Risk
When it comes to investing, there is one thing that you are not going to navigate away and that’s the prospect of risk. No matter what kind of investment you make, there is always an element of risk. However, this concept is not just relevant in the context of investing. It’s a major part of everyday life as well.
Everything we do… every decision we make… It all involves some level of risk. It’s the natural order of life. From driving to work or walking across the street, to trying out the restaurant that looks a little iffy. The point is we can’t do away with it, but we also don’t have to hide from it either.
Imagine if you never ventured outside your home, crossed the street, or tried new foods due to the risk that comes along with it all. Most likely, you could never imagine a life like that. As the famous quote says, “the biggest risk is taking no risk at all.”
This is especially true when it comes to investing. Never getting started for fear of the risk of losing money is the surest way to never reap the rewards of a long-term investment strategy. In order to benefit from this everyday aspect of life, like everything else we do day to day, we must learn to operate in harmony with risk.
Risk can be managed and even used to our advantage — we just have to reevaluate our relationship with it. To avoid risk altogether is to miss out on all the benefits of investing, but learning to manage it will give you the confidence to invest in any environment.
For example, buying in the midst of a bear market is very risky, as the market is in a downward trend. However, if one were to employ different strategies, it could work to their benefit. But before we can understand how to manage risk, we must first understand what it is.
What Is Risk?
With regard to investing, risk is defined as the chance that an outcome or investment’s actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an original investment.
Since this risk is inherent in all financial markets and investment vehicles, investors seek some kind of compensation for taking such risks. For instance, junk bond investors accept higher dividend yields in return for taking on the extra risk of the company defaulting. On the other side of the spectrum, some investors are willing to accept a smaller, more predictable return in exchange for a more stable investment with less risk. Anything to take the bite out of the risk associated with investing.
Some strategies are very “risk on” while others tend to be very risk averse — it all depends on the goals of the fund and the investor.
Your risk tolerance will ultimately depend on your temperament as an investor and will determine which strategies you use in order to match this tolerance. Risk can make investors act irrationally, so understanding it and how each investment has its own risk profile is extremely important for the longevity of your investment.
Once we have a general understanding of the risk inherent in investing, and what our risk tolerance is, we can then look for strategies that allow us to invest according to our plan.
Why Manage Risk?
One cannot really invest in “risk.” However, there are ways investors can manage their risk and invest according to their tolerance.
Investors with a larger appetite for risk can satiate this hunger by looking for innovative stocks and industries, which are often accompanied by outsized returns. There’s a catch though — whenever the market hits a rough patch, these assets are often the first to go and fall the hardest.
Similarly, investors that are bullish long term can use a pullback in prices to start their long-term buying again. The rate at which you buy back into the market is an excellent way to manage your risk. Rather than buying all at once, a risk-averse investor, who is also taking a risk by buying, can ease their way in and reduce their risk by spreading out their buying over a longer period of time.
If the mere thought of capital depreciation has you on edge, there are safer options for the long haul. For example, a risk-averse investor may look for funds that seek to invest in fixed-income and alternative fixed-income securities. What minimizes the risk is the steady income these investments generate as well as the stability they provide. But the implementation of these strategies must be tactical.
How To Get Started…
When we talk about investing, especially over the long term, we want to lower our risk as much as possible without risking too much of our potential returns. A great way to achieve both is having a healthy mix of the fixed-income provided by bonds and the risk that assets will pay off in the future.
Searching for the theme of “risk” you’ll find just how to get started with creating a balanced portfolio that’s able to withstand the risk and uncertainty that walk hand in hand with us on our investment journey.
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The information and data are as October 11, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Interval Funds
Oftentimes, investors are so focused on stocks and bonds that they forget about the many other methods of alternative investments. The appeal of stocks is obvious. Simple buying and selling of stock in companies that we use everyday, we get a little piece of the pie.
However, there is a vast array of investment strategies and tools out there at our disposal, perhaps many that some investors will never even know about. From different managers to different assets, these investments can be very advantageous to your financial future if you are just aware of what you’re looking for.
Interval funds are a great example. They’re an investment vehicle that many investors have probably never even heard of, let alone considered adding to their portfolio. Yet, this can be a great alternative to the traditional means of investing. Let’s explore these funds to see how they might fit into your plans for the future.
What Are Interval Funds?
Now that we have introduced a new investment concept to many of you, it is probably a good idea to take a minute and explain what exactly an “interval fund” is.
An interval fund is an example of a closed-end fund, a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital. Instead of trading on the secondary market, an interval fund periodically offers to buy back a percentage of outstanding shares at net asset value (NAV).
