Investors are still banking on the US to come out of the pandemic swinging.
The top trades among Freetrade stocks and shares ISA investors last month is heavily skewed towards firms across the pond.
That might be a reflection of the market leadership we’ve all seen develop over the pandemic. But it may also be a sign that investors think the big will only get bigger as our reliance on technology ramps up.
There are still short-term hurdles hitting pretty much all companies though. Rising freight costs and supply chain bottlenecks are two factors cropping up in quarterly reports.
That will be annoying at best for customer-facing firms hoping to get back to normal as quick as possible.
Let’s see what Freetrade users were stocking up on in their ISAs over the month.
It’s important to highlight that this is a wrap-up, not a suggestion or recommendation that you buy or sell any of the securities mentioned.
Remember that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk and time horizon, should inform the mix of assets in your portfolio.
Our resource hub for investing in the stock market might be able to help make that blend a bit clearer for you and our guide on how to invest in stocks is a great start for first-time investors. And if you are still unsure of how to pick investments, speak to a qualified financial advisor.
Investors are still hanging onto AMC.
The stock ticked up during the first half of September but gave back all its gains in the second.
Part of the reason for the volte face was a comment from Walt Disney CEO Bob Chapek on the likely path for streaming services after the pandemic.
While Disney's latest Marvel blockbuster Shang-Chi and the Legend of the Ten Rings was a cinema-only affair, Chapek said Disney would mix up its premieres between silver screens and the Disney+ streaming service.
That’s not great news for a firm desperate to get bums on seats again. It seems AMC can’t definitely bank on big releases bringing punters back in, as they might not always get the films to show them in the first place.
Given the chain still has a mound of debt to deal with and now can’t rely on a backlog of Hollywood blockbusters to reel us back in the cinema over the second half of 2021, some holders have sold up and moved on.
The AI-powered e-commerce firm boomed over the start of 2021 before falling from grace spectacularly into the summer months. Risk-on investors buying in since August lows will be hoping the market warms to Aterian and repeats the run-up in share price it saw last Christmas.
The consumer product platform, previously called Mohawk Group, aims to buy and scale e-commerce businesses using artificial intelligence. It wants to make the acquisition and scaling of e-commerce brands repeatable.
But acquiring a solidly profitable stable of online brands and sites comes with the inherent risk attached to up-and-coming propositions.
It’s maybe this risk that has attracted interest among the shorting crowd. The number of its shares sold short has steadily grown in 2021, maybe to do with its stellar rise which some think is overblown.
Whatever the driver is, if the supporters and detractors double down on their theses, shareholders could be in for a lot more volatility before the year is out.
It’s been a relatively slow and steady rise for Tesla since June.
One catalyst was an Economic Times report suggesting Musk’s firm is trying to team up with car parts suppliers in India. It’s a signal the company is en route to launching in the country and investors are eyeing up the opportunity.
India has the third largest road network in the world, and around 300m vehicles on it, according to Statista.
The second piece of news, and one much more befitting of a sci-fi comic story, was the humanoid robot it revealed during its AI day.
Details were slim on the bot other than its purpose of helping with daily domestic tasks and the company’s aim to get testing in 2022.
Getting back to its primary business though, Tesla just announced it delivered 241,300 electric vehicles during the third quarter of 2021.
That’s a significantly higher total than the 220,900 analysts predicted and the 201,250 delivered last quarter.
Although the haul wasn’t achieved without a few hurdles. Customers had to put up with repeated delays, with Tesla pointing to “global supply chain and logistics challenges.”
Given most consumer-facing firms have said the same thing, investors haven’t taken the opportunity to punish the firm too much.
The stock still looks expensive on valuation grounds but, as Tesla’s supporters are probably tired of repeating, it sees itself as more than just an EV competitor.
The company’s goals of changing the way we treat and use energy are going towards vehicles now but the opportunity set is much more grand.
The recent results have clearly sated the market and the potential for whatever comes next is keeping long-term holders on board. If investors start to question that potential, such a high valuation could become a bit more of a problem.
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Away from individual stock picks, the market is banking on the ability of the US to come out of the pandemic swinging.
It has been the best performing region since last year’s pandemic lows, thanks in large part to its thriving tech sector.
Valuations in the space have mostly risen since then so the opportunity for broad market exposure away from that tech concentration might be behind flows into S&P 500 ETFs like VUSA.
Investors have favoured the income-distributing share class here. That can be useful to supplement an income or if you have regular expenses you need help with.
For those eager to rack up dividends over time and reinvest them to take advantage of the power of compounding, an accumulation share class (Acc.) could help.
According to Hartford Funds, an initial £10,000 invested in the S&P 500 over the 60 years from 1960 to 2020 would have grown to $627,161 in price terms, or $3,845,730 with dividends reinvested.
Dividends are incredibly important to the value of total returns.
The first week of September promised so much for a surging Apple stock but the initial excitement around the iPhone 13 launch has died down now, and taken the share price with it.
But, away from the constant ‘Have we hit peak iPhone?’ questions, the market is still trying to figure out its stance on tech valuations as we emerge from the pandemic.
Apple’s price-to-earnings (P/E) ratio of 29x earnings is roughly in line with Google’s, 28.8x and Facebook’s 27x. That’s higher than the broader S&P 500’s 23x and is prompting investors to ask whether Apple really has the firepower to back that up from here on.
The company’s most recent set of results certainly go some way to justify the bulls on that.
