Five ideas for 2022Russel Chesler, Director, Investments & Portfolio Strategy19 December 2021
2021 has been another record year for ETFs in Australia. It has also been an unpredictable one. We expect ETFs to continue to grow in 2022. Here are our top five ideas as we enter the new year.
1 – Accessing the broad Australian economy in recovery - MVW
The Australian share market faces a tricky period in 2022 as the world continues to navigate the COVID pandemic. For Australian equity investors, a core strategy should provide exposure to all sectors of the economy to diversify risk, and get exposure to companies that can maintain and grow their earnings through uncertain times. This would include cyclicals such as energy and materials without an over exposure to the banks, which face headwinds as interest rates rise (property lending could be hit). Concentration, always a problem in the S&P/ASX 200 Index, is about to get worse with BHP consolidating its Australian and UK listing to become the biggest company on ASX. Investors buying an Australian equity strategy that contains 200 companies would think it is unlikely one stock would be 10% of the portfolio, nor would two sectors represent over 50% of the portfolio, but that is what you will be getting from a portfolio linked to Australia’s largest 200 companies. The VanEck Australian Equal Weight ETF (MVW) equally weights the largest and most liquid stocks on the ASX. It is underweight the mega-cap resources and big banks relative to the S&P/ASX 200 Index. As at 30 November 2021, MVW’s portfolio is underweight financials by 12.58%, mega-caps by 18.47% and overweight large-cap (+12.07) and mid-cap (+6.62%) stocks.
With COVID lockdowns ongoing and new disease variants travelling through the globe now and potentially in 2022, big questions hang over the global economic recovery. If the global economy does falter in 2022, stock markets too could stall. In this scenario, we believe quality companies could outperform as they tend to offer investors protection during weaker economic environments and heightened uncertainty and market volatility. VanEck MSCI International Quality ETF (QUAL) offers exposure to a diversified portfolio of quality international companies listed on exchanges in developed economies. Top holdings include Microsoft, Apple, Google owner Alphabet, Meta Platforms (formerly Facebook) and Nvidia, whose share price has shot up in 2021 given the shortage of computer chips which is expected to continue through 2022.
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3 – Access a global megatrend - CLNE
The transition to clean energy and focus on climate change is one of the world’s most important global megatrends and presents a long-term growth opportunity. We expect this to accelerate into 2022. The Paris Agreement and recent Glasgow Climate Change Conference is driving demand for green, renewable energy across the globe away from fossil fuels. This is a significant long-term trend offering huge investment potential and clean energy companies could rally in 2022 as demand for renewable energy rises. The VanEck Global Clean Energy ETF (CLNE) currently provides exposure to 30 of the largest, most liquid global companies involved in clean-energy production and related technologies and equipment.
The explosion of video gaming before and during the COVID-19 pandemic has created significant investment opportunities in global gaming companies. Research house Newzoo forecasts the global game market will reach US$218.7 billion in 2024, up from US$175.8 billion in 2021. Positive secular trends are driving the long-term growth of gaming and esports, including an increasing number of gamers who also are spending more time gaming, not surprising given continuing lockdowns. Video gaming related stocks that have benefited from metaverse include Nvidia, now one of the largest companies in the US, Advanced Micro Devices and Roblox, all held by VanEck’s Video Gaming and esports ETF (ESPO).
Private equity is important for investors’ portfolios. As an alternative investment, it displays a low correlation with other asset classes and it offers attractive risk and return characteristics, which will be important in 2022 given stock markets are expected to remain volatile. In addition, we believe the opportunities are huge. The private equity asset class is significantly bigger than the publicly listed market; an estimated 98% of companies are private while a mere 2% of companies are listed. The VanEck Global Listed Private Equity ETF (GPEQ) is an Australian first and it will open up a huge market and enable retail investors to participate in private equity, which has added appeal in the current low interest-rate environment.
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Any views expressed are opinions of the author at the time of writing and is not a recommendation to act.
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