Automotive
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The COVID pandemic hit the auto industry hard. In the spring of 2020, the pandemic closed many auto retail stores for a month or longer… and shut down many factories for as many as two months. People stayed home, saved their money, stopped commuting… and stopped buying cars—especially during the first part of the year.
In other words, the previously roaring automotive industry and its global supply chain came to a halt.
This hit car company profits big time. The automotive industry sold about 14.5 million cars and light trucks last year, amounting to a 15% decline from 2019, and the lowest level since 2012.
That said… car companies and consumers alike are expecting a better 2021.
According to predictions by Fitch Ratings-Chicago, sales of U.S. light vehicle sales in 2021 are anticipated to total 15.6 million. Still, 2021 sales are expected to fall about 8% below 2019. According to predictions by Fitch, sales won’t reach that of 2019 until 2022 at the earliest.
And although COVID takes the headlines for 2020, more exciting disruptions—including electric mobility, advancements of driverless cars and automation technology, and the rise of ridesharing patronage—were taking place in the industry even before COVID-19.
Here’s what investors should know about the automotive industry.
What Is the Automotive industry?
On any one car, there are about 30,000 parts. Before a car is ever assembled, the making of all of those parts takes a lot of hands and a lot of work.
In the U.S., the automotive industry employs tens of thousands of skilled workers in all 50 states, which is in part why it’s considered a powerful engine driving the U.S. economy.
Globally, the automotive industry employs roughly 34 million workers. Approximately 25% of these workers are employed by automakers or original equipment manufacturers (OEMs).
What are original equipment manufacturers (OEMs), exactly? Automakers don’t make every piece of a car or truck. Instead, they buy them from OEMs. This leaves other companies to focus on rubber production for items like tires and belts, for example.
The automotive industry extends beyond just auto manufacturers and OEMs. There is an additional market for aftermarket parts, a market for individual and fleet vehicle sales, a market for vehicle rentals, repairs, and more. Collectively, these subsets of the industry help the automotive industry to create jobs across sectors.
These days, as cars get smarter, their parts are becoming more complicated. Electric cars for example, require a range of new, component parts, including lithium batteries, chargers and controllers.
The global supply chain that keeps finished cars moving off of the line is crucial to the manufacture of finished vehicles. A global semiconductor shortage is expected to majorly impact automakers this year. Ford Motor Co., for one, plans to slash its vehicle output by up to 20% in the first quarter of 2021 because of the lack of parts.
The increasing need for new, smarter parts will no doubt power increased demand across the supply chain.
Why Invest in the Automotive Industry?
As of early 2021, inventory is running short and manufacturing engines are powering up again to meet new demand.
In February, for example, U.S. manufacturing was operating at the fastest pace it has in three years because of a surge in new orders. According to the Institute for Supply Management, manufacturing activity rose to 60.8% in February, up from 58.7% in January. That marks the strongest performance since February 2018 and indicates an expansion in the manufacturing industry.
Like with many other industries, the pandemic has accelerated existing trends in the auto industry, including both the growth of online traffic and a “greater willingness of OEMs to cooperate with partners—automotive and otherwise—to address challenges,” according to McKinsey.
From an industry and consumer standpoint, the pause of the pandemic has also ushered in new excitement for the electric car, which are key to reducing emissions. According to Fitch, as emissions regulations tighten in global markets, specifically China and Europe, the pace of vehicle electrification is increasing.
In recent years, more and more automakers are creating new electric vehicles (EVs). That said, the EV market is not without hurdles. Namely, they are still up against the familiarity and affordability of standard vehicles in the face of near-term uncertainty, according to the 2021 Deloitte Global Automotive Consumer Study.
Beyond electric cars, dealers and car makers alike are stressing customer experience, especially online. Although most customers still like to see their car before buying, no doubt, COVID has put a damper on the test drive. This is pushing more consumers to make their buying decisions online. So, while cars are getting smarter, car shopping is too, as car makers build data platforms to “to elevate and evolve the customer experience.”
Autonomous vehicles are also in the works, although they aren’t expected for large scale rollout just yet.
