Toys
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While as adults we might have a strong sense of nostalgia about walking through a toy store lined with aisles of flashy boxes, from an industry perspective, the efficiency and accessibility of e-commerce has become a much more powerful sales tool.
This is especially true since the stay-at-home orders and social distancing guidance of the pandemic, which has parents and children held-up at home missing out on the fun parks, zoos, museums, and other forms of family entertainment.
And so, it shouldn’t be surprising that in 2020, toys sales were up… big time.
While toy sales typically spike around the holidays, toy sales were up across the board all of last year. In fact, the toy industry grew 19% in the first three quarters of the year, according to NPD Group. Families, stuck at home, still wanted to spur their children’s creativity and curiosity, and they spent money on toys to do just that.
So, what toys are parents buying to keep their kids (and maybe even themselves) busy? People are buying a lot of puzzles, plus on action figures, plush toys, sports equipment, building sets, and preschool products. For Lego alone, sales increased 14 percent in the first half of 2020 compared to the same period in 2019, even as many stores closed around the world.
The toys market is forecasted to exceed $120 billion in revenue by 2023. Here’s what investors should know about the industry.
What Are the Trends in the Toy Industry?
The toy industry uptick is in large part thanks to the increased adoption of e-commerce. As a result of COVID-19, consumer preferences— even among older generations who tend to be slower to adopt new technologies— shifted from face-to-face to online. Three in four buyers and sellers now prefer digital options over in-person sales because of safety, speed, and convenience. In the third quarter of 2020 alone, e-commerce sales jumped 37.1 percent from the third quarter of 2019.
Tied to the rise in e-commerce and the greater demand for reduced waste, toy packaging is becoming less eye-grabbing and more sustainable. After all, there is less need for toys to stand out on a toy store shelf these days.
According to Nasdaq, in the first three quarters of 2020, leading toys included L.O.L. Surprise!, Barbie, Star Wars, Marvel Universe, Pokémon, Disney Frozen, Nerf, Hot Wheels, Little Tikes, and Paw Patrol.
Video games also performed well, with Nintendo and Activision Blizzard both reporting record sales. In just the holiday quarter of 2020, Nintendo sold more than 11.57 million Switch consoles, adding up to nearly 80 million consoles sold since the Switch’s 2017 launch. Consumer spending on video content is on the rise, in part thanks to virtual reality products, mobile gaming, and a rise in competition.
Another trend is the rise in toy subscriptions services for kids. From educational toys to project-based crafts, more and more boxes of curated toy-products are arriving monthly via the mail for children. Many subscription-based toys (as will all toys) are increasingly personalized and STEM (science, technology, engineering and math) oriented.
Another trend is that toys are becoming more diverse and geared towards encouraging inclusion. In 2020, Crayola released a new pack of crayons called “Colors of the World” to reflect the diversity of skin tones around the world. In 2020, Barbie also got a makeover, with a newly launched group of Barbie dolls that includes a Barbie with no hair and a prosthetic limb. Toy companies are moving more and more to celebrate differences, rather than ignore them.
Why Invest in the Toy Industry?
Parents are spending more than ever on toys, in part because of “COVID-guilt.” Parents are willing to spend more as their kids miss out on experiences like birthday parties, as well as “normal” in-person school interaction and experiences with their peers.
In other words, what might have been considered discretionary spending in a “normal” year now feels—to many parents— like necessary spending.
According to the Children Toys Market 2021 Global Industry Research Report, “toys are the backbone for children to turn their mental processes such as imagination and thinking into behaviors. Children’s toys can develop athletic ability, train perception, stimulate imagination, evoke curiosity, and provide material conditions for children’s physical and mental development.”
Many parents agree and as such, are willing to spend money on everything from pricey building sets to monthly project boxes to keep their children’s minds growing.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the March 2, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Seniors
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When considering the economic impact of senior citizens, it all starts with “the longevity economy.” That is: People who live longer, work longer, and buy more over their lifespan. Longer lifespans are good for the economy.
The catch, of course, is that longer lives don’t necessarily mean healthier lives. Therefore, we can anticipate greater demand on the healthcare system in the future. But we might also expect innovations in the form of tools that help manage chronic conditions, medications that contend with common diseases, and other initiatives that help keep seniors healthier for longer.
Here’s what investors should know about the connection between aging and the economy.
What Is the Senior Market?
Aging isn’t what it used to be. In 1920, the life expectancy in the US for men was 53 and for women, 54. Life expectancy in 2017, almost 100 years later, was 79.6. By 2060, life expectancy is expected to reach 85.6. By 2060, it is anticipated that there will be nearly 100 million Americans who are 65 or older.
What does that mean for the economy? It’s not all bad.
For one, seniors are working longer than ever. Among people aged 65 to 69, the labor force participation rate has risen from roughly 28 percent in 1998 to 38 percent in 2019 for men and from about 18 percent in 1998 to 30 percent in 2019 for women. In part, that’s because the senior population is also more educated than ever before, with some senior members still driving the economy with new and innovative ideas. For example, people between ages 55 and 64 made up nearly 26 percent of new entrepreneurs in 2017, according to the Kauffman Foundation. In 2007, that figure was only 19 percent.
Why Invest in the Senior Market?
Even if seniors live healthier for longer, the growth of an aging population will inevitably mean increased healthcare costs. But, as the aging population swells, it’s likely that innovation will replace some of healthcare as usual. Healthcare for the aging population is likely to be driven by the following trends, which investors should consider.