Again, these aren’t your typical investments, but they warrant investors’ attention nonetheless. The rules that come along with investing in an interval fund, as well as the asset they typically invest in, aren’t of the run-of-the-mill variety. These rules and asset classes make investment in an interval fund very illiquid, meaning the buying and selling of your position is not possible as in investing in stocks.
So what types of assets do these funds typically hold? These funds have the ability to invest in alternative types of assets, referred to above, that many investors don’t know about or don’t have interest in. These investments include commercial real estate, consumer loans, debt, and other illiquid assets, and also helps increase interval fund yields.
Which brings us to the “interval” part of the investment. Interval refers to the periodic events in which the fund purchases back its own shares.That is, the fund periodically offers to buy back a stated portion of its shares from shareholders. However, shareholders are not required to accept these offers and sell their shares back to the fund.
Why Invest In Interval Funds?
You may be asking yourself why someone would want to invest in an interval fund? Well, if you’re like most investors, you’re after the higher returns that often accompanies these investments.
Because they are invested in these illiquid, alternative investments, the fund’s performance isn’t necessarily tied to a falling stock market. Investing in things like debt and real estate presents investors with an investment strategy that can see higher yields as well as operate independent of other economic conditions.
In essence, it is another way for investors to diversify their holdings, and therefore, spread out their risk, instead of being tethered tightly to the stock market. Especially, when the market is dragging you down to its depths.
Historically, real estate does well during times of higher consumer prices over the long term. As prices of assets rise, so do property values, which also tend to have stickier prices. Moreover, consumer and corporate debt continues to increase. As it does, it’s a good idea to be on the receiving end of any interest income that could be generated.
However, there are some other pros outside of just chasing the higher returns. Not only are these investments often less volatile and market reactive (since investments are not tied to equities), they also grant retail investors access to institutional-grade alternative investments with relatively low minimums.
You may be looking at the fact that these investments being illiquid as a bad thing; however, when you consider this deters normal investor “buy high/sell low” behavior, you begin to think about this as a positive. This also reinforces the stability of the asset value. If your goal is to invest for the long term, the idea of your money being locked up in a high-yielding investment doesn’t make you sweat all that much.
How To Invest?
Like all investments, whether traditional or alternative, Magnifi makes it easy to explore and even get started investing in a range of funds, especially interval funds.
Simply searching the term “interval fund” and you will be provided with a variety of options, like those with real estate focused strategies. However, you also have the option of targeting those funds that deal with corporate lending. Both provide the promise of stability, as well as great long term investments.
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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 October 10, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Dividends
What are dividends? There can be a lot of things when we think about it. When you put in work that is finally starting to pay off, as the old saying goes, that hard work begins to pay dividends. But what about when we are talking about stocks? Well, the same principle applies here.
When we work hard, save our money, and decide to invest, dividend-paying stocks and funds will reward us for all those years of hard work. They reward shareholders by paying them a share of the company’s profits. Companies like this usually don’t see exponential growth in their stock price, but instead slow and steady appreciation over time. Therefore, these companies use their excess cash to incentivize investors to forgo the growth they may find in other stocks, providing compensation, as well as a steady price.
Dividends are a powerful tool for investing. Perhaps no one knows this better than Warren Buffett. The Berkshire Hathaway founder is a famed dividend investor whose firm regularly receives eye-popping amounts due to their investment in companies like Coca-Cola. For example, for the 400 million shares Berkshire owns, they will receive quarterly dividend payments in excess of $650 million. That’s the power of dividends to an extreme.
However, dividend investing is just as powerful for the everyday investor as it is for Warren Buffett. Let’s explore how.
What Are Dividends?
As mentioned above, dividends are a share of a company’s profits, paid to shareholders of the stock. Many people think of companies like Coca-Cola, Bank of America, and even Apple who all pay a small dividend. Are those companies making so much money that they are giving it away? Well, not technically. Investors must purchase shares of the fund or companies to be entitled to these payments. In exchange for holding the security for a long time, thereby assisting in a stable stock price, the company distributes an amount of money to each shareholder based on the number of shares they own.
It’s not just stocks like those above that pay dividends either. There are all sorts of ETFs (Exchange Traded Funds), Mutual Funds, as well as REITs (Real Estate Investment Trusts) that investors use to increase their income or compound interest.
The beauty of dividend investing is the optionality it gives you. Between pocketing the money, helpful for those who need it like people in retirement, and the compounding interest of reinvesting your dividends, the fruits of your labor will pay off.
ETFs are very common ways for investors to gain exposure to various dividend-paying investment vehicles. Instead of putting a large nest egg into one company for their dividend payment, the investor can reduce their risk by investing in a basket of these stocks. The fund manager picks the stocks based on things like past performance, dividend growth over time, and dividend payout ratios.