In 2019, the global autonomous vehicle processor market reached $5.07 billion. That number is expected to grow to $42.20 billion by 2030. According to one estimate by UBS Group AG analysts, the global robo-taxi market could be worth as much as $2 trillion a year by 2030. That’s not to mention the impact that the mass adoption of driverless vehicles could have on other industries who employ the technology.
When they are finally ready, not only will self-driving cars allow drivers to do other things while their cars drive along, they should reduce collisions and traffic deaths by as much as 80%.
The automotive industry will continue to be a key economic driver long after the pandemic, especially as innovations like electric power and autonomous driving take hold. While the industry is still coming back from the impacts of COVID-19, investors shouldn’t shy away from this powerhouse industry.
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The information and data are as of the May 12, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Smartphones
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Smartphones have changed the fabric of our lives. From instant news updates, to social media, to checking our phones countless times each day out of habit— they have changed how we think, how we interact, and how we meet our needs (from getting groceries to finding directions to meeting our future mate).
In 2020, the global smartphone market was valued at $714.96 billion. It is expected to surpass $1 trillion by 2026. While it is expected that the market will plateau because of sheer penetration, mobile technology isn’t done yet. From a wide rollout of 5G to foldable phones, the world of smartphones has new opportunities on the horizon.
Interestingly, the pandemic of 2020 increased the demand on cellular networks. According to Ericsson, the number of mobile 5G subscriptions in North America will reach 325 million. That’s compared to 3 million in 2019.
In other words, it accelerated the need for digital connectedness, making smartphones more vital than ever.
What Is a Smartphone?
A smartphone is “a mobile phone that performs many of the functions of a computer, typically having a touchscreen interface, internet access, and an operating system capable of running downloaded applications,” according to the Oxford dictionary.
While the iPhone launched in 2007, the iPhone didn’t change the world on its own. The first iPhones cost between $399 and $599, which at the time was a large premium.
Androids played an important role in bringing the price of smartphones down. In 2008, after the launch of the iPhone, HTC’s T-Mobile G1 launched for a price tag of $179. This price drop, in conjunction with other factors (including a data price drop, better apps, and better camera technology), helped to make smartphones more accessible and ubiquitous globally.
Today, 91 percent of US households own smartphones and use them a lot. Approximately half of web traffic worldwide is mobile, in fact. In the third quarter of 2020, alone, mobile devices (not including tablets) generated 50.81 percent of global website traffic.
Worldwide, there are more than three billion smartphone users. That number is predicted to grow by several hundred million in the next few years. With more than 100 million users each, China, India, and the US are home to the highest number of smartphone users.
Why Invest in Smartphones?
While it might seem that the smartphone market is tapped, lots of growth potential exists.
First, investing in smartphones isn’t limited to investing in Apple shares. Today, the leading smartphone companies include Samsung, Apple, and Huawei Technologies. These three technology companies sell about half of all smartphones worldwide. While all three shipped at least 200 million smartphones in 2018, Samsung outsold the other two competitors, selling more than 290 million smartphones. Other smartphone makers include Google, LG, Motorola, Vivo Communication and Xiaomi.
Networks are also getting better by going 5G, and that takes equipment.
5G chip makers include Qorvo, whose “revenue for the third quarter of fiscal 2021 increased 26 percent year over year to nearly $1.1 billion.” Its shares nearly doubled, from $1.86 per share a year ago to $3.08 per share at the end of the year. The company expects that 2021 might be an even better year, estimating that 500 million 5G smartphones could be sold in 2021, compared to just 250 million units in 2020.
Chips are required in almost anything powered by software (including smartphones, cars, laptops, PCs, video games and data centers), and they are seeing more demand than ever. Alternatively, instead of choosing a particular chip company, semiconductor ETFs are also available.
Beyond new networks, cellphones themselves aren’t done innovating just yet.
These days, foldable phones are on the horizon. Foldable phones can adjust their size to meet the user’s need—making it larger to function more like a tablet, or smaller to function more like a mobile phone.
While foldables are on the market (Royole introduced the first foldable phone, the FlexPai, in October 2018, and Samsung has since released three, and Motorola recently released one), they haven’t arrived or been adopted in full force.
And, what would our phones be without the apps we rely on?