Streamlined Preventative Care: Lots of Baby Boomers have various chronic conditions, which they manage via medication, doctor visits, and preventative health care. These include diabetes, obesity, and high-blood pressure, among other conditions. Aging and comorbidities can also lead to more detrimental (and expensive) diseases including Alzheimer’s, diabetes, cardiovascular diseases, and osteoporosis associated with falls, according to a report by the Global Coalition on Aging. These and other conditions, including loss of vision, hearing, bladder control, or skin health, negatively impact independence and result in additional costs.
Effective preventative care can decrease the rate at which chronic conditions deteriorate and more expensive healthcare issues develop. As seniors age, we can expect improved preventative care to be a primary focus of most health systems.
Remote Patient Monitoring (RPM) Devices: Remotely monitoring patients is proven to have a big impact on health outcomes, including significantly decreasing the number of readmissions and preventing medical emergencies. For seniors, these devices can also translate to increased independence.
While telehealth is more widely accepted, especially since the pandemic, so too is connected health. Connected health devices track health metrics remotely and have the potential to help the healthcare system manage the growth of the senior population. As we emerge from the pandemic and look to the swell of the senior population, we can expect industry growth for the remote monitoring devices designed for older adults.
RPM devices are particularly helpful for managing chronic disease and post-acute needs, as well as ensuring patient safety. Notably, when used by patients and caregivers, they significantly improve both self-management of care and communication with clinicians.
Immunization Imperative: In the US, vaccination recommendations for the elderly include those for seasonal influenza, pneumococcal disease, and reactivation of varicella zoster virus (VZV). In many countries around the world, regular booster shots against tetanus, diphtheria, pertussis, polio are also recommended in the elderly. That’s all before the COVID vaccine, which infectious disease specialists are hoping to make it into the arms of the elderly worldwide (and could potentially be added as an additionally recommended annual vaccination).
It is anticipated that, as the elderly population grows, the annual societal economic burden for the four vaccine-preventable diseases will increase from approximately $35 billion to $49 billion. That amounts to a cumulative cost of approximately $1.3 trillion and more than 1 million disease-related deaths, before COVID.
As the number of seniors grows, so too will efforts to vaccinate them, which will be good business for the drug companies that manufacture vaccines.
In-Home Care: More and more baby boomers are “aging in place,” or planning to stay in their homes rather than move to a senior living facility. And it’s working, particularly because of increased preventive care and better management of chronic conditions. Improved home care can benefit the elderly and reduce associated healthcare costs, according to the Global Coalition on Aging.
Senior Living: Of course, not all seniors will be able to stay home even if they want to. Elders generally move into senior living facilities at age 83. In 2029, the oldest of the baby boomer generation will turn 83, at which point the senior living industry can anticipate an influx of demand.
Senior living investments tend to be recession resilient, according to Haven Senior Investments. According to the National Council of Real Estate Investment Fiduciaries 2018 property index results, the total return for senior housing real estate on a ten-year basis was 10.52 percent. Senior housing outperformed the overall property index of 6.09 percent and apartment total returns of 6.10 percent.
Everyone ages, and the senior population is destined to grow. Senior care will require lots of money, which is an opportunity for the healthcare sector, particularly as healthcare innovations provide more personalized and efficient care.
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The information and data are as of the February 24, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Pets
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We call them our fur babies, we treat them like humans, and we don’t hesitate to spend money on them. The “humanization of pets” trend is real— and likely, many of us can relate. According to Packaged Facts, 56 percent of US households have pets. 40 percent of those households have dogs, which reflects an exponential rise in dog ownership over the past decade.
In a normal year, Americans adopt 3.2 million shelter animals. That was before the pandemic, which didn’t stifle all industries like it did travel and entertainment. Far from it. As the world shifted into a COVID-19 driven lockdown, people looked to add pets to their lives. More than 3.3 million pets found homes in 2020, according to Petco. That represents an increase of 4 percent in 2020, translating to $4 billion in incremental annual demand, according to Packaged Facts.
The pet industry is booming in the pandemic world. Here’s what investors should know.
What Does the Pet Industry Include?
In 2019, Americans spent $95.7 billion on their pets. In 2020, it is estimated that Americans spent $99 billion, according to the American Pet Products Association. Taking care of pets requires pet food, treats, supplies, medicines, veterinary care, and services including boarding, grooming, insurance, training, pet sitting and walking.
According to Petco, the US pet care industry serves 72 million households. And while the US is home to many dog and cat lovers, pets include other animals, such as birds, lizards, fish, and hamsters, amongst others.
Why Invest in the Pet Industry?
Even before the pandemic, pet ownership was on the rise. Part of that was driven by Baby Boomers, who control over 53 percentof the country’s wealth. According to Packaged Facts, pet ownership among Baby Boomers increased from 50 percent to 54 percent between 2008 and 2018. This growth was in part attributed to Baby Boomers having more time at home, becoming empty nesters, etc.
Then the pandemic hit, and we all found ourselves with a lot more time at home. And lots of us added pets to our families.
This increased demand for pets spurred the pet industry.
In January 2021, Petco Health and Wellness hit the market with a bang, closing up more than 63 percent. In an interview with MarketWatch, Petco’s Chief Executive Ron Coughlin explained why: “People are home for COVID, they’re a little depressed, and they want that bundle of joy.”
The pandemic has not only shown how resilient the pet industry is, but also how much our pets mean to us.
According to Rachael Silverman, a psychologist specializing in couple and family psychology, in an interview with TIME magazine, “With so much uncertainty and instability, animals provide people, especially children, with unconditional love, support, and comfort as well as serve as a distraction.”
