Seasoned investors often approach the markets with a long-term view, using short- and medium-term volatility to buy into the themes they believe will pan out over many years. While identifying these trends is difficult, tuning out the noise can reveal what’s to come, possibly resulting in significant gains.
As we move through the second quarter of 2022, let’s highlight five of the most popular investment trends right now — looking at several themes that show significant potential for growth.
1. Inflation protection
Americans are paying more for everyday items as inflation hovers near its highest level since 1981, according to Labor Department data. With a rapid surge in the cost of living, investors have turned to inflationary hedges like gold to keep up with rising prices.
Gold has historically been a safe-haven asset for investors because its value tends to rise along with inflation. In addition, in times of political unrest or heightened volatility, bullion acts as a portfolio diversifier because of its low correlation to the stock market.
For example, during the financial crisis in 2008, gold prices rose 2 percent while the S&P 500 index plunged 37 percent.
There are multiple ways to gain exposure to gold, from directly purchasing the metal to more indirect methods like owning shares of public mining companies. However, the most efficient approach for most retail investors is likely to invest in gold exchange-traded funds (ETFs).
Popular gold funds like the SPDR Gold Trust (GLD) are investments backed in physical gold, and its performance is highly correlated to gold spot prices. Others like the VanEck Vectors Gold Miners ETF (GDX) track a basket of public mining companies. You can also choose to make a similar investment in silver.
Apart from gold and other precious metals, investors can stay protected against inflation by considering assets like Treasury inflation-protected securities (TIPS) or other savings bonds like I Bonds, which currently have a yield north of 7 percent.
2. ESG investing
The disruption and uncertainty caused by the global pandemic ignited a renewed interest from investors, consumers and employees to favor those corporations that prioritize environmental, social and governance (ESG) causes. Beyond profits, these enterprises have agreed to focus on long-term value creation over short-term gains.
And those choices appear to be paying off. According to Morningstar, global demand for sustainable investments hit a record in 2021, reaching $2.7 trillion.
By creating societal value through sustainable practices, shares of these corporations also tend to be more resilient than their peers.
For example, research from Bank of America shows that shares of corporations with solid ESG practices tend to be less volatile, have higher three-year returns, and are less likely to …….