Google’s Play Store is home to nearly 3 million apps and Apple’s App Store is home to nearly 2 million apps. Consumer spending on app stores on these two platforms and third-party app stores hit $143 billion in 2020. The dating app Tinder alone grossed $33.86 million and the gaming app Monster Strike grossed $28.92 million. That’s a lot of revenue generated by tiny little display squares.
Beyond gaming and dating, finance and communication apps (for platforms like Zoom) are growing too. Investors aren’t missing the boat. Between 2016 and 2020, global funding to mobile technology companies more than doubled compared to the previous five years.
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The information and data are as of the March 16 ,2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Waste Management
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While investing in trash might not seem appealing, the predictability of the returns the industry generates should be— especially in a post-pandemic market. Consider that the global waste management market size was $2 trillion in 2019. It is expected to grow to $2.3 trillion by 2027, according to Allied Market Research.
Waste isn’t going anywhere. In fact, it’s projected to increase. Worldwide, municipal solid waste generates approximately 1.3 billion tons per year, which is expected to increase to approximately 2.2 billion tons per year by 2025.
Why So Much Trash?
For one thing, trash is fueled by consumerism. While the US represents just 4 percent of the world’s population, it produces 12 percent of global municipal solid waste (MSW), according to a new report by the research firm Verisk Maplecroft. In fact, the average American is responsible for 1,704 pounds of garbage per year, which is approximately three times the global average.
This is the case for other high-income countries as well. According to the World Bank, high-income countries generate about 34 percent, or 683 million tons, of waste globally, even though they only account for 16 percent of the world’s population.
The projected waste increase is also linked to the increase in the global population and the growth of urbanized populations.
Waste management is vital for the health and sustainability of cities. But, filling landfills isn’t what it used to be. Waste management innovation can actually play a major role in promoting sustainability and reducing the impact of climate change, which presents major opportunities for the waste management industry.
What Is Waste Management?
The waste sector consists of MSW landfills, industrial waste landfills, industrial wastewater treatment systems, and facilities that operate combustors or incinerators for the disposal of nonhazardous solid waste, according to the United States Environmental Protection Agency.
Waste management is “the transportation and disposable garbage, sewage, and other waste products. It involves treating solid waste and disposing unwanted products and substances in a safe and efficient manner,” according to Allied Market Research. The five major categories of MSW— or the waste that gets picked up on the curb— includes paper, food waste, plastic, metal, and glass.
There is some seasonality related to waste management. In the winter, for example, construction slows, and so does construction related waste. After storms, waste removal needs tend to increase.
Why Invest in Waste Management?
First, consider that waste management isn’t limited to trash pickup at your home. Commercial and residential entities have much higher waste needs. In fact, residential waste management accounts for under a third of the waste business.
But, residential pickup is steady business. Residential accounts are typically negotiated in 3-10 year contracts with municipal governments or homeowners associations. Sometimes, waste management companies have direct subscription services to individual customers. When contracts are renewed, it’s not typical for customers to switch providers, although it’s not unheard of.
Interestingly, the pandemic caused industrial waste to decrease because of various lockdown or shutdown measures. But, because everyone was home, residential waste increased exponentially. The pandemic also caused the demand for recyclables to drop, meaning that more trash was sent to landfills. The pandemic also greatly increased the need for the proper disposal of medical waste, including used masks, gloves, suits, syringes and other medical equipment. It is anticipated that as industries resume full-capacity production, so too will industrial waste management needs resume a greater capacity.
Waste management companies typically own the landfill sites, acting as a landlord for other companies that pay for a portion of landfill capacity.
Take the company Waste Management, for instance, which has 20 million customers in 48 states and Canada as well as a team of 44,900 employees. It may not be the most glamorous company, but its business model is easy to understand. Waste Management owns nearly 400 collection operations, 249 active solid waste landfills, 297 transfer stations, and 104 recycling centers, making it the largest non-hazardous waste operator.
These factors, and the fact that new landfills are hard to establish, make it hard for smaller competitors to gain market share. For investors, that means that major waste management companies can offer stable and reliable dividend stocks.
In general, waste management as an industry provides an essential service. More than 80 percent of its revenue is generated by services provided, which means that its revenues tend to remain stable even if the economy dips. In that capacity, the industry is considered recession-proof in some ways. Even if you lose your job, your trash will still need to be picked up.