These strong sentiments help to explain why, these days, the average pet lover won’t just settle for any pet products and services. They order subscription boxes to delight their pup, upgrade to organic foods, and shop specialty toys and treats. Hence, pet companies big, small, and creative are seeing increased consumer demand.
The Farmer’s Dog, for example, makes fresh and personalized meals for dogs. It raised $39 million in 2019, the largest Series B round for a pet startup. Barkbox, a subscription service for dogs, merged with blank-check company Northern Star Acquisition Corp in December 2020. The deal reportedly valued BarkBox at $1.6 billion, and will result in BarkBox going public. Online retailer Chewy also saw enormous growth in 2020. The company’s active customers grew 39.8 percent year-over-year to 17.8 million and customer spending was up as well, growing 2.8 percent from a year ago and now averaging $363 per year.
According to the 2017-2018 National Pet Owners Survey from the American Pet Products Association, 28 percent of dog owners surveyed indicated that they celebrate birthday parties for their dogs. We can take a wild guess that that number will be higher in 2021… and that means a lot of pet owners will be shelling out for dog birthday cake.
Pet expenses are here to stay once you add a pet to your family, and so it’s safe to say that with so much demand for pets this past year, the pet industry demands won’t be going away anytime soon. All of these pets purchased or adopted in 2020 will require care, vaccines, medicines, supplies, toys, and treats for years to come.
Perhaps not surprisingly, just like the world of health and wellness for humans, there are innovators in the pet health space, as well. The 2021 Purina Pet Care Innovation Prize Winners include Denver-based ClueJay, an online diagnostic platform for pets and their vets; Minnesota-based Kitty Sift, which offers a litter box made from 100 percent post-consumer recycled cardboard; A Pup Above, which makes fresh dog food with more protein; and Mella Pet Care, which tracks pet health.
While not every year will be a pandemic year for pets, there is no arguing that people love their pets. There is a reason that pets are a $100B+ industry in the U.S. alone.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the February 23, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Children
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Baby-tech, parent-tech, fam-tech… call it what you will. The fact of the matter is, most millennials are having children later in life than their parents, and they want more efficient, streamlined ways to care for their kids.
From extending fertility to sleeping easier with a newborn to stimulating and tracking their child’s brain development, modern parents are using technology to do things in a more data-driven way than their parents did.
When it comes to his smart sock, parents and investors alike are buying in. Owlet, founded in 2013, remains a private company with an estimated annual revenue of $31.3M per year. In total, it has received $51.6M in funding.
Consider the case of Owlet Baby Care. The Owlet smart sock is a baby monitor that uses pulse oximetry to measure and track oxygen levels and heart rate, alerting parents via wirelessly connected devices if either reading drops to an unhealthy level. One sock costs $299 before additional accessories. According to Owlet founder Kurt Workman, “Parents spend a lot of money on their children, and will spend more if you can solve problems for them.”
Technology-driven parenting tools are here to stay, presenting lots of opportunity to investors. Here’s what investors should know about the fam-tech industry.
What is Fam-Tech?
Millennials are having fewer children, starting later in life, and their parenting style is driving new technologies.
Consider that the fertility rate for the US in 2020 was 1.779 births per woman. That’s significantly lower than in 1950 when the fertility rate was nearly double that, at 3.148.
According to a report by the New York Times, these days, first-time moms are on average 26 years old (up from 21 in 1972) and first-time dads are 31 (up from 27 in 1972).
Even so, across the US, the age of becoming a mom for the first time is heavily divided primarily by one factor: education. Parents who have spent their time getting an education, building a career, and growing their income have children on average seven years later than those who don’t. These slightly older, well-educated parents are better able to afford everything from preschool to, well, Owlet socks.
Being an older parent isn’t out of the norm these days, and aspiring parents aren’t worried so much about age as their ability to have a baby at some point. Notably, egg freezing increased in 2020 when dating came to a halt. By 2026, the global IVF Market size is expected to reach $36.39 billion.
These new-age parents are paying for things that in 1950 during the baby boom, parents likely never imagined.
Consider, for example, a meal subscription just for babies. Square Baby personalizes a nutrition plan for baby based on their age, dietary restrictions, and preferences, sending nutritious frozen meals every two weeks. For older children, the company Raddish Kids offers a subscription plan focused on helping kids learn to cook in the kitchen. Raddish raised its first dollars ($3,515 above its $15,000 goal) though a successful 2013 Kickstarter campaign.
Subscription services for kids are a big deal. And there are at least 22 clothing subscription services designed just for kids with parents that either a) don’t have the time or b) the interest to shop for new clothes every season for growing little ones.
Subscription services are just one example of fam-tech at work.
With parents so busy working, who has time to write out a baby book? Yet again, there’s an app for that. Queepsake captures moments and milestones via photos and messages on a smartphone, populating them into a book.
Need help with bedtime for your little ones? The Hatch night light and connected app allows parents to adjust the sound from down the hall using a connected app. The Hatch has a programmable “okay to wake” setting for young kids to help parents get a few more ZZZs.
For older children, fam-tech has solutions for monitoring online activity, with parental controls over content and remote access to children’s online devices.
Why Invest in Fam-Tech?
Fam-tech has a huge market opportunity, with millennials looking to technology to help solve challenges associated with parenting in the modern world.
For example, right now, a lot of families have a big problem. With more than a billion students suddenly unable to physically go to school in 2020 because of the pandemic, e-Learning became the unanticipated format of education in 2020. That means that these days, lots of parents are working alongside their kids who are schooling from home, leaving 65 percent of working parents feeling completely burnt out.