REITs are another very common method for this strategy, only instead of paying shareholders from profits of selling a product or service, these dividend payments come from the rent paid by the properties owned by the fund manager. These are a very reliable source of dividend income as they are paid monthly and real estate is a very necessary part of life, so there’s little worry about not receiving these payments.
Why Invest In Dividend Stocks?
As Einstein once said, “compounding interest is the eighth wonder of the world. Those who understand it, earn it… those who don’t… pay it.” Take a 25-year-old who invests $100 a month in something like a Roth IRA for 40 years and earns a 12 percent annual return, for example. When that person retires at age 65, their investment will be worth just over $1 million. If the same person were to start investing $100 per month at age 35, they’d only have around $300,000 by the time they reached 65. That’s the power of compounding.
This is especially true when talking about long-term dividend investing. When you invest in stocks that pay you dividends, you have the option to invest the payment directly back into the stock. Over time, you will begin to earn returns on those returns, your position grows as do the gains on your original investment. Factor in stock splits, and after a few decades you may have a position that rivals that of Warren Buffett himself, we can only hope.
For retirees, dividend income built up over a long career can help supplement your loss from no longer working. This can make a huge difference in maintaining quality of living throughout retirement. These regularly paid dividends give these shareholders peace of mind, knowing they can rely on these payments to live off of.
How To Invest?
As we mentioned, there are many ways to start your dividend investing journey. Start by researching the various funds and stocks that allow you to take advantage of this key to wealth creation.
There may be a lot of noise out there, but make your life easier by starting your search with Magnifi. By searching “Dividends” you are well on your way to discovering all the world of dividend investing has to offer.
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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 September 9, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Strategic Income
It’s hard to imagine a reason not to increase our income. Despite what the old adage says, more money usually means fewer problems. Increasing our income and our number of income streams is the real key to long-term wealth — the reason we all invest in the first place.
This is especially necessary in times of inflation, when prices go up for just about everything, eating into our bottom line. If our income doesn’t outpace this increase, then we can be left in a very difficult position.
Add in stunted economic growth, and we end up with more problems. Costs go up, and maybe so too do wages, but the increase in income is offset by the commensurate price hikes.
You may be asking yourself if you can do anything to step up your income, and luckily, there is. Some investment strategies fall in and out of favor depending on how the overall market behaves, but having a healthy yield on your money will never go out of style.
During these times of increasing prices and sluggish GDP, you may want to become more risk averse, opting for strategies that offer not only downside protection but steady income. If you can turn in an above-average return, that’s just a bonus.
And that’s the idea behind a Strategic Income approach, maximizing income while providing protection against the downside, as well as seeing some appreciation. But what does Strategic Income mean exactly?
What Are Strategic Income Investments?
Strategic Income is a strategy that seeks a positive absolute return by investing primarily in fixed-income securities across a spectrum of asset classes. These include high-yield bonds, investment-grade bonds, mortgage- and asset-backed securities, as well as convertibles.
Strategic income refers to not only looking for high-yielding investments but the ability of the fund to be agile based on current economic conditions. One of the most common ways investors employ an income strategy is to buy corporate or government bonds. So, for instance, when the Fed raises interest rates, you may have a wave of investors allocate some of their holdings to bonds to buy cheaper-priced bonds with a higher yield.
Bonds represent a loan made by an investor to a borrower, most often a corporation or government entity. A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Think of the owners of these bonds as a credit card company making loans to consumers to finance their spending.
The interest payments are the steady, predictable income the investors receive until the time the bond matured. A common portfolio has a healthy mix of income-producing fixed-income securities and equities, among other vehicles. Over time, building a large income portfolio can make all the difference when fighting the uphill battle of the rising cost of living.
This strategy is built around a highly active and flexible approach that invests in any income-producing security around the globe and across various sectors, credit quality ratings, and issuers to find the best value. This makes it possible to provide attractive risk-adjusted returns, in addition to the income. It combines top-down macroeconomic considerations with credit research to comprehensively assess risk and reward across the fixed-income market.
Why Invest In Strategic Income?
The why may seem self-explanatory by now, who doesn’t want a little extra cash coming in? By allocating part of your portfolio to fixed-income securities, you are building a solid foundation for your financial freedom. They may not be the sexiest investment vehicle ever, but the guaranteed income can play a vital role in our wealth-building journey.
The active management of these securities is a bonus, meant to drive even more value for owners of the security, regardless of what the overall market is doing. Say there is a big change in the bond market that could affect the value of your holdings or the yield they produce, the managers can make adjustments that will benefit investors.