While the business of waste management might seem stale, they have the ongoing opportunity for increased margins by increasing efficiency. (Think picking up dumpsters when full instead of half empty.)
In addition to increasing waste, the waste management industry has opportunities for implementing renewable technologies. Waste is linked to greenhouse gas emissions. According to the EPA, landfill gas (LFG) is a natural byproduct of the decomposition of organic material in landfills. It is composed of roughly 50 percent methane, 50 percent carbon dioxide, and a small amount of non-methane organic compounds.
The good news is that waste management companies can do something about it. Waste Management, for example, captures landfill gas and uses it to power residences, businesses and even trucks. Waste is growing, with it, so too will the need for waste management and innovation.
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The information and data are as of the March 8, 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.
Aquaculture
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When you are shopping in the grocery store or picking out dinner in a restaurant, do you insist on wild-caught fish? Do you care if your fish is farm raised? Turns out, most people don’t. According to the United Nations, about 47 percent of the world’s total fish supply comes from aquaculture. This translates to a global aquaculture market that is expected to grow to more than $52.4 billion by 2026.
According to the Food and Agriculture Organization of the United Nations (FAO’s) 2020 report, “The State of World Fisheries and Aquaculture 2020,” per capita fish consumption grew from 9 kilograms in 1961 to 20.5 kilograms in 2018, equating to around 1.5% growth each year. Per the report, in 2017, fish consumption accounted for 17% of the world population’s intake of animal proteins, and 7% of all proteins consumed.
That’s a lot of fish, and a huge opportunity for the aquaculture industry.
The market is responding to huge demand growing fast, with annual fish production expected to expand from 179 million tons in 2018 to 204 million tons by 2030. According to the FAO, aquaculture production specifically is projected to reach 109 million tons in 2030, representing an increase of 32% compared to 2018.
Still, most people might be surprised to learn that the “the number of fish eaten from fish farms is roughly even with the number of wild fish consumed, especially as the demand for fish has grown,” according to UC Santa Cruz researcher Anne Kapuscinski.
Here’s what investors should know about the aquaculture industry.
What Is Aquaculture?
Simply put, aquaculture is the breeding, rearing, and harvesting of fish, shellfish, algae, and other organisms in all types of water environments, according to the National Oceanic and Atmospheric Administration (NOAA).
Aquaculture often takes place in coastal marine waters and the open ocean. Aquaculture in the US produces numerous species including oysters, clams, mussels, shrimp, seaweeds, and fish such as salmon, black sea bass, sablefish, yellowtail, and pompano. In addition to producing food, aquaculture restores habitat, replenishes wild stocks, and rebuilds populations of threatened and endangered species, according to NOAA.
According to the Agricultural Marketing Resource Center, the top five fish producing countries in 2019 were China (63.7 million metric tons), Indonesia (16.6 million metric tons), India (5.7 million metric tons),Vietnam (3.6 million metric tons) and Bangladesh (2.2 million tons). Asia accounted for 89 percent of world aquaculture production by volume, most of which was produced by China.
Why Invest in Aquaculture?
The world’s appetite for fish isn’t anticipated to slow down anytime soon. By 2030, the FAO anticipates that the global human population will eat 30 million tons of fish.
In part, that’s because the world is demanding more protein than ever. Two strong drivers of the growing aquaculture industry include an increasing population growth and protein consumption per capita. Where this growth can potentially leave oceans overfished and depleted, aquaculture offers a creative solution.
According to Forbes, the fish industry “is a decade or more behind all other production animals with respect to innovation — and thus is one of the more attractive opportunities…for agtech investors and startups alike.”
The industry, however, is not without challenges. From bacterial and viral infections among densely populated fish to environmental impacts, aquaculture isn’t perfect.
There is, however, ample opportunity for scientific solutions. For investors, this means investment opportunities in everything from improved vaccines to fish food to genetic engineering of fish that are more resilient and adaptable. According to Global Market Insights, the global aquaculture vaccines market alone will reach $290 million by the year 2025. Even more, supplying nutrients to the aquaculture industry is a $60 billion opportunity.
Investment in fish farming is happening now, and happening here. In November 2020, the company Pure Salmon announced that it will build a large indoor fish-farming operation in Virginia. Pure Salmon will invest about $228 million in the equipment and facility, which according to the news release, would be the “world’s largest vertically integrated indoor aquaculture facility.”