When kids aren’t schooling and parents are playing catch-up, kids are left with more screen time than ever. That leaves parents trying to figure out which tools, apps, and tech they can direct their kids towards to help their learning and development move ahead, rather than regress.
If 2020 has left a legacy, it’s rife with opportunities for new fam-tech solutions. And, according to the early-stage venture capital firm Initialized, we’re going to get them. From ways to get more sleep, to delaying parenting, to sourcing childcare, to tracking development, to monitoring e-learning, and more.
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The information and data are as of the February 16, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Baby Boomers
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Born between 1946 and 1964, today there are more than 71 million Baby Boomers in the U.S all between the ages of 56 and 75.
But they don’t just have numbers. Baby Boomers also hold the lion’s share of the wealth in this country compared to other generations, holding $59.6 trillion which is double the $28.5 trillion held by Generation X and more than 10 times the $5.2 trillion held by Millennials.
While a lot of marketing focuses on younger demographics, Baby Boomers are spending their money, accounting for roughly 50 percent of all Consumer Packaged Goods dollars. In 2019, for example, Baby Boomers led in pet spending. Baby Boomers also spend more at home improvement stores than any other generation.
Beyond their spending now, however, Baby Boomers are anticipated to have healthcare needs and lifestyle preferences that will drive demand in the healthcare industry for years to come. Here’s what investors should know about the economic impact of Baby Boomers.
What Is the Baby Boomer market?
All Baby Boomers will be 65 or older by 2030. While Baby Boomers have increasingly longer life expectancies than previous generations, about 60 percent of Boomers have already been diagnosed with at least one chronic medical condition, such as arthritis, diabetes, heart disease, obesity, osteoporosis, hypertension and depression. These conditions typically necessitate regular doctor visits, prescription medications, and dietary restrictions. They also have the potential to result in a disability of some form.
The prevalence of chronic conditions among the Baby Boomer population translates to a need for more doctor time, more medication, and more interventions for any resulting disabilities. So, it should be no surprise that spending on health insurance, medical services, drugs and medical supplies is expected to grow as Baby Boomers age.
According to government projections, health care spending is anticipated to grow to nearly $6 trillion by 2027. That is nearly 20 percent of the overall economy. That spending won’t all go to one place, but rather to the variety of healthcare entities and companies that support the aging Baby Boomer population.
Why Invest in Baby Boomers?
Boomers are breaking stereotypes about aging, and that should matter to investors.
Consider technology, for example. While Baby Boomers tend to have a reputation for being slow to understand technology, 90 percent of Baby Boomers have a Facebook account, 67 percent of Baby Boomers own a smartphone, and the bulk of Baby Boomers also participate in some form of online shopping.
Perhaps also surprising: more and more, Baby Boomers are moving away from cash and opting for contactless payment systems, especially in light of the COVID-19 pandemic. Not only are Boomers adopting PayPal, they are logging on to Zoom to keep in touch with loved ones.
They are also logging on to smart devices to talk to their doctors.
To manage their chronic illnesses in particular, especially in the age of the pandemic, Baby Boomers are opting for telemedicine visits, which are now reimbursable by Medicare. These visits are helping Baby Boomers manage things like weight, blood pressure, and avoid trips to the ER. Telemedicine visits allow users to talk with a doctor, get prescriptions, all while reducing the chance of getting COVID-19. Telemedicine also helps reduce healthcare costs by streamlining care and preventing expensive urgent care and ER visits.
Baby Boomers tend to be well educated, and by effectively managing their conditions, they are anticipated to experience better health for longer than they would otherwise.
Moreover, Baby Boomers generally want to be active, meaning that most aren’t spending all of their days in a recliner.
This is creating a demand for joint replacements, and affording medical device makers and distributers a big growth opportunity. According to one estimate, by 2030, there will be a 600 percent increase in total knee replacements in the US compared to 2005. Over that same time frame, total hip replacements are expected to increase by 200 percent. In 2017 the average age for a primary total hip replacement was 65 and the average age for a primary knee replacement was 66, according to a report by the American Academy of Orthopedic Surgeons and American Joint Replacement Registry (AJRR).
Lastly, Baby Boomers are wanting to ‘age in place,’ or rather choose to live at home as long as possible, rather than retire to community living. With the number of Baby Boomers aspiring to ‘age in place’ spending on home improvements and more specifically home modifications (like ramps, wider doorways, and walk-in showers) that make aging in place possible is likely to continue.
The combination of aging in place, chronic conditions, and living longer will lead to an increased need for in-home care, with more and more Baby Boomers needing help with bathing, eating, dressing and walking. While no one knows when Boomers will be back on cruise ships, we do know that future healthcare needs for the Baby Boomer population are a certainty.
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The information and data are as of the February 16, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Sustainable Energy (Alternative)
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Renewable energy has a presence on both the American and the global stages with lots of room for growth. Perhaps unexpectedly, the pandemic did not slow renewable energy down. Instead, the public health crisis that seemed to stop the world in many ways actually accelerated the transition to renewables and away from fossil fuels.
Part of that growth might be credited to Corporate and Environmental, Social and Governance (ESG) investment funds, which have clearly demonstrated that adopting renewables is good business, according to Duke Energy.
2020 was the year that renewable energy generation established itself as the cheapest, at-scale, proven energy option available, exceeding coal-fired energy production, also according to Duke Energy.
And that was before the Biden administration announced its ambitious goals for renewables and alternative energy.