This income becomes even more important the closer we all get to retirement. These are the years we all look forward to hanging up the work attire, knowing our income now comes from another source — or possibly multiple sources. The investments we made in the past quite literally are going to pay off in the future. The key is to prepare now, not later, for this eventuality.
How To Invest?
There are a few variations of how a manager might employ a strategic income, but luckily, you aren’t responsible for the active management part of it. All you as an investor need to do is familiarize yourself with the concept behind this approach and who the fund manager is. This is key to investing; never invest in something you don’t understand.
Fortunately for us, there is no shortage of ways to allocate some of our portfolios to this method of investing, Magnifi can help. By simply running a search for Strategic Income, you have all the possibilities you need at your fingertips. You are one step closer to the financial freedom we all strive for.
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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 August 2, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
High Yield
People are constantly looking to get more bang for their buck when it comes to investing. Perhaps one of the easiest ways to do that is with investments with a higher than average yield. With this strategy, not only can investors enjoy income plus the possible appreciation of their investments when markets rally, but also increased protection from a downturn. These are the main reasons why income investing has been so popular for so long, passive income and protection.
One of the greatest investors of all time, Warren Buffett, collects billions each year from investing in stocks that generate a substantial amount of yield, or in this case, dividends. For many, these investments are the obvious alternatives to leaving money in products like savings accounts or CDs, which likely earn under 0.1%.
This method allows investors to take a very passive approach when trying to increase income. According to CNBC, 64% of Americans are now living paycheck to paycheck, which is why it can be so important to build a portfolio using this strategy early on in your investing timeline.
This passive style of investing comes with a wide range of options where investors can expect consistent payments over the life of the investment. That’s what makes this strategy attractive to so many investors. The capital used to purchase the asset is now yielding additional capital to either put in your pocket or reinvest.
What Are High-Yield Investments?
There are several different ways to enact a high yield investment strategy, with the most common examples being; stocks and funds that pay dividends, bonds, and real estate.
With dividend-paying stocks, you are able to collect income in addition to any appreciation your stock may experience. These stocks generally don’t experience massive price increases like those of growth investments. However, their passive income makes up for this lack of appreciation. Instead of chasing growth and aggressively investing profits back into the business, the company returns the cash to investors through quarterly dividend payments. Thus, you are being paid to own the asset. The more you own, the more you are paid.
Although we may not be collecting billions of dollars in yield every year the Oracle of Omaha does, this method is a safe bet for nearly all investors. Just be sure the dividend-paying company is of high quality. Coca-Cola is one of the greatest examples of dividend paying stocks as it has maintained its dividend for decades, providing investors, even Warren Buffett, with steady income for years. Investors can also turn to ETFs for added income. These funds are packaged in a way that explicitly targets underlying assets that pay a substantial dividend.
Bonds, such as corporate bonds issued by companies with low credit ratings, are another great example. Companies issue bonds to raise money as an alternative to selling stock or taking out a bank loan. Often, these companies are deeply in debt or face other financial stress. Investors who purchase bonds receive interest payments (also called the coupon rate) until the bond’s maturity date, at which point the borrowed amount is repaid.
In the same way that a consumer with a low credit score will pay more to borrow, companies that are deemed to be greater credit risks by credit rating agencies will be required to pay higher rates when they sell bonds. The good news for investors is that several credit-rating agencies evaluate the risk associated with high-yield corporate debt and assign each one a grade. This makes it easier to research and compare different investment opportunities.
Real estate is yet another classic method to earn a high yield that has been around for hundreds of years. Although the barriers to owning traditional, brick-and-mortar real estate can be too high for some investors, there are still ways to get involved. A Real Estate Investment Trust (REIT) is the stock market equivalent to investing in a hard asset such as an apartment or office building. You own shares of the assets held by the fund, and any rent payments that are collected are then paid out to shareholders as dividends.
Real estate investing is another one of the most reliable ways to achieve a high-yielding strategy, as dividends are paid out monthly as opposed to quarterly. In addition, these hard assets are long-lasting in an industry that will always be in demand.
Why Invest In High Yield?
So why high yield investments instead of other methods of investing? Take a bear cycle in the stock market, for example. Holding high-growth stocks or stocks that are saddled with a large amount of debt might not be such a great idea during times of higher interest rates, inflation, or a recessionary cycle.
Although these various investment vehicles aren’t completely spared from market cycles, they can help investors weather economic storms. Nobody enjoys seeing the stock market decline, but bear markets can be a long-term blessing for investors, especially those looking for passive income. For stocks, dividend yields increase when prices decrease, giving investors a bump in their payments.
As these individuals invest more and more of their extra capital over time, they begin to see the effects of compounding interest. These payments can be invested directly back into the stock, thereby increasing the investor’s stake and ultimately dividend payment. As these payments grow, investors begin to rely on the income generated by these investments, as they act as an additional source of income.