While aquaculture is lauded as more sustainable by comparison to the practice of overfishing, for example, there are some doubts about the ethics of it. To name a few, wild fish are often caught to feed farmed fish, questioning the efficacy of the system. Additionally, fish waste in densely populated open ocean farms can deplete oxygen in the surrounding marine environment. That’s not to mention genetic engineering, the living conditions of farmed fish, or other considerations.
For investors interested in environmental, social and governance (ESG) issues, the Coller FAIRR Protein Producer Index can help. The Coller FAIRR Protein Producer Index is the world’s only comprehensive assessment of the largest animal protein producers on critical ESG issues.
The market demand for fish isn’t expected to slow down. And as such, aquaculture is expected to grow as a crucial industry that helps to feed the world’s population. According to the FAO, “to ensure a food secure future for all, the fisheries and aquaculture sector is key.” This means that there is ample opportunity for investors as the fish farming market continues to grow and develop.
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The information and data are as of the December 21, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Precious Metals
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Nicknamed the “crisis commodity,” gold is an investment that people flock to when the world seems uncertain. And it’s no surprise— gold has been long associated with the gods, immortality, and wealth itself.
In the midst of geopolitical and macroeconomic uncertainty, gold also provides portfolio stability. On the more recent historical record, gold has performed well in the worst of times, including the 2008 financial crisis and during the market fluctuations in the 1970s. This is in part because of the fact that, as the value of the dollar drops, the demand for gold tends to increase.
Geopolitical and macroeconomic uncertainty seem to describe 2020 well enough. So, it’s no surprise that these days, the demand for gold and other precious metals is up.
But precious metals like gold are more than old forms of currency or components of jewelry. They are also used in car engines, dental work, our phones, as components of medical equipment and much more. Here’s why you should consider adding precious metals to your portfolio.
What are precious metals?
Metals like gold were historically a form of currency but they also have industrial applications in dentistry and electronics. For example, gold is used in computer memory chips, electronic components for cell phones and other devices, dental filling including crowns and bridges, surgical instruments, medical treatments, telecommunication satellites, and specialized glass.
It might be surprising to learn that while China, Australia and Russia are the world’s major producers of gold, the U.S. is the fourth-largest gold-producing nation. In 2019, the U.S. produced 6.1% of the world’s total gold production for the year coming from states including Nevada, Alaska, Colorado, California, and Arizona.
While gold is the best-known precious metal for investment, it isn’t the only one. Investors should also consider silver,platinum, and palladium.
Like gold, silver has historically functioned as currency. Unlike gold, however, silver tends to play a stronger role as an industrial metal. Whereas only about 10% of the demand for gold is driven by industrial use, about 60% of the annual demand for silver is driven by industrial use. That said, the gold market is larger than that of the silver market.
Silver today is used in batteries, solar panels, cell phones and other electronic devices, nuclear rods, antifreeze, ointments, mirrors, specialized glass, engine bearings, water filtration systems, dental fillings, as well as for silver inputs to industrial items including electrical appliances and medical products.
Platinum, another precious metal, is even more rare than gold, which often drives its prices higher than that of gold. An industrial metal, platinum is most notably used for automotive catalysts. Catalytic converters are exhaust emission control devices that minimize pollutants, and they are in growing demand. The automotive industry is the world’s largest consumer of platinum.
Palladium is an even lesser-known precious metal but it is found in Russia and South Africa, as well as in the U.S. and Canada. Palladium is approximately 30 times as rare as gold. In such high demand that exceeds supply, palladium, like platinum, has exceeded the price of gold in recent years.
Palladium is used for a variety of things, from catalytic converters (like platinum) to dentistry, medicine, chemical applications, jewelry, and groundwater treatment. Increasingly stricter environmental laws and pollution restrictions mean that manufacturers are required to increase the amount of palladium in catalytic converters.
Why invest in precious metals?
Precious metals offer investors much-needed diversification. Because precious metals aren’t very closely correlated with stocks, bonds, or real estate, they help buffer portfolios in times of uncertainty. For this reason, some advisors suggest putting 5 to even 10% of an investor’s portfolio with precious metals, depending on their circumstances and goals.