Renewable energy is anticipated to keep growing in 2021, especially considering the Biden administration’s stated goals of (1) achieving a 100% clean energy economy and (2) reaching net-zero emissions no later than 2050. To achieve this, the Biden administration has resubmitted the US to the Paris climate agreement as well as implemented executive orders to move the country away from reliance on oil and gas and toward renewables.
These policies include lowering or eliminating existing subsidies on fossil fuels as well as funding renewable sector investments designed to help spur job growth in both the solar and wind industries.
Alternative energy is becoming the norm and, now more than ever, is clearly the future. Here are the alternative energy sources that all investors should consider.
What Is Sustainable Energy?
Alternative and renewable energy is energy that is generated by natural resources that readily replenish: the warmth of the sun, the blow of the wind, the movement of water, and the heat inside the earth to name a few. These resources do not generate greenhouse emissions.
During the first five months of 2020 alone, renewable energy provided 25.3% of electricity in the US. That is more than a sliver of the energy pie, and it’s growing.
The 7 types of renewable energy include solar, wind energy, hydroelectric, ocean, geothermal, biomass, and hydrogen. According to Duke Energy, the leading commercial renewable energy sources (ranked by market share and growth) include: wind, hydropower, solar, geothermal, and other technologies bolstering the renewable transition.
Wind
Wind and solar are expected to supply 70% of new power plant capacity built in 2021. Wind energy, unlike some other renewable resources, is available nationwide. It has the potential to be a viable source of renewable electricity in every state by 2050, according to the Wind Vision Report published by the Office of Energy Efficiency and Renewable Energy.
In the case of wind power, new (gigantic) turbines are providing more promise than ever. G.E.’s latest wind turbines have a rotor with a turning diameter longer than two football fields. Compared to the largest turbines currently in service, they generate about one third more power. Compared to the first machines of their kind installed offshore in Denmark in 1991, they generate 30 times as much power. As wind energy infrastructure improves and becomes more widespread, wind energy will no doubt grow its market share.
Hydropower
Hydropower uses moving water to generate electricity. Hydropower accounts for 52% of the nation’s renewable electricity generation and 7% of total electricity generation, according to the National Hydropower Association. While hydropower infrastructure tends to be dated (think dams, etc.), its power generation capacity is still very relevant. Even more, hybrid hydropower/solar plants (where floating solar panels are installed on the water of reservoirs, etc. that power dams) are becoming increasingly popular.
Solar
Despite the pandemic-induced economic downturn, solar installations increased in 2020. Solar generation is expected to account for 48% of US renewable generation by 2050, which would make it the fastest growing renewable power source, according to the Center for Climate and Energy Solutions.
No doubt, President Biden’s policies will further expand the industry. His initiatives to spur the industry include a review of Section 201 solar tariffs, countervailing duties, and anti-dumping laws by the International Trade Commission. If these tariffs are reduced or repealed, it could have an enormous impact on the development of solar energy.
It is also expected that tax credits and low interest financing available in the down economy will make solar energy installation more accessible both commercially and residentially in the year to come.
Geothermal
Geothermal energy, or heat from the earth, can be extracted by drilling deep wells to warm underground water sources. While geothermal energy lags behind wind and solar, it has enormous potential, with the U.S. leading in geothermal energy production.
Although geothermal energy might not seem as “front page” as renewables like solar and wind, it is getting investment attention. Breakthrough Energy Ventures, an investment firm that funds technologies that seek to limit carbon emissions (with backers including Jeff Bezos and Bill Gates) notably back geothermal technologies. Companies that have received investment include Dandelion Energy, which installs geothermal-powered heating and cooling systems for residential homes.
Other Technologies
There are a host of other industries that will support the transition to a more renewable-based economy. These include effective energy storage (capturing and storing energy to use it at another time), fuel cells (which generate power with fuel), increased energy efficiency that reduces the need for energy generation), and electrification.
There was a time when commercializing renewable energy seemed as far off as a flying car. But, that’s no longer the case. As more industries adopt renewable infrastructure, more companies strive to be green, and more consumers and investors demand both, the alternative energy industry will become increasingly mainstream.
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This blog is sponsored by Magnifi. The information and data are as of the February 10, 2021 (publish date) unless otherwise noted and subject to change.
Impact Investing
Lots of things didn’t play out so well in 2020, but impact investing— including environmental, social, and governance (ESG) and socially responsible investing (SRI)— wasn’t one of them.
According to Fidelity, in 2020 “stocks at the top of our environmental, social, and governance (ESG) rating scale (A and B)…outperformed those with weaker ratings (D and E) in every month from January to September, apart from April.” That’s a big deal all things considered.
Impact investing paid off for companies and investors alike in 2020. “Over a relatively short time frame…companies with high sustainability ratings performed better than their peers as markets fell. This bore out our initial hypothesis that companies with good sustainability characteristics have more prudent management and will demonstrate greater resilience in a crisis,” according to a white paper by Fidelity.
The bank’s findings don’t stand alone, rather they are the general consensus after a tumultuous 2020.
According to Blaine Townsend, director of sustainable investing at wealth management firm Bailard in an interview with CFO Dive, 2021 is the year of ESG capitulation. “A lot of that comes from basic points we’ve argued for 50 years: companies who treat their employees and the environment better and are more transparent with stakeholders might make for better long-term investments.”
He suggests that companies should be proactive about ESG now to position themselves for long-term success. He also underscores that regulatory formalization of ESG reporting from the Securities and Exchange Commission (SEC) is on the horizon.
Investors should take note, as well. Not only can ESG investing reduce portfolio risk, it can generate competitive returns, according to a report by Refinitiv that reflects consensus in the industry.