The alternative is to put the yield payment in your pocket, as this predictable and consistent payment can make a huge difference. It allows people to increase their income streams, an important factor in growing wealth. Studies show the average millionaire has seven different streams of income.
How To Invest?
Like most investing strategies, there are many methods to select high yield or income funds. Whether it is real estate, bonds, or funds that pay dividends, the number of options can be somewhat overwhelming.
However, no matter the style of high-yield investment you’re after, Magnifi provides a wide selection of stocks, ETFs, and mutual funds you can choose from to achieve your desired investment goals.
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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 July 8, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Long-Short Equity
What Is Long-Short Equity?
Long-short equity is an investing strategy that takes long positions in stocks that are expected to rise in price and short positions in stocks that are expected to decline. A long-short equity strategy seeks to minimize overall market exposure, while profiting from both stock gains in the long positions, as well as the short positions.
The long-short equity strategy is very popular with hedge funds, many of which employ a market-neutral strategy, in which dollar amounts of both long and short positions are roughly equal.
In fact, the long-short equity strategy is probably the oldest hedge fund strategy. It was established by the legendary Alfred Winslow Jones, who created the first widely recognized hedge fund in 1949.
Compared to their long stocks only counterparts, long-short strategies are designed to have lower sensitivity to overall stock market movements, which translates to less volatility and smaller drawdowns.
When included as part of a broadly diversified portfolio, this strategy has the potential to provide an element of risk mitigation, or hedge, when markets decline because the gains on short positions will somewhat offset losses on long positions.
Long-short complements traditional long-only investing, as it takes advantage of opportunities to profit from stocks identified as undervalued and overvalued.
Broadly speaking, there are two types of long short strategies. These include:
Market neutral which uses strategies aimed at minimizing sensitivity to outside market volatility. This strategy seeks to eliminate the impact of broad market movements by trading related stocks, such as two stocks from the same industry, on a long and short basis.
Extension strategies which utilize long and short investing, while aiming to provide 100% net exposure to the underlying market. The leverage for these types of strategies can vary, with the most common being 130/30 – that is 130% weighting in long positions and 30% weighting in short positions within the same portfolio. The extension strategies tend to provide greater diversification to the portfolio.
Why Invest Using a Long-Short Equity Strategy?
In theory, the “asymmetric return” profile makes a long-short fund one of the best ways to compound wealth for the long term. Basically, it lowers the risk of substantial losses and opens-up upside opportunities for equity-like returns.
For investors, there are several potential benefits of this strategy.
The first is portfolio diversification. This is because managers buy stocks they expect to outperform the market, while taking short positions in assets they expect to underperform. This expands the investment universe, offering the potential for a more diversified portfolio while still retaining a degree of correlation with equity markets.
Another benefit is the potential for excess returns. Long short strategies rely less on rising markets. However, because the funds include short positions, there’s also the potential for significant losses.
History gives us evidence that this strategy usually works when the market is not doing so well.
During the bear markets of 2000-2002 and 2007-2008, the down markets of mid-2011 and late-2018, and the chaotic beginning of 2020 (as the COVID-19 pandemic unfolded), long-short equity strategies broadly, as measured by the HFRI Equity Hedge (Total) Index, and market-neutral strategies more specifically, as measured by the HFRI Equity Market Neutral Index, achieved their goal of mitigating downside risk relative to the broad market.
For example, in the 2000 to 2002 period, the HFRI Equity Hedge (Total) Index gained 23% and the HFRI Equity Market Neutral Index gained 4%. Meanwhile, the MSCI World Net index lost 42%.
History tells us that since 1997, there have been five years where the S&P 500 Index produced negative returns. During those same five years, a long/short equity strategy led to stronger returns by experiencing only 21.54% of the downside. In other words, investing in a long/short equity strategy provides the potential for a ‘smoother ride’ over time for your portfolio.
However, the performance of long-short equity funds does depend on the acumen of the manager running the long-short equity fund.
Through mid-May 2022, Goldman Sachs estimated that long-short funds had lost 18.3% in 2022. The reason was that many funds’ longs were invested in the riskier corners of the stock market, including loss-making technology companies.
How to Invest Using a Long-Short Strategy
There are a number of funds and ETFs available to retail investors that offer access to this long-short equity strategy. For a look at these investment alternatives, check out www.magnifi.com and use their AI-assisted search function by typing in ‘long-short’.
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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 June 9, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Uranium
Uranium (chemical symbol U) is a silvery-white metallic chemical element with atomic number 92. A uranium atom has 92 protons and 92 electrons, giving it the highest atomic weight of all naturally occurring elements.