The performance of precious metals in today’s unpredictable market isn’t disappointing. In August 2020, the price of gold hit an all-time high, up more than 36% from the start of 2020. While it hasn’t held that all-time value, its jump demonstrates that gold is a relatively safe bet when the markets are in flux.
While buying bullion might seem like an obvious and safe bet (the investor owns physical gold or silver), it’s not for every investor. It requires a safe storage site, for example, with investors often choosing to keep their valuables at a bank, which can be costly. It also often entails the seller taking a cut on the sale.
Unlike the markets for gold and silver, the market for palladium is small, with only a handful of companies that offer exposure to palladium. And while treasure chests are great, precious metals (especially in the cases of platinum and palladium) have practical applications that drive their demand.
Investing in precious metals isn’t an end-all, be-all answer, but it is a path for diversification that many investors choose, especially with the world in flux.
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The information and data are as of the December 15, 2020 (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.
Gold
As kids, we buried “secret treasure” in the backyard. We didn’t know then, let alone care, about the state of the economy or the worth of gold.
These days, we know very well what’s in our investment portfolios and we cringe or breath a sigh of relief as we watch it fluctuate from day-to-day and week to week. So, it’s no surprise these days of economic uncertainty, we might find ourselves dreaming of safely buried treasure once again.
If you are, you aren’t alone.
According to a survey by Magnify Money published in July 2020, one in six Americans bought gold or other precious metals in the last three months, and about one in four were seriously considering investing in them. After all, gold tends to hold its value, in part because it has a finite supply. In fact, “gold was one of the highest-performing investments in 2019,” according to a recent article in Forbes.
Interestingly, the COVID-19 pandemic has resulted in a less fluid supply of gold in the marketplace. Around the world, the pandemic has forced mine closures and slowdowns. According to an analyst from CRU Group, in April about 10-15% of gold mines globally were offline, including in South Africa, Peru, Mexico, and Canada.
So, is gold still a good investment? And if so, what’s the best approach? Not surprisingly, there are lots of gold investment options in the modern world, and the most practical ones don’t involve buying and burying it in the backyard.
Why Invest in Gold?
Gold is understood as a “stable store of value.” Although typically gold doesn’t offer a big return on investment, it tends to hold its value during uncertain times. As a result, gold tends to hold its value during times of financial volatility.
In today’s volatile market, that makes it particularly attractive.
The value of gold is influenced by inflation and supply. The dollar value of gold moves opposite of the dollar. This is because as the dollar gains, it requires fewer dollars to purchase the same ounce of gold.
How to invest in gold
There are many ways to invest in gold, including:
Physical Gold: Gold bullion is physical gold in the form of coins or bars. Typically, these are sold at a markup by the seller and come in sizes ranging from one gram (approximately 1/31 of an ounce) to 400 ounces. Bullion coins are typically recognizable based on imprints such as the American Eagle, Canadian Maple Leaf, and South African Krugerrand.
Typically, the value of non-bullion coins is based on their rarity, not the amount of gold in them. This is because in 1933, President Franklin D. Roosevelt signed Executive Order 6102, which required Americans to surrender much of their gold to the government for compensation. The collected gold was melted into bar form, making the remaining coins from that era particularly valuable.
Physical gold tends to be liquid for those needing cash, but often must be sold at a discount. Also, it can be difficult to store it safely. But again, while buying actual treasure is appealing and very possible, isn’t the only way to invest in gold.
Gold Exchange-Traded Notes (ETNs) and ETFs: ETNs are “debt instruments tied to an underlying investment” such as a commodity like gold. Gold ETNs enable investors to invest in gold without having to purchase it in physical form, which is much easier for many investors. Gold-backed ETFs are another option. First launched in 2003, these ETFs are securities designed to track the gold price.
Gold Mining Stocks: These are simply investments in companies that mine for gold. While these are not direct investments in gold, they are an investment in the industry.
In times of volatility, gold can be a popular hedge for investors looking to protect their portfolios from wild swings. For those investors interested in gold-backed ETFs and mutual funds, a search on Magnifi suggests that there are a number of available options.
