The world of investing is constantly evolving, with new trends and opportunities emerging every year. As we look ahead to 2023 and 2024, it's essential for investors to stay informed about the top investment industries that are poised for growth and success. In this comprehensive guide, we will explore five major investment trends that are expected to make a significant impact in the coming years. From passive investing and ESG strategies to the rise of retail investors and the emergence of new ways to go public, we will delve into the key details and potential opportunities within each industry. So, let's dive in and discover the top investment industries for 2023-2024.
Passive Investing and Indexing Become Mainstream Investing Strategies
One of the most prominent investment trends of recent years is the rise of passive investing and indexing. This investment strategy involves investing in funds that track specific indexes or groups of stocks, rather than actively selecting individual stocks. The growth of passive investing has been remarkable, with about 54% ($6.2 trillion) of total equity fund assets being allocated to passive investments1.
Passive investing has gained popularity due to its low fees, diversification benefits, and consistent performance compared to many actively managed funds. It allows investors to gain exposure to broad market trends without the need for active stock picking. In the United States, passive investing's share of the entire fund universe is steadily approaching 50%1. This growth is driven by the increasing popularity of index funds and exchange-traded funds (ETFs), which have experienced a surge in search interest over the past few years1.
The largest providers of ETFs are BlackRock, State Street, and Vanguard, collectively controlling more than $4 trillion in assets1. The convenience and accessibility of ETFs have contributed to their widespread adoption among investors. As passive investing and indexing continue to gain momentum, it is crucial for investors to understand and evaluate the potential benefits and risks associated with this investment approach.
ESG is Becoming Essential to Every Investment Strategy
Environmental, Social, and Governance (ESG) investing has gained significant traction in recent years. This approach considers not only the financial performance of a company but also its impact on the environment, society, and governance practices. Investors are increasingly incorporating ESG factors into their decision-making processes, recognizing the potential for long-term value creation and risk management.
The growth of ESG investing has been remarkable, with search interest in "ESG Investing" increasing by 490% over the last five years2. In the United States, ESG funds added about $51 billion in new capital in 20202. Globally, ESG assets under management have grown from around $500 billion to close to $2 trillion2. Europe, in particular, has been at the forefront of ESG growth, attracting over $100 billion in new capital in the first quarter of 20212.
The integration of ESG principles into investment strategies offers opportunities for investors to align their portfolios with their values and contribute to positive change. As ESG investing continues to gain momentum, it is essential for investors to conduct thorough research and due diligence to ensure the authenticity and effectiveness of ESG-focused investments.
Meme Stocks & Retail Investors are Increasingly Influencing the Markets
In recent years, retail investors and the phenomenon of meme stocks have made a significant impact on the financial markets. Retail investors, armed with accessible trading platforms and online forums, have demonstrated their ability to influence stock prices and challenge traditional investment strategies.
Platforms like Robinhood have witnessed exponential growth, with the number of accounts growing from 7.2 million to 18 million and assets under management increasing from $19.2 billion to $80 billion3. Other brokerage firms, such as Charles Schwab, have also experienced a surge in retail investor accounts3. Retail investors have been particularly active in "meme stocks," which are stocks that gain popularity and momentum through online communities and social media.
Meme stocks like Gamestop, AMC Entertainment, and Blackberry have seen significant price surges fueled by retail investors communicating on online forums3. In fact, retail investor activity accounted for 10% of the trading volume on the Russell 3000 index3. This trend has not only caught the attention of market participants but has also led to increased scrutiny and regulation.
Retail investors are expected to continue exerting their influence on the markets in the coming years. This presents both opportunities and challenges for investors, as it emphasizes the importance of staying informed, conducting thorough research, and assessing the long-term viability of investment opportunities.
SPACs & Direct Listings Offer New Ways to Go Public
Traditionally, companies seeking to go public had limited options, primarily through initial public offerings (IPOs). However, the landscape has evolved, and alternative methods, such as Special Purpose Acquisition Companies (SPACs) and direct listings, have gained popularity.
SPACs are publicly-traded companies created with the sole purpose of acquiring another company, typically a private one. This merger allows the private company to become publicly traded without going through the traditional IPO process. The number of SPACs has skyrocketed in recent years, with close to 400 SPACs created in the first half of 20214.
Direct listings, on the other hand, allow private companies to go public by offering outstanding shares directly to the public. This method provides liquidity to existing shareholders without the need for underwriters or new share issuance. Direct listings gained attention when music streaming giant Spotify went public via this route in 20184.
The emergence of SPACs and direct listings provides companies with additional avenues to access public markets and raise capital. It also offers investors opportunities to participate in the growth of innovative companies at earlier stages. However, it is crucial for investors to conduct thorough due diligence, as these alternative methods have their unique risks and considerations.
Robo-Advisors are Taking Over Wealth Management
Robo-advisors have revolutionized the wealth management industry, offering automated investment management services to a wide range of investors. These digital platforms leverage algorithms and technology to provide portfolio management, financial planning, and investment advice at a fraction of the cost of traditional wealth advisors.
The growth of robo-advisors has been substantial, with searches for "Robo-advisor" increasing by 4,400% over the last decade5. In the United States alone, robo-advisors managed over $500 billion in assets in 20205. This number is expected to surpass $830 billion by 20245.
Robo-advisors appeal to investors for several reasons, including lower fees, accessibility, and simplified investment processes. They have particularly resonated with millennials, who are more comfortable with digital platforms and seek cost-effective solutions for their investment needs. Betterment and Wealthfront are two prominent robo-advisors that have experienced substantial growth and adoption5.
As robo-advisors continue to evolve, it is important for investors to consider their unique value propositions, investment strategies, and potential limitations. Robo-advisors can be valuable tools for investors, but it is crucial to assess their offerings and align them with individual financial goals and risk tolerances.
Conclusion
As we look ahead to 2023-2024, it is clear that the investment landscape is poised for significant changes and opportunities. Passive investing and indexing are becoming mainstream strategies, offering investors a cost-effective and diversified approach to the markets. ESG investing is gaining traction, enabling investors to align their portfolios with their values and contribute to positive change.
The rise of retail investors and meme stocks highlights the increasing influence of individual investors on the markets, emphasizing the importance of staying informed and conducting thorough research. SPACs and direct listings provide new avenues for companies to go public and raise capital, presenting investors with unique opportunities and risks. Robo-advisors continue to disrupt the wealth management industry, offering digital solutions and cost-effective portfolio management.
As an investor, it is crucial to stay informed about these top investment industries and adapt your investment strategies accordingly. Conduct thorough research, assess the potential risks and rewards, and consult with financial professionals to make informed decisions. By staying ahead of the curve and embracing emerging trends, you can position yourself for success in the ever-changing world of investing.