Here’s what investors should know about impact investing in 2021.
What Are the Top Impact Investing Trends in 2021?
“COVID, rather than dampening the interest in ESG-informed investing [has] actually…accelerated a number of these pre-existing themes,” according to AssetTV’s Jenna Dagenhart in an interview with Julie Moret, Head of ESG, Franklin Templeton Investments.
According to Moret, there are four basic drivers of the ESG investing: (1) the growing relevancy of sustainability challenges, (2) a demographic shift to “millennials [that] are much more sensitized to environmental and social considerations,” (3) increased regulation and policy related to sustainability issues, and (4) increased pressure on corporations for sustainability disclosures.
According to MSCI, the top five ESG trends to watch in 2021 include (1) climate, (2) social inequity, (3) biodiversity, (4) investment return factors, and (5) increased reporting. Here’s why.
Climate— The Biden administration rejoined the Paris agreement (which is designed to cut significant greenhouse gas emissions globally) immediately after his inauguration. As a result, corporations are busy setting emissions reduction goals in response to both investor demand and anticipated regulation.
Social Inequalities— The pandemic’s impact on the most vulnerable people paired with the high-profile nature of the Black Live Matter movement have made social causes visible and paramount. According to Moret, “We’ve seen dislocations in markets, and we’ve seen the real impact on the economy… particularly [in] certain segments of the economies where employees…have been left with very little protection, whether that’s leisure, entertainment, and travel. I think it’s an absolutely reasonable expectation that post-COVID from an investor’s perspective, there’s likely going to be downward pressure on free cash flows.”
Biodiversity— Environmental issues are no longer limited to carbon emissions and climate change. Biodiversity loss presents major economic risks. According to an estimate by the World Economic Forum and PwC, approximately $44 trillion of economic value generation is tied to nature. That amounts to more than half of the global GDP. The COVID-19 pandemic has no doubt highlighted the potential “impact of greater contact between wild animals and human populations triggered by habitat loss,” according to IMPAX Asset Management. Investors can expect biodiversity to gain prominence as a named environmental priority in impact investing.
ESG Investment Return Factors — According to the MSCI report: “In 2021, we see both hype and skepticism about ESG giving way to acceptance and a more nuanced understanding of when and how ESG has shown pecuniary benefits — and when it hasn’t.” There is a growing interest in correlations between ESG elements and performance, which are likely to be further analyzed and better understood in the year to come.
More Data and More Reporting— Companies are becoming increasingly focused on ESG in order to meet investor demands and attract investment. The government is also taking proactive steps to improve and regulate ESG disclosures, per a July 2020 report released by the U.S. Government Accountability Office (GAO) that evaluated the state of public company disclosures related to ESG issues. This means that investors and companies alike should expect more standardized ESG reporting requirements in the not-so-distant future.
The COVID-19 pandemic changed the world and led average citizens and companies alike to reprioritize. If anything is clear, it’s that impact investing (whether by the name of ESG or SRI) is the way of the future. Not only is that encouraging for environmental and social change initiatives, it has proven that it will pay off for both investors and companies.
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The information and data are as of the February 1, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Commodities
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Although 2020 was less than a banner year for the commodities sector, the future looks bright.
“The coronavirus pandemic has left the commodities industry reeling, disrupting supply chains and slashing demand,” according to S&P Global Platts president Martin Fraenkel.
In April 2020, for example the Bloomberg Commodity Index BCOM (which tracks 23 commodity futures markets) traded at an all-time low, according to Dow Jones Market Data. But it managed to rally more than 27% from that low.
Fundamental economic changes in the energy sector and a weaker dollar are anticipated to boost commodities in the year to come. But, the rally isn’t expected to impact all commodities equally.
Here’s what investors should know about commodities in 2021.
What Are Commodities?
Commodities are “raw materials or agricultural products that can be bought and sold.” They generally fall into one of three categories: food, energy, and metals. They include wheat, corn, soybeans, coffee, or other foodstuffs; cattle or other stock animals; cotton; lumber; precious metals such as gold, silver, or copper; domestic and foreign currencies; and coal, oil, and other fossil fuels.
Commodities are traded on a futures market. There, potential purchasers of commodities can participate in the auction market for the payment of goods which will be delivered on a specified future date.
Because investing in commodities can be complicated for an individual, commodity funds can be a more accessible and attractive alternative. As the name suggests, commodity funds invest in baskets of commodities. Commodity funds are typically themed such that an energy resources fund might invest in oil and natural gas or an agricultural goods fund might invest in a variety of agriculture goods. Commodity funds are generally not diversified across commodity types.
The three main types of commodity funds, according to BlackRock, include: (1) Index funds, which track an index that includes various commodity assets; (2) Commodity funds, which invest directly in the underlying commodity asset; and (3) Futures-based commodity funds, which invest in commodities through futures contracts.
Investors can also invest in commodities through mutual funds, which typically invest in companies that deal with commodities.
Why Invest in Commodities?
Commodities are a means of diversifying portfolios in order to protect against loss. The prices of commodities are impacted by supply and demand, exchange rates, inflation, and the general economic outlook. Because of these factors that can cause price fluctuations, commodities can be riskier than stocks and bonds. By the same token, they also have the potential to deliver above average profits.
According to S&P Global Platts, the five commodity themes to watch in 2021 include: (1) energy transition, (2) carbon reduction via carbon pricing, (3) a supercycle 2.0, (4) disruptive technology, and (5) post-pandemic unilateralism.