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The information and data are as of the October 20, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Emerging Markets
With growing, increasingly affluent populations and innovative technologies, emerging markets offer opportunity for diversification, exposure to various stages of the economic cycle, and attractive valuations.
The top five emerging market economies— Brazil, Russia, India, China and South Africa—are commonly referred to as the BRICS. Formalized in 2010 when these companies represented just 11% of global GDP, these countries have experienced tremendous growth since then, a trend that is expected to continue for the foreseeable future. The International Monetary Fund anticipates that by 2030, the BRICS nations will make up over 50% of global GDP.
While the BRICS countries are enormously different in terms of economies, structures, and cultures, they all have large populations and promising futures. China and India, for example, have become major players in the technology sector. Brazil is the second largest food producer in the world, second only to the U.S. Russia and South Africa are home to rich natural resources. All are home to potential supply chains and new consumer markets.
Here’s what you should know about the world’s top emerging markets and how to invest in them.
What Are the BRICS?
As mentioned, the BRICS countries include Brazil, Russia, India, China and South Africa.
Brazil has a GDP of $1.868 trillion, making it the eighth-largest economy in the world. The country is also a member of Mercosur, a South American free trade area that includes Argentina, Brazil, Paraguay and Uruguay, which is home to three quarters of the total economic activity on the continent. Mercosur has an annual GDP of about US$5 trillion and is home to more than 250 million people.
Russia is rich in natural resources, has strong emerging industries, and a growing middle class. Russian GDP has experienced steady growth since 1998. In 2018, it increased by 1.8%, thanks to solid international growth and rising oil prices. As of 2019, its GDP is $1.64 trillion.
Russia is the dominant partner in the Eurasian Economic Union (EAEU), which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. These countries together boast a GDP of $5 trillion and are home to a population of 183 million. There are talks about free trade agreements with other areas, and when reached, it will no doubt change the supply chain.
India’s GDP in 2019 was $3 trillion. Whereas politics play a role in the uncertainty of investing in some emerging economies, that’s not the case for India. Since gaining its political freedom from Britain in 1946, India established and has since successfully maintained strong parliamentary democracy. The country is the dominant partner in the South East Asian Free Trade Area (SAFTA), which includes Afghanistan, Bangladesh, Bhutan, India, The Maldives, Nepal, Pakistan, and Sri Lanka. The populations in these countries amount to a market of 1.6 billion people.
China has a particularly strong manufacturing sector, and not just for “Made in China” products exported around the world. According to the National Bureau of Statistics, three fourths of China’s 6.6% GDP growth in 2018 was credited to consumption. And, its growing consumer base, with its growing wealth, wants quality.
According to Forbes: “South Africa ranks high worldwide for investor protection and the extent of disclosure.” That fact has not been lost on foreign investors, with FDI into South Africa growing by 446% to 7.1 billion in 2018. China and Russia have both invested heavily in Africa.
In addition to being home to the most developed stock market in Africa, South Africa boasts natural resources including gold, iron, ore, coal, platinum, uranium, chromium, and manganese nickel.
Why Invest in Emerging Markets?
Emerging markets tend to carry a varying amount of political and economic risk, depending on the country. But, on the whole, the sector has lately outperformed more established markets in Europe and North America.
COVID-19 has made this divergence even clearer, with the asset class coming nearly all the way back to pre-pandemic levels as of October 2020. This performance was in part in lockstep with the rest of the world, but since emerging markets stocks tend to fall further in bad times, they have come roaring back even stronger than their first world peers.
Per Lazard: “Following a drawdown of nearly 35% in the first quarter and a sharp 18% recovery in the second quarter, the MSCI Emerging Markets Index rose 9.6% in the third quarter to climb nearly all the way back (96%) to its pre-COVID-19 peak.”
But, as such a large sector that’s spread across so many different countries, investing in the growth of emerging markets can’t be focused on just a few companies. Fortunately, a number of ETFs and mutual funds allow investors to access all of the asset class at one time. A search on Magnifi suggests a number of options for investors interested in the emerging markets.
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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 October 13, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Real Estate
The headlines highlighting the rise of housing markets are as common as the “SOLD” signs on lawns in neighborhoods throughout the United States.
“Despite COVID-19, Philadelphia’s real estate market is booming.”