Discovered in 1789 by German chemist Martin Klaproth in the mineral pitchblende, uranium was initially used as a colorant for ceramic glazes and for tinting in early photography. Its radioactive properties were not recognized until 1896, and its potential for use as an energy source was not manifested until the mid-20th century.
Uranium was found to be radioactive in 1896 by Antoine H. Becquerel, a French physicist. This was the first instance that radioactivity had been studied and opened up a new field of science. Marie Curie coined the term radioactivity shortly after Becquerel’s discovery, and with Pierre Curie, continued the research to discover other radioactive elements, such as polonium and radium, and their properties.
Today, uranium is used to power commercial nuclear reactors at about 440 nuclear power stations that produce electricity and to produce isotopes used for medical, industrial, and defense purposes around the world. About 10% of the world’s electricity is generated from uranium in nuclear reactors. This amounts to over 2500 terawatts each year, as much as from all sources of electricity worldwide in 1960.
Uranium is commercially extracted from uranium-bearing minerals such as uraninite. Uranium ore can be mined from open pits or underground excavations. The ore can then be crushed and treated at a mill to separate the valuable uranium from the ore. Uranium may also be dissolved directly from the ore deposits in the ground (in-situ leaching) and pumped to the surface.
Uranium mined from the earth is stored, handled, and sold as uranium oxide concentrate (U3O8). Before it can be used in a reactor for electricity generation, however, it must undergo a series of processes to produce usable fuel. For most of the world’s reactors, the next step in making the fuel is to convert the uranium oxide into a gas, uranium hexafluoride (UF6), which enables it to be enriched.
Australia has the world’s biggest uranium resources, accounting for 28%. Kazakhstan ranks second in terms of resources with 15%, but the country is the world’s top uranium producer. Kazakhstan accounted for roughly 40% of global uranium output in 2020.
Why Invest in Uranium?
To many, uranium and nuclear power is part of the answer in the transition away from fossil fuels.
That’s why the metal was resurgent in 2021, rising by more than 30% to a level not seen since 2012. And in March 2022, uranium prices surged to their highest level since the nuclear disaster in Japan’s Fukushima plant in 2011.
However, it is worth remembering that uranium is not traded on a formal exchange like many other commodities, but rather buyers and sellers negotiate privately. The New York Mercantile Exchange (NYMEX) recently began offering a uranium futures contract.
In looking at the fundamentals, the World Nuclear Association released The Nuclear Fuel Report: Global Scenarios for Demand and Supply Availability 2021–2040 in September 2021. The report forecast uranium demand from the world’s nuclear reactors was expected to rise to 79,400 metric tons of elemental uranium in 2030 and 112,300 tons in 2040. In 2021, global uranium demand from nuclear reactors was estimated at 62,500 tons.
On the supply side, however, global uranium production plunged to 47,731 tons in 2020 from 63,207 metric tons in 2016 due to a prolonged price depression – thanks to Fukushima – which discouraged exploration activities. Additionally, the Covid-19 pandemic in 2020 also restricted uranium production.
The global supply/demand picture points to even higher prices ahead. For example, the past several years of minimal contracting leaves utilities with significant uncovered fuel requirements beginning in 2023. Since it takes up to two years to transform uranium ore into fuel pellets, utilities should spend 2022 aggressively seeking to secure their uncovered fuel requirements for 2023 and beyond.
There is also the investment side to the uranium story. An exchange traded fund (launched in July 2021) that invests in physical uranium began stockpiling so much of the metal that there were fears it could corner the market and choke off supplies to power stations.
How to Invest in Uranium
In summary, nuclear power has been accepted by many as a necessary element of the global decarbonization process and an important part of the global energy mix for the foreseeable future.
That makes uranium a viable investment. You can participate in this market either through purchasing uranium mining stocks or exchange traded funds (ETFs).
These ETFs may either hold uranium miners or physical uranium. You can find these ETFs easily by searching at www.magnifi.com and typing in “uranium”.
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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 June 7, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Gender Lens Investing
Looking at the largest companies in the world, one clear thing stands out: women are extremely underrepresented in all management levels. In fact, nearly 40% percent of senior leadership teams are all-male, and less than 11% of senior executives at Global Fortune-500 companies are women.
While this is a clear example of gender inequality and bias, it is to these companies’ detriment, given that women-led teams are outperforming their male counterparts in both private and public companies. This outperformance is why gender lens investing is worthy of one’s consideration, and why it’s a mistake to ignore this factor in one’s investment portfolio.
What is Gender Lens Investing?
Gender Lens Investing is an investment strategy which integrates gender analysis into the investment process, not only to inform decision-making, but also advance gender equality. This includes investing in companies that are run by women, have women on their corporate boards, and/or have women in senior management positions.
