The investment environment is moving quicker than ever before.

Investor tastes change all the time. Furthermore, technology advancements enable investors to build portfolios in novel ways.

The following is a list of the major trends currently influencing the world of investment.

 

1. Passive Investing And Indexing Become Mainstream Investing Strategies

P.E.F or Passive equity funds account for approximately 54% ($6.2 trillion) of total equity fund assets today.

So, Passive investment is a type of investing in which the fund manager has no discretion.

In contrast to active investing (in which managers select stocks), passive funds often monitor some type of index or group of stocks.

Passive investment continues to account for around 43% of the overall US fund universe (which includes bonds and other assets).

However, its position has continuously improved, climbing from slightly more than 30% in 2015.
This sharp increase is due in part to a surge in index funds and exchange-traded funds (ETFs).

 

In 2021, there will be 8,552 ETFs in the world.

 

Three businesses are the major suppliers of ETFs: BlackRock, State Street, and Vanguard.

These three companies collectively control more than $4 trillion in assets.

At least one of these three corporations is also the largest shareholder in 90% of the S&P 500.

According to PwC, the number of actively managed mutual funds continues to outnumber those of passive funds. However, this is projected to alter over the next several years.

 

2. ESG Is Becoming Essential To Every Investment Strategy

Environmental, Social, and Governance (ESG) investment has swept the financial world in recent years.

 

In 2020, US ESG funds will have raised around $51 billion in fresh capital.

This is an increase from just over $5 billion just a few years ago in 2018.

In the first quarter of 2021, US funds with ESG requirements drew in more than $21 billion.

ESG funds are expanding faster than many other asset types globally.

 

 

Europe has reaped the most benefits, attracting more than $100 billion in fresh investments in the first quarter of 2021.

 

However, the United States is beginning to make steps as well. Some analysts expect that by 2030, there will be more than $1 trillion in ESG-focused investments.

The number of funds has also grown.

Deloitte predicts that 200 new ESG funds will be created in the United States during the next three years.

A large portion of this expansion has occurred in new ESG-focused ETFs.

 

 

 

 

 

 

 

 

 

 

According to Reuters, the volume of ESG ETFs in Europe has increased thrice since 2020.

Europe is the epicentre of ESG growth, often anticipating what is to come in the United States.

As a result, it’s worth noting that ESG ETFs presently account for more than 15% of the trade on the German electronic market Xetra.

In 2021, total ESG ETF assets under management are expected to more than treble, rising from 43 billion euros to 137 billion euros.

Even with all of this recent expansion, there is still space for growth.

According to estimates, just 3% of 401(k) plans provide ESG-focused investments.

In 2021, $7.26 trillion was invested in 401(k) plans in the United States.

If just a quarter or a third of these assets are transferred to ESG-focused funds and investments, the amount of capital managed in accordance with ESG principles might skyrocket.

 

3. Meme Stocks & Retail Investors Are Increasingly Influencing The Markets

While passive investment has been edging out actively managed funds for years, retail investing is on the increase as well.

Robinhood, the popular trading app, rose from 7.2 million accounts and $19.2 billion in assets to 18 million accounts and $80 billion in assets between mid-2020 and mid-2021.

Other brokerages have seen similar jumps.

Charles Schwab, for instance, added 3.2 million new retail brokerage accounts in the first quarter of 2021 – more than all of 2020.

A lot of this has been the result of individual traders looking to profit off of what are known as “meme stocks”.

Stocks like Gamestop, AMC Entertainment, and Blackberry have all been forced higher by retail investors communicating largely in online forums.

Indeed, Morgan Stanley recently discovered that retail investor activity accounted for 10% of trading volume on the Russell 3000 index.

Europe is now following in the footsteps of the United States. According to Reuters, Europe’s retail investor base will more than treble by 2021.

4. SPACs & Direct Listings Offer New Ways To Go Public

Companies throughout the world have traditionally had only one choice when it comes to going public: the initial public offering (IPO).

Several more alternatives are now accessible.

A Special Purpose Acquisition firm (SPAC) is a publicly listed firm that obtains cash specifically for the purpose of acquiring another (usually private) company.

Following the completion of the transaction, the formerly private firm is combined with the SPAC and becomes publicly listed.

In the last year and a half, the number of SPACs has skyrocketed. Prior to 2020, the number of SPACs that went public never exceeded the triple digits.

In reality, about 400 SPACs were established in the first half of 2021.

According to Statista, SPACs never raised more than $11 billion in any year before 2020.

SPACs raised more than $100 billion in the first seven months of 2021.

SPACs have allowed several large and successful firms to go public.

Altimer Growth Corp.’s $40 billion merger with Southeast Asian ridesharing and delivery business Grab is the biggest SPAC to date.