“Pandemic pushing Cape Cod real estate sales, driving prices up.”
But, who moves in the middle of a pandemic? Apparently, lots of people.
The world looks much different today than it did at the beginning of the year. Since the arrival of the coronavirus to the United States in January, people have adapted their lives and recalibrated their plans significantly. For many, that has included planning a move.
So, for all of the lost jobs and unknowns about how the economy will recover, the real estate industry is holding its own. Here’s what investors should know.
What’s Happening with Real Estate?
NYC real estate sales fell by 54 percent in the second quarter of 2020, amounting to the largest decline in 30 years, according to a report by Miller Samuel and Douglas Elliman. Orange County, California reported its biggest price decline since 2009, 5.2 percent. In other words, more and more people are saying goodbye to city living.
But, things in the suburbs are booming. After an initial dip in April, May showed strong market interest, according to realtor.com.With all of the uncertainty surrounding the pandemic, what is it that has moved people to start considering a move?
“Quarantine was the greatest accidental PR campaign for the value of real estate that I’ve ever witnessed. Now, people have been inspired to invest more into their homes and push their budgets just a little bit further,” according to Forbes real estate writer Ryan Serhant.
No doubt, after just a few months, people have new housing needs. Remote work is looking like the new norm. Outdoor space feels less optional. And suddenly many families with kids need to find space to not only work remotely, but also facilitate virtual learning for their kids. Welcome to 2020.
“Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life,” according to housing website Curbed.
Add strong interest and new needs to attractively low rates, and the sales started. The average for 30-year fixed mortgages fell below 3 percent for the first time on record in June, prompting more people to consider buying. And so, the headlines and the “SOLD” signs followed.
So, If Everyone Is Working at Home, What’s Happening to Office Space?
For corporations, office space can account for the second largest expense following payroll. Companies know that. Moreover, these same companies realize that their offices are currently sitting largely unoccupied.
Companies are anticipated to reduce office space over the next three years, according to a report by CNBC. Similarly, a Reuters analysis of 25 large companies indicates that they plan to reduce office space over the next year.
According to a May report by Moody’s Analytics, “As employers have been compelled to execute remote working policies, national vacancies may break the 20% mark by 2021, and effective rents in some markets like New York may fall by close to 25%.”
But, not every business is turning in their notice just yet. Most office leases run from three to five to seven or 10 years, so some businesses are just stuck with the space.
That’s good news for investors, who aren’t feeling the pain.
According to Reuters, “concerns about declining office space use have not hurt commercial mortgaged-backed securities, with the iShares CMBS ETF up 4.4% for the year to date.”
Why the continued success?
Offices are useful for everything from building work relationships to expressing organizational values and aspirations, according to the Harvard Business Review. Companies, especially those with a nearly all-remote workforce at the minute, know that better than anyone. And so, commercial offices are probably not going away in their entirety. They will, however, emerge on the other side of the pandemic and are likely to look much different.
For one, office spaces might simultaneously scale down and become more dispersed, with flexibility to locate near clients and foster high-quality connections between staff, according to the Harvard Business Review.
Moreover, space will increasingly become mixed-use, extending its hours of life beyond the 9-5. This means offices that have retail, dining, and other features that invite community members, keeping the space busy beyond the workday hustle.
But, don’t expect a boom of new office space in the near future.
The Detroit Free Press reported in June about ongoing office space construction that might be at risk. In addition to the unknowns about the need for new, Class A spaces in the short term, the supply chains that delivers building materials have been impacted by the virus.
Part of the question is: will businesses decide to keep more remote work arrangements permanently, relocate their offices to less-expensive suburbs, or will they keep with the status quo?
Still, Real Estate Investment Is on the Uptick.
Despite all of the uncertainty, according to a Gallup poll, real estate remains a top investment choice for Americans. As the stock market looks more uncertain, real estate looks safer. Not to mention the historically low interest rates that have helped families move into new homes.
Roofstock, a platform for investors to buy and sell single-family rental properties, has experienced substantially increased web traffic since the coronavirus arrived, indicating that global investors are on the lookout for less volatile investment options.
The bottom line: real estate sales and investment is on the rise. The informed investor can find ways to invest in both residential and commercial real estate in unique ways.
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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 September 3, 2020 (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.