Energy— “The coronavirus pandemic has accelerated change in the global energy system, from historic declines in GHG emissions, inflections in demand trends and shifting production patterns, to an increased energy transition focus and aspirations towards net-zero emissions,” according to S&P Global Platts’ global director of analytics, Chris Midgley. Investors around the globe are paying attention. “The world’s largest oil traders are rushing to plough billions of dollars into renewable energy projects in the next five years, as they speed up preparations for a dramatic shift in the world’s energy mix,” according to the Financial Times. As the world’s energy sources shift, so will investment dollars.
Reducing and Valuing Carbon—According to the Commodity Futures Trading Commission, “climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy.” Even more, according to the report, “financial markets will only be able to channel resources efficiently to activities that reduce greenhouse gas emissions if an economy-wide price on carbon is in place at a level that reflects the true social cost of those emissions.” Pricing carbon makes polluting expensive, rather than free, in order to discourage polluting. Currently eleven states have active carbon-pricing programs. Pricing carbon federally is the job of Congress rather than regulators, per the report. Although there have been numerous attempts to authorize a federal carbon tax in recent years, none have succeeded. A greater push for clean energy, however, could change this.
Commodities Supercycle 2.0— A supercycle can be defined as “decades-long, above-trend movements in a wide range of base material prices deriving from a structural change in demand.” As the world comes out of the COVID-19 crisis, it is expected to do so with “an emphasis on a green industrial revolution and a policy focus on social need” driving fundamental economic change. The push for decarbonization, specifically, is linked to an anticipated rally in commodities, from zinc, nickel, copper to iron ore and beyond— in other words, a commodity supercycle.
Innovative disruption— As the world’s energy structures shift, new technologies— from 5G to AI to blockchain— that solve problems, improve efficiency, reduce costs, and act as changemakers in the market will emerge. These will lead to significant commodity investment opportunities.
Unilateralism— Ensuring food security throughout the pandemic has led countries including China to invest in more infrastructure to increase agricultural production. “The return of China as a major force in the global corn and soybean markets may add a further bullish factor to sentiment, as the restocking of the hog population affected by the 2018 swine flu outbreak could increase the country’s corn import quota threefold from 2020’s 7 million mt,” according to S&P Global Platts. As a result of the disruptions caused by the pandemic, countries will become more aware of how they operate both as part of the global supply chain and outside of it.
The world will eventually emerge from the COVID-19 crisis that rocked 2020. And, like any global crisis, it will leave the world forever changed. New solutions and new demands accelerated by the pandemic will drive markets to grow in new ways, adding new dynamics to what was pre-pandemic “business as usual.” The future of the commodities market will no doubt reflect changes across the industries that emerge with innovation and resolve.
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The information and data are as of the February 1, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Alternative Assets
For investors interested in the nontraditional, there are options available and those options have perks. And these days, investors are interested. Alternative investments are a growing trend in investing, in part because of shifting economic trends and market uncertainty.
According to a Connection Capital survey, 87% of private investors are planning to maintain or increase their allocations to alternative assets over the next 12 months. And they are not alone. Oppenheimer said in a July 2020 report that, “asset growth among alternative strategies has been powerful as assets have tripled to $9.5 trillion over the past decade and they’re expected to grow to $14 trillion by 2023.”
On the whole, geo-political risks have traditionally had more impact on bonds, equities, and mainstream commodities like oil rather than alternative investments like fine wines, watches, or digital currencies, according to a report published by Nasdaq. So, in a world where it feels like geopolitical uncertainty outweighs geopolitical stability, it’s no surprise that investors are more regularly looking to alternative investments for diversification and market outperformance.
Case in point: the alternative investment of cryptocurrencies. Considered a digital asset rather than a real currency, cryptocurrency is breaking records. In the first few days of 2021, for example, Bitcoin topped $39,000 which helped to push the total value of the cryptocurrency market in its entirety to more than $1 trillion.
Here’s what all investors should know about alternative investments on the heels of 2020.
What Are Alternative Investments?
Alternative investments are generally those that fall outside of the typical variety of stocks, bonds, mutual funds and ETFs (exchange-traded funds). They range from venture capital and hedge funds, to private equity funds, precious metals, collectibles, art, wine and beyond.
Private equity involves investing in private companies outside of the public stock market. This type of investing is typically reserved for accredited investors and institutional investment firms. (Accredited investors are high-income earners, with an income exceeding $200,000 individually or a joint income exceeding $300,000 for the last two years. Accredited investors have a net worth in excess of $1 million.)
Private equity investing involves increased risk, long lock-ups and the potential for higher returns. Typically, investor money is pooled with that from other investors and used to fund private equity instruments such as buyouts. Private equity investments are long-term, with investor money often held in the fund for as long as 10 years. The money becomes available again after a sale of holdings, initial public offering, or merger.
Venture capital involves supporting new companies as they work to commercialize their innovations. Venture capital involves higher risk, but greater return than more traditional investing. Like with private equity, the funds are “locked until a liquidity event,” such as an acquisition or IPO. Money is collected from limited partner investors in increments as needed and are referred to “capital calls.”
Another type of alternative investing, hedge funds, typically trade on the public markets but employ short-selling, leverage and other strategies that most investors don’t have access to. Hedge funds are also typically limited to high-net-worth individuals and entities that are designated as accredited investors or qualified purchasers.
Other alternative investments are more out-of-the-box and include farmland, art, wine, real estate, precious metals, cryptocurrency, collectibles, mineral rights, and beyond.
Why Invest in Alternatives?