In its most recent quarter Apple reported revenues of $81.4bn versus $59.7bn a year ago. Net income came in at $21.7bn against $11.3bn 12 months ago.
Obviously this reflects a completely anomalous year in which the flight to tech took the firm past a $2.5tn valuation but that doesn’t mean it’s a complete flash in the pan.
Businesses flocking to Apple goods and services might have the initial outlay out of the way but they are likely to come back for upgrades and longer contracts.
If Apple can upsell their service offerings and expand into business-to-business relationships the way it wants to, the dependence on iPhone sales among end consumers might just become less important after all.
Although investors might be trying to diversify away from tech, they should keep in mind just how dominant those firms are in the overall index.
Apple, Microsoft, Alphabet, Amazon, and Facebook now make up 23% of the S&P 500, according to S&P Dow Jones Indices. That might mean holders are slightly less diversified than they first thought.
Tech is clearly still a big part of how we see companies creating value in the future. While that theme has been exacerbated by the pandemic it’s been a theme playing out since at least around 2013.
The real task for investors now is figuring out how much longer this pure-play thesis has left. This could mean investors start to look to the firms adopting tech and boosting their businesses with it, rather than the big names themselves.
The Reddit crowd still ‘likes the stock’.
The anti-establishment trade might still be drawing in investors hell-bent on sticking it to the man but away from the shorting madness there is a business to be run.
And for those looking past the darting lines, the big hope lies in chairman Ryan Cohen’s plan to make the firm into the “Amazon of gaming”.
But just how possible is that objective?
Shifting models from the place gamers traded in their back catalogue of PS1 games, to an online-first ecommerce platform will take time and money. And, with Netflix announcing its foray into the gaming world, the space is looking increasingly crowded.
The first step for the turnaround plans seems to be in place though. GameStop recently said it had managed to pay off its long-term debt and its Q1 revenues came in ahead of expectations.
Zoom out, though, and the company fundamentals don’t look quite as rosy. Since 2018, over 1,000 stores have been shut down in a bid to raise margins.
The company’s Q2 2021 earnings report looked impressive on the surface, with a 25% sales increase of $1.3bn compared to Q2 2020. But most stores were shut during Q2 2020.
Compare those earnings to Q1 2019 and sales are actually down nearly 18%.
Google-parent Alphabet has been rubbing its hands at the drive for digital advertising services over the past year and a half.
With physical ad boards fairly useless over the worst lockdowns, marketing teams across the world have been setting aside a decent chunk of budget for Google ads.
As with all the other tech firms feeling a Covid boost, it will be hoping normality won’t be its undoing.
But the biggest challenge for Alphabet might not be the end of Covid.
Facebook’s in the ad game too and it’s stealing Google’s lunch.
Facebook's 12-month revenue of $105bn is up 48% from the $71bn it raked in two years ago. Compare this to the 36% top-line growth for Alphabet over the same time frame.
Facebook’s net income is up more than 115% from 2019 levels too, hitting $39bn. Alphabet managed $63bn - an 85% growth rate.
Both sets of numbers look impressive and the joy for investors is they don’t need to only choose one if digital advertising forms part of their portfolios.
Step back and both firms have clear competitive advantages in the space, namely scale and overall reach.
The key question now is whether both are ready to take on the end of the pandemic.
That marketing spend might find its way onto tube ads, taxis, buses and billboards - investors used to huge figures from the digital space might need to adjust their expectations for the next phase.
It might be that investors just want a bit more diversification in their lives or that a post-corona world has fewer sure-fire winners to attract their cash. Whatever the reason, it’s prompting a change of tack in many cases and directing Freetrade users to another broad-based index ETF.
Along with its S&P 500 cousins, VWRL was among the top ISA buys in September, maybe piquing investors’ interest after flirting with all-time highs.
But if diversification is really the goal here, investors should keep in mind what we’ve pointed out a few places higher.
Such is the sheer size of the US tech giants that over 60% of VWRL is allocated to companies in North America, with 23% of the fund exposed to the tech sector.
It might hold upwards of 3,600 global companies but size matters. The top 10 names, which include the likes of Apple, Microsoft and Amazon, account for more than 15% of the entire ETF.
On its own this might just be a good aspect to keep in mind. But if investors already hold tech and have bought an S&P 500 tracker as well as VWRL in hope of diversification they might be getting less than they’d hoped for.
September could be the month that changed Lucid.
The US Environmental Protection Agency (EPA) confirmed the electric vehicle’s Air Dream Edition model is the first EV to exceed a range of 500 miles on a single charge.
Its 520 mile range compares to the 405 miles Tesla says its Model S long-range edition can achieve.
That’s clearly piqued investors’ interest over the past month, pushing Lucid into the top 10 most popular shares among ISA investors.
After a few delays, the Lucid Air is now in production and available to US customers, signalling a bit of competition for Musk and Co.
And it might have come just at the right time.
In a Pew Research survey conducted in June, 39% of Americans said “the next time they purchase a vehicle, they are at least somewhat likely to seriously consider electric.”
Pushing that decision might be the current petrol-hoarding madness as well as longer-term drivers like government initiatives. The latter is a factor that spreads far beyond Western nations.
Chinese government programmes have made it much quicker and cheaper to get a registration number for electric vehicles. There are also subsidies, tax advantages and a boom in charging port infrastructure to push drivers towards choosing EVs.
In the US, Lucid could benefit from Joe Biden’s goal of making sure 50% of all new vehicle sales are electric by 2030.
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Important Information
This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.
When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
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