Along with Grab, several well-known firms have chosen the SPAC approach.

DraftKings announced at the end of 2019 that it would merge with Diamond Eagle Acquisition Corp. to go public for $3.3 billion.

The stock is now worth almost $7 billion.

The budding space sector appears to be one of the main benefactors of the SPAC expansion.

Virgin Galactic was among the first SPACs to draw attention to this new method of entering public markets.

Indeed, Virgin Galactic’s $1.5 billion SPAC merger with Chamath Palihapitiya’s Social Capital Hedosophia in 2019 may have triggered a wave of SPACs in the space and rocket industries.

Two satellite companies, BlackSky and Spire, are among the most recent space-focused SPAC transactions.

In February 2021, BlackSky, a satellite imaging company, announced a $1.5 billion SPAC merger.

To deliver monitoring services to its clients, BlackSky employs its SpectraAI platform, which combines photos from satellites, data from IoT devices, and information from other third-party sources.

Spire also revealed plans to go public in February 2021 through a $1.6 billion SPAC transaction.

Spire operates over 110 low-Earth orbit satellites and serves worldwide logistics providers, global governments, the US government, and other enterprises.

In addition, Rocket Lab, which has launched several of the BlackSky and Spire satellites, has announced a SPAC agreement.

The $4.1 billion transaction is the first foray into the public markets by one of the main rocket firms (SpaceX, Blue Origin, and Rocket Lab).

SPACs have become so popular that Defiance ETFs has designed an ETF to follow them.

Direct listings are another option to traditional IPOs, which have become more common in recent years.

A direct listing happens when a private firm goes public by simply selling existing shares to the general public. Many times, the corporation is not attempting to sell additional shares, but rather to provide liquidity to existing investors.

An underwriter (typically a Wall Street investment bank) assists a private firm in creating new shares and offering them to the public in a standard IPO.

To do this, the underwriter often acquires the shares at an agreed-upon price. They then sell them to chosen institutions, who resell them to the broader investing public (typically at a considerably greater price than they were purchased for).

Direct listings were virtually unheard of until 2018, when Spotify went public through a direct listing.

Following that, successful technology businesses such as Asana, Palantir Technologies, Slack Technologies, and Roblox also went public via direct listing.

 

5. Robo-Advisors Are Taking Over Wealth Management

Robo advisers are one of the most rapidly increasing investment management trends.

What exactly a robo-advisor is depends on who you ask.

However, for the most part, a robo-advisor is described as software that automatically manages an investor’s portfolio and savings.

These services are typically geared towards younger investors and lesser balance accounts, providing non-wealthy customers with less expensive alternatives to established financial advisers.

Total assets under management are difficult to determine, but Business Insider estimates that they will exceed $500 billion in the United States by 2020.

This represents less than 1% of the $58 trillion asset management market, giving plenty of possibility for expansion.

According to Business Insider, robo-advisors’ market share will exceed $830 billion by 2024.

 

Others forecast that by 2023, the worldwide AUM of robo-advisors will have reached $2.5 trillion.

According to Traders Magazine, the number of worldwide robo-advisor users will increase from around 70 million in 2020 to slightly under 150 million in 2023.

The shifting marketplace for wealth management services will account for a large portion of this expansion.

 

New digital products produced by robo-advisors are essential to this shift.

According to Bloomberg Intelligence, millennials will own around 5x more money in the next ten years than they do now.

Half of them have previously shown a desire to adopt digitally oriented wealth management services. Over the next decade, the shift might be enormously beneficial for robo-advisors.

Betterment is one of the main companies attempting to capitalise on this.

 

Betterment was founded in 2010 with the goal of removing bias from investing. It provides totally automated investing, building low-cost portfolios depending on how users respond to questionnaires.

Betterment has developed since its inception to link clients with human advisors if they so want. Also Betterment has developed Betterment Institutional, a platform that enables financial advisers to utilise Betterment to build and manage portfolios for their customers.

Betterment provides 615,000 customers with over $29 billion in assets under management as of the first quarter of 2021.

Wealthfront has a similar story to Betterment.

It, too, was established in the midst of the 2008 financial crisis.

It, too, has AUM in the billions of dollars ($25 billion in 2021).

 

And, while Wealthfront has yet to court advisors, it has begun to provide cash accounts with checking functions.

Customers may also store funds in high-yield savings accounts, thus using Wealthfront as a traditional bank.

As more investors choose digital wealth management, robo-advisors will have a greater effect on investing strategy.

 

Conclusion

That concludes the top investment trends for 2023.

There is no shortage of innovation in the investing sector, whether it is a new means to access the public markets, a digital service, or a new investment approach.

If the emergence of meme stocks and retail traders has taught us anything, it’s to be prepared for the unexpected in this arena.