization For example, it had already started its triumphant advance, now Covid-19 has ensured that, for example, mobile working, video conferencing and learning on the computer in everyday life. The stationary retail trade struggled with sales losses even before Corona and led a battle against online retail. Now, e-commerce has received a major boost, which it would probably have been slower to achieve without a pandemic, but which would definitely have come in the end.
This is also reflected in the financial markets. In the past few months, the spotlight has been on a number of topics that have aroused great interest among investors in previous years, but not to the extent seen recently. Some of these hot topics relate to entire industries, others to individual countries – and some to very specific industries.
uro am Sonntag presents the following five investment segments in demand. These include information technology with its various shades, gold mines, renewable energies, China and healthcare. Shares from these areas have performed exceptionally well in the current year. The returns that have been achieved since the beginning of January range from 17 to 39 percent. In order to determine this value development, stock market indices were used as a basis, which reflect the respective topic fairly broadly or address it appropriately.
Anyone who wants to implement special investment ideas like the ones mentioned can now fall back on a large selection of products. It has never been so easy as it is today to include even niche topics in your own portfolio with a good spread. Not only actively managed funds with a special focus are available, but also ETFs – passive funds that map a stock market index one to one.
The number of themed ETFs has increased significantly in recent years. There are now 88 such products that currently manage around three times as much capital as they did three years ago. In addition, there are 242 index funds that can be used to enter specific sectors, and several hundred ETFs for individual countries.
The biggest advantage of ETFs is their low cost. Because there is no active management, the providers only charge a few tenths of a percent fee per year. These are particularly low for the common indices. ETFs on price barometers such as DAX, Euro Stoxx 50 or S & P 500 are already available for less than 0.2 percent per annum. Investors in ETFs that pursue special concepts have to dig a little deeper into their pockets. But even exotic topics can normally be implemented for a maximum of 0.7 percent per year. Actively managed equity funds, on the other hand, rarely cost less than 1.5 percent a year, and even more than two percent are accessed regularly.
Uro recommends a suitable ETF for each of the five hot topics. In three cases, these are products that have been doing extremely well in 2020 so far. The editorial team has selected index funds for two areas that cover a facet in which they see potential to catch up. Their performance therefore differs significantly from that of the overarching topic.
If several products are available for an investment segment, the editorial team decided on a specific one based on various criteria. In principle, on the one hand, the highest possible wealth is advantageous. This reduces the risk that an ETF will be closed because it contains too little money and is therefore unprofitable for the provider. On the other hand, the fee was decisive: cheaper funds could collect plus points. In addition, the editorial team preferred physically replicating ETFs that buy all the stocks in the index shown in their own portfolio.
The presented index funds suggest high growth. Because the hot topics of 2020 should remain promising. However, investors should be aware that they are pursuing very specific investment ideas. As a rule, niche ETFs are therefore only suitable for admixture.
In addition, the editors present the most promising individual shares for each of the five hot topics, which offers even more opportunities for higher profits, but also involves more risk.
Don’t just look at the big ones
Technology stocks are the winners of the corona crisis. This can be seen in the US technology index Nasdaq 100, which has outstripped the S&P 500 since the bottom of the stock market crash in mid-March.
The reason for this are the giants Apple, Microsoft, Amazon, Facebook and Alphabet, which now account for almost half of the capitalization of the Nasdaq 100 and will have top performance in 2020. The tech giants’ success isn’t just down to the pandemic. “Good business models, innovative developments and excellent financial management have contributed much more to today’s market positions,” writes Frst Fugger Privatbank.
Tech values are considered defensive
The big techs are now highly valued and the upside potential should be limited. Less well-known tech stocks, on the other hand, offer more opportunities and are no longer as risky as they used to be. For investors, since the beginning of the Corona crisis, these have been as defensive as they were formerly utility stocks. Software and IT services in particular ensure lasting customer relationships, a recurring inflow of money and resistance to crises.
Companies, employees and consumers cannot or do not want to live without their products and services – regardless of whether it is about working, shopping, learning or streaming at home. Corona has accelerated that even further. Developments that would have taken several years have now occurred in a few months. This means that the majority of companies and private individuals will invest more in IT in the future.
However, without security, everything else is worthless. With the increase in home offices, the number of hacker attacks has also increased massively, for example with the aim of spying on sensitive company data or cheating IT users out of their money.
Cybersecurity is attractive
This brings antivirus programs, firewalls, encryption of data and e-mails, but also the backup and restoration of data into focus. Companies in these business areas are therefore attractive to investors. In the future, it should be possible to earn more with this than with the shares of the tech giants.
With the Digital Security ETF from iShares, investors can get involved in a good 100 IT security companies. The regional focus is on the USA and Japan.
Invest like Warren Buffett
The operators of gold mines are currently making high profits and are doing better than they have been for a long time. Debt has been reduced significantly in recent years. In addition, many unprofitable mines were closed and written off when the price of gold was low and for a long time only stood at around US $ 1,200 an ounce.
“These previously written-off projects represent hidden values in the balance sheets and could suddenly be profitably mined again with the high gold price,” says Hannes Huster, precious metal analyst at the information service “Der Goldreport”.
Gold reserves are shrinking
The industry has been struggling with shrinking gold reserves for years. Too little capital has been invested in exploration and the average gold content of the deposits is trending downwards.
In addition, the mining companies have greatly reduced their costs. This was mainly due to the lower oil price, which accounts for a large part of production costs. As the gold price climbed at the same time, yields increased significantly.
As a result, large corporations are sitting on high levels of cash that they could use for takeovers. Due to the limited travel options as a result of Corona, there are almost no takeovers. “That is likely to change with the end of the pandemic and the takeover fantasy could then drive the prices of gold mining stocks,” says Huster.