Alternative investments “boost returns, generate income, provide diversification from traditional investments and achieve their goals,” according to BlackRock. These investments offer lots of opportunities and advantages, especially as part of a long-term strategy and particularly in a COVID impacted market.
Because alternative investments don’t correlate with the stock market, they can help to limit volatility. In many cases, alternative investments can even offer a higher return, especially with markets in flux. Higher returns are possible in part because alternative investments have additional tools that traditional securities don’t, such as leverage, derivatives and short selling, according to Oppenheimer.
Alternative investments offer other benefits including a greater sense of anonymity, flexibility, protection against inflation and market crash, and an opportunity for investors to use and finesse expertise about specific investments (precious metals, for example).
Alternative assets aren’t for everybody. Many are limited to high-net worth individuals. Others require some level of expertise, or at least interest and willingness to learn. (After all, if you plan to build a collection of fine wines, you should probably enjoy wine.)
Nevertheless, alternative investments can be an excellent complement to traditional investments in a diversified portfolio.
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The information and data are as of the January 28, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Land
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For an open-minded investor, the idea of investing in land might bring to mind a range of dreams: a “sold” sign on a wide-open space near the mountains, an “under new ownership” notice for a busy apartment complex in an urban neighborhood, or a breaking ground on a commercial mixed-use space in an up-and-coming suburb. All are correct and more.
Land is a finite resource with many uses beyond real estate that range from farming to mining for natural resources and beyond. There is no doubt that investing in raw land gives investors options.
Although real estate markets ebb and flow, land tends to appreciate in value over time. This is no surprise given the dynamics of a limited supply, increasing demand, and a growing population. For example, according to the United States Department of Agriculture (USDA), “the United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,160 per acre for 2019, up $60 per acre (1.9 percent) from 2018.” That’s an increase of $1,610 per acre from 2005.
While buying land offers a broad range of investments from real estate to agriculture, investing in land isn’t a quick-solution or an endeavor to take lightly. Here’s what investors should know and consider.
What Are Land Investments?
Overall, there are three types of real estate investments: commercial, residential, and vacant or raw land. The uses for raw land can be further broken down into categories including row crop land, livestock-raising land, timberland, mineral production land, vegetable farmland, vineyards, orchards, and recreational land. Land can also be purchased and held until appreciation.
When it comes to land investment, things aren’t always as they seem on the surface. There are a number of different rights to be aware of, which include:
1) Air rights: An investor might own the land, but do they own the airspace above it? Not necessarily. Owning air rights gives the investor the right to use, rent, or develop the space above the land without interference by others. This often comes into play in commercial real estate when zoning requirements determine how many stories tall a developer can build.
2) Mineral rights: Mineral rights are “legal rights or ownership to the minerals below the surface of real estate, which can include coal, oil, natural gas, metals, and more.”
3) Water rights: Water rights “are the legal rights to use water from a local source such as a river, ditch, pond, or lake.” Water rights tend to be different in the East vs the West. In Eastern states, landowners who have a waterway that moves through their property may use water in a reasonable way, not unreasonably detaining or diverting it. In Western states, water rights must be established before using any source of water. In these areas, water rights are typically sold separately from land.
4) Zoning: Local governments and municipalities have established rules and regulations that determine how a property may or may not be used. Properties may be zoned as residential, commercial, industrial, agricultural, recreational, historical, or aesthetic. As a developer, it’s crucial to make sure that your plans align with the zoning requirements.
5) Ingress and Egress: If an investment property doesn’t have direct road access to the parcel of land on which it sits, formal easements may be required.
Simply put: when it comes to investing, not all land is created equal and research is required.
Why Invest in Land?
Land is a dynamic investment with lots of opportunity—it can yield high returns, passive income, and large profit margins. Investors can plan to develop raw land, buy and hold, buy and lease, buy and sell with owner financing, or flip the land as it is into something entirely new.
It’s possible to generate future income by purchasing raw land and doing minimal maintenance, (especially if you are planning to keep it vacant and let it appreciate). Investing in raw land for purposes of development, however, “requires more patience and a penchant for long-term strategies.”
Before investing, investors should calculate your cap rates, or an investment’s yields and potential risks. Regardless of how you plan to utilize land for returns— for farming, real estate, leasing, or other— investors should consider the trends in those markets both locally and nationally.
Investors should also consider taxes, especially when it comes to reselling land. If an investor owns a piece of land for less than one year before selling, tax rates can be as high as 37 percent, according to the Tax Policy Center.
Of course, for investors looking for a less direct, less expensive, and much less time intensive way to diversify into land investing, ETFs offer a range of opportunities. These include real estate ETFs or Real Estate Investment Trusts (REITS) and agricultural ETFs.
REITs typically invest in “securities that are related to mortgage financing of real estate, including not only mortgage loans but also mortgage-backed securities and similar derivative investments.” REITs may focus on their property type, such as residential, retail, healthcare, self-storage, industrial, office, hotel, data center, or timber REITs.
Moreover, REITs allow investors to get involved in real estate with smaller amounts of money than required to buy properties. If you consider that on average a home in the U.S. costs $200,000 and a commercial property can cost much more, it’s easy to understand that building a diverse real estate portfolio would be expensive. REITs, on the other hand, allow investors to buy shares of a grouping of a diverse range of properties with a share costing as low as $100.
Investing in land, particularly buying a plot of land for a specific purpose, is nothing to take lightly. While it can offer big returns, it also poses big challenges and requires extensive planning. ETFs offer another path that might be right for those interested in getting their feet wet. Either way, investing in this finite resource is likely to pay off in the long run.
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The information and data are as of the January 28, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.