It also involves investing in companies that promote gender equality in their workplace and companies which offer products/services that improve the lives of women and girls. Given the long history of gender inequality, a focus on gender diversity is imperative in the corporate world.
Why Choose Gender Lens Investing?
Some investors might question the relevance of gender lens investing as an investment strategy, but the results speak for themselves. In fact, women-led private tech companies see 35% more return on investment and generate revenues that are 12% higher than their male counterparts.
Another incredible statistic shared by American Express is that growth of women-owned small businesses with $10MM or more in revenue is 50% faster. This may be due to neurological differences, with research from McMaster University suggesting that female board members make decisions differently and rely on complex moral reasoning. Meanwhile, men tend to base their decisions on rules and traditions. This makes women better problem solvers, a key trait for leadership. This research is corroborated by a study by Zenger and Folkman which surveyed leadership skills among 4,700 women and 3,800 men. The results were significant: women outscored men in 89% of categories that differentiate an excellent leader from an average one. These include taking initiative, resilience, integrity/honesty and practicing self-development.
In another study, Goldman Sachs found that companies with a higher percentage of female employees generate 300 basis points of excess alpha (excess return on investment relative to its benchmark) within the Goldman Sachs framework.
Even with all of these impressive statistics, there are only 41 female CEOs in the Fortune 500. Women also make up only 27% of the board seats in the Fortune 500.
How To Participate In Gender Lens Investing?
Unfortunately, many people make the mistake of overlooking gender diversity in their investment strategy. Clearly, there are significant benefits to gender lens investing from a return standpoint.
There are many ways to participate in this trend through investing in women-led companies but diversification is essential. Diversification has been proven to be a superior strategy when it comes to allocating capital. Therefore, a good solution is investing in ETFs and mutual funds. A simple search on Magnifi indicates numerous ways for investors to access gender lens investing strategies.
Unlock a World of Investing
with a Magnifi Account
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 May 31, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Human Capital
What Is Human Capital?
An organization is often said to only be as good as its people from top to bottom, which is why human capital is so important to a company.
The term human capital simply refers to the economic value of a company’s workers’ experience and skills. The Organisation for Economic Co-operation and Development (OECD) defines it this way: “the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services or ideas in market circumstances.”
The whole concept of human capital can be traced back to the 18th century. Adam Smith referred to the concept in his book, “An Inquiry into the Nature and Causes of the Wealth of Nations”. In the book, Adams suggested that improving human capital through training and education leads to a more profitable enterprise, which adds to the collective wealth of society. According to Smith, that makes it a win-win for everyone.
Then, in the 1950s and early 1960s, Nobel Prize winners and University of Chicago economists Gary Becker and Theodore Schultz were among those primarily responsible for the development of the theory of human capital. Becker realized the investment in workers was little different for a company than investing in capital equipment.
Fast forward to today and human capital is extremely important to businesses because it is believed to be a big boost to productivity, which leads to gains in profitability. That is why many companies invest in their employees, such as paying for education and training.
In effect, the chances of a company’s success becomes higher as it nurtures its human capital.
Why Invest Using the Human Capital Factor Strategy?
Today, we live in a new investing reality. Many large institutional investors pay close attention to ESG (environmental, social and governance) factors. And one crucial ESG factor is human capital management.
This focus makes sense since, increasingly, a greater share of a company’s value is derived from its people—who generate intellectual property—rather than its physical property and equipment.
Research from Dan Ariely, Duke University professor of psychology and behavioral economics, focused on the links between human capital management and an organization’s overall performance. He found that authentic feelings of appreciation and fairness (broadly defined) are key elements of an organization’s culture that are connected to higher productivity.
There is other research showing that turnover data (think the Great Resignation) can be revealing. Companies with higher turnover correlate with weaker performance versus its peers.
All of this academic research is important to investors. Corporate balance sheets treat human capital as part of a company’s intangible assets. That’s always been true, but it matters much more now. In 1985, only 32% of the market value of the S&P 500 were intangible. By 2020, that share had grown to 90%.
In other words, intangible assets – including human capital – are increasingly valuable and need careful management to ensure profitability. That’s why many CEOs truthfully say that a company’s employees are our greatest asset.
Human Capital Investing
This new-found focus on human capital has led to a new entrant in the landscape of factor investing.
According to J.P. Morgan, the Human Capital Factor (HCF) – a strategy that analyzes certain employee perceptions such as pride, purpose, and psychological safety – has demonstrated that it may be more relevant to a company’s stock performance than other investment factors.
This strategy was developed by an investment research firm called Irrational Capital, co-founded by the aforementioned Dan Ariely. HCF quantifies corporate culture by studying employee behaviors and motivations, rather than by just looking at things like compensation packages or the number of diverse members on the board.