The high cash flow may also have been one of the reasons why Warren Buffett invested in the industry giant Barrick Gold, despite the fact that he has always rejected gold stocks in the past. Apparently he now sees the high intrinsic value of both Barrick and the entire sector.
Dividends are likely to rise
In addition to acquisitions, the high level of liquidity should also be reflected in higher dividends in the future, which Buffett values very much. The star investor also likes low valuations. They are given.
The share prices of the large gold mines are currently even lower than they were during the financial crisis. With the Van Eck ETF, which includes many large gold mining companies, investors can easily get involved in the sector.
Beneficiaries of environmental protection
D.he climate change was the big topic in 2019 – not only politically and socially, but also in the financial sector and the economy. The topic is currently taking up less space in the media. But it continues to play a major role with investors.
The pandemic, including the stock market crash in February and March, showed that companies that are pioneers in matters of sustainability are more crisis-resistant than normal corporations. According to an analysis by the fund company DWS, stocks that benefit from efforts to improve climate protection performed much better between the beginning of January and the end of July than stocks for which increasing climate protection poses a risk. While the pioneers beat the MSCI All Country World Index by 41 percent, the followers lagged 22 percent behind.
The renewable energy sector is a prime example of industries that benefit from the fight against climate change. This includes companies that earn their money with solar, wind and water energy as well as fuel cells. The Israeli manufacturer of photovoltaic systems SolarEdge Technologies and the Danish wind turbine manufacturer Vestas are among the most important corporations worldwide. A major player in the hydropower segment is the largest combined energy producer and supplier in Brazil, Companhia Energtica de Minas Gerais.
Investors can get these stocks and 27 others into their custody account with the iShares Global Clean Energy. The ETF contains the largest companies in the renewable energy sector worldwide. Both producers of clean energy and manufacturers of equipment and technology are represented in the underlying index.
Alternatives to burning coal, oil and natural gas will remain in demand in the future. The importance of the industry will increase, although investors will have to beware of exaggerations in the hype surrounding individual companies.
The Middle Kingdom makes a comeback
With party pictures from Wuhan, China shows the whole world how well it has Covid-19 under control. “The Chinese measures against the epidemic were drastic, but they are demonstrably effective,” says Gerhard Heinrich, an emerging market analyst at the information service Emerging Markets Trader.
While the rest of the world is still in the middle of the fight against the virus, China’s economy is recovering vigorously. In the second quarter, GDP grew by 3.2 percent year-on-year. Foreign trade increased by 3.4 percent in July and exports by 7.2 percent. The upswing is being driven by consumption and the increase in industrial production and services. The latest figures from August show that the purchasing managers’ index for the service sector has climbed to 55.2, which points to a strong cyclical comeback.
Recovery with risks
“The recovery in China is exceeding expectations,” says Thomas Gitzel, chief economist at Liechtenstein’s VP Bank. “Even this fast-growing country cannot completely shake off the corona crisis,” he warns nonetheless. Many companies are fighting for survival and millions of people are unemployed. The crisis in the world economy and the trade disputes with the USA are also difficult to calculate. Last but not least, there is the risk of a second corona wave in winter and the Hong Kong problem.
The CSI 300 share index in Shanghai, where almost only nationals are allowed to buy, has risen sharply. Recently, some technology stocks were listed there, some of which achieved price gains of 200 percent or more when listed. This indicates an exaggerated euphoria.
HSCEI is lagging behind
In contrast, the Hong Kong-listed Hang Seng China Enterprise Index, which contains large Chinese companies that are primarily active in China but are listed in Hong Kong, has barely increased. “In Hong Kong only heavyweights from the digital sector were in demand in the last few months; however, there was no really broad market upswing that would reflect China’s cyclical economic recovery,” says Heinrich as a reason for potential to catch up.
Especially since the shares, which are also accessible to foreign investors, are valued far lower than those in China. With the ETF from Lyxor, investors are betting on the HSCEI to catch up.
D.he pandemic has fueled interest in pharmaceutical and biotechnology stocks. Companies that are researching a vaccine against Covid-19 are particularly hot. But investors are well advised not to limit themselves to the vaccine race. Because Corona has far-reaching consequences for the healthcare system. As a result of the pandemic, physical well-being has come to the fore in general. Governments around the world have shown that if necessary, a high financial outlay is made in favor of the health system. In many countries, the expansion of the health system is now higher on the agenda, and spending on the relevant infrastructure and research is to be increased.
The currently particularly strong encouragement from investors towards the health sector should at least continue until a vaccine against Covid-19 is found. Then interest may fade a little as a vaccine makes a broad economic recovery likely and cyclical sectors into focus. The high ratings of the health industry could then be reduced somewhat. In the long term, however, the sector remains promising – especially under the lasting impression of the pandemic that will hopefully be over.
Investors have the choice between several investments that reflect different facets of the healthcare sector. On the one hand, there are the large pharmaceutical companies such as Roche or Pfizer, which can be classified as defensive investments. On the other hand, companies that research real medical innovations are developing particularly dynamically.
The US group Intuitive Surgical is a pioneer in robot-assisted surgery. The sales markets in Europe and China, which are far behind in the field of robot-assisted surgery compared to the intuitive home market of the USA, provide for the imagination. While clinics in the USA are already using around 3,600 robot systems from Intuitive, in the rest of the world there are only just under 2,200 systems.
Around 80 companies that are focused on expanding the current state of medical treatment and technology can be found in iShares Healthcare Innovation. The ETF is invested worldwide, but almost two thirds of its assets are in US stocks.
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