In other words, it is a data-driven strategy that tries to capture the link between strong corporate culture and the value of a company’s stock. Companies with a high HCF score seem to have an edge on their competitors.
J.P. Morgan analyzed HCF’s performance across a wide range of indices, including the Nasdaq, Russell 1000, and MSCI USA. By back-testing stock performance data from 2015, J.P. Morgan found that the Nasdaq HCF Long portfolio delivered an excess return of 3.1%, while the Nasdaq HCF Long-Short portfolio generated a significantly higher annual return of 13.3%. For the Russell 1000 and MSCI USA indices, the HCF Long portfolios delivered excess returns of 3.7% and 6.2%, respectively.
The J.P. Morgan report concluded that “within the tech-heavy Nasdaq, the HCF is highly proficient at identifying underperformers.”
How to Invest in Human Capital
A smart focus on material ESG factors, such as human capital, can potentially lead you to better risk-adjusted returns.
Finding and analyzing information about human capital management requires considerable research. However, there are funds that have done the legwork for you. These can be found with an AI-aided search at www.magnifi.com.
Unlock a World of Investing
with a Magnifi Account
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 May 31, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Closed-End Funds
What Are Closed-End Funds?
A closed-end fund (CEF) is a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a stock exchange like a stock. However, no new shares will be created and no new money will flow into the fund.
In contrast, an open-end fund, such as most mutual funds and exchange-traded funds (ETFs), accepts a constant flow of new investment capital. These funds issue new shares on a continuing basis.
Like many mutual funds, a closed-end fund has a professional manager overseeing the portfolio and actively buying, selling, and holding assets. Closed-end funds are registered with the Securities and Exchange Commission (SEC) and subject to SEC regulation. In addition, the funds’ investment advisers are also registered with the SEC.
And like any stock or ETF, closed-end fund shares fluctuate in price throughout the trading day. But a closed-end fund generally is not required to buy its shares back from investors upon request (not directly redeemable).
Closed-end funds are allowed to hold a greater percentage of illiquid securities in their investment portfolios than mutual funds are. An “illiquid” security generally is considered to be a security that cannot be sold within seven days at the approximate price used by the fund in determining NAV.
However, closed-end funds and open-end mutual funds do have some similarities, including making distributions of income and capital gains to their shareholders as well as charging an annual expense ratio for their services.
Why Invest in Closed-End Funds?
Investors have two potential ways to make money with closed-end funds: income, paid via dividend distributions, or growth, that is produced by the fund’s investments. And, you may be able to buy shares of the fund at a discount to its net asset value (NAV).
Perhaps the most unique characteristic of a closed-end fund is its pricing.
The net asset value of the fund is calculated regularly, based on the value of the assets in the fund. However, the price that it trades for on the exchange is market-driven. This means that a closed-end fund can trade at a premium or a discount to its NAV. (A premium price means the price of a share is above the NAV, while a discount is below NAV value.)
There are several possible reasons for this. A fund’s market price may trade at a premium because it is focused on a sector that is currently popular with investors, or because its manager is well regarded among investors. On the other hand, a history of underperformance or volatility may make investors wary of the fund, pushing down its share value to a discount to its NAV.
Most often, your best odds of success come when you buy a closed-end fund at a discount to its net asset value. That’s why many investors aim to buy closed-end funds at a substantial discount. How substantial? It’s not uncommon to find closed-end funds trading at 10% or even 15% below their net asset value.
This might not sound like a lot, but that kind of discount could give you a built-in edge on the market. Not only could you gain if the fund’s holdings rise in value, you may also benefit if the discount to net asset value has decreased and you decide to sell your shares.
Fixed-income investors are often attracted to closed-end funds because many provide a steady stream of income, usually on a monthly or quarterly basis. This is more favorable than the typical biannual payments provided by individual bonds.
Investors generally have the option of receiving distributions in cash or having their distributions reinvested. By automatically reinvesting dividends, investors purchase additional closed-end fund shares on an ongoing basis, which has the potential to lead to higher future returns.
Keep in mind though that many closed-end funds make use of leverage (borrowed money) to boost their returns and dividends to investors. That means higher potential rewards in good times and higher potential risks in bad times.
How to Invest in Closed-End Funds
Closed-end funds can be bought through any brokerage firm just like stocks.
Your search for the right closed-end fund can be made much easier by using Magnifi, a search-based investing platform that can help match investments to your goals. Magnifi’s AI driven system finds investment suggestions for you based on just a few inputs of your data, such as risk tolerance and investment time horizon.
Unlock a World of Investing
with a Magnifi Account
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 May 24, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
