5 assets investors buy on the downside: from commodities to ETFs

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Wondering what others are buying? Here are the top assets popular with retail investors during the recent market pullback.



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So far, stock markets around the world have had a killer year.

Nationally, our benchmark, the ASX 200 index is down nearly 15% since the start of the year. The worst remains the United States, where the S&P500 is currently in a bear market, down 23%. The tech-heavy NASDAQ-100 has done even worse, already slipping nearly 32% this year.

A confluence of factors, including supply chain shocks due to the pandemic, the war in Ukraine and slowing economic growth, contributed to this sharp decline.

Today, rapid interest rate hikes by central banks seeking to contain inflation mean investors can’t expect any relief of this volatility anytime soon.

eToro Market Analyst Josh Gilbert said markets are currently experiencing the highest level of volatility since 2020, coinciding with the COVID-19 crash and subsequent recovery.

“The bigger and longer this cycle of rising interest rates is, the greater the risk of an economic recession and the sharp drop in corporate earnings that it would cause,” Gilbert told Finder.

So how should investors play these recent stock market crashes and continue to generate returns?

Here are some of the best options if investors want to “buy the dip”.

1. Goods

Commodities are basic natural resources such as oil, foodstuffs and metals and are often considered the building blocks of the economy.

Most commodities are considered an excellent inflation hedge and serve the crucial purpose of portfolio diversification.

On the other hand, they can be very volatile depending on supply and demand factors, as evidenced by the price of iron ore which has fluctuated between 85 and 230 US dollars per ton over the past 18 months.

Generally, commodities can be traded in physical form through exchange-traded funds (ETFs) or through contracts for differences (CFDs) or futures.

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Commodities were the golden child of 2022, with The Bloomberg Commodities Index climbing by almost 30%. Oil has been one of the best-performing commodities this year with a staggering 60% jump due to tight supplies amid war in Ukraine and the recovery in demand from the coronavirus pandemic.

Given that commodities have performed so well, it’s no surprise that the Energy Select Sector ETF (NYSE: XLE) is one of the best performing funds in 2022, up 40% this year. The ETF includes some of the biggest names in the industry, including Exxon Mobil and Chevron Corp, with 91% of its allocation in oil, gas and consumable fuels.

2. Gold

Although gold is technically a subset of commodities, its popularity means it should be considered an alternative asset in its own right.

The precious metal is widely seen as a store of value, a safe haven and a hedge against inflation.

The value of gold generally increases when the global market is in turmoil. For example, the price of gold more than doubled between 2008 and 2011, even as the global economy struggled during the global financial crisis. Similarly, while equity markets have fallen sharply so far this year, gold prices have held up, rising a modest 1%.

Despite headwinds in recent weeks, gold remains a valuable asset for investors, not least because it offers portfolio diversification. Retail investors also have several options for investing in the commodity: physical gold bars, gold producer shares, gold ETFs, or trading gold through the futures market.

3. Thematic ETFs

Long-term investors see bear markets as an opportunity to increase or rebalance their portfolios. A traditional strategy for dealing with market downturns is to move money from high-growth sectors to those that offer more stable returns.

“Defensive stocks have taken a back seat throughout 2020 and 2021 as high-flying tech stocks have captured investor attention,” Gilbert said.

“Now, following recent market moves, investors are turning defensive for stable earnings and dividends, especially as macro risks continue to rise.”

Some of eToro’s best performing portfolios in 2022 have included sectors such as consumer staples, healthcare and utilities, which are generally less exposed to rising economic growth risks and will provide strong dividends.

For example, his model Public services Shares in the “smart wallet”, which focuses on providers of basic amenities such as water and electricity, have returned more than 7% over the past 12 months.

Likewise, his Dividend Growth Stocks The portfolio, which includes big names such as Coca-Cola, McDonald’s, Walmart and others, benefited from a focus on the healthcare, energy and consumer staples sectors which all performed well. performed this year, with strong earnings and shareholder payouts.

Some investors with a longer-term view of the markets also see the sell-off in sectors such as technology as an opportunity, given that there have been steep falls of 70-90% in popular stocks such as Block. , Zoom and Netflix.

4. Traditional ETFs

An ETF is essentially a basket of securities that trades on an exchange, just like a stock.

With management fees that are much lower than those of managed funds, ETFs offer less active investors a low-cost way to achieve a return similar to that of an index or commodity.

The value of the ETF rises or falls with the index or asset it tracks. However, they are considered a useful weapon to help manage volatility risk as they generally trade very close to their net asset value.

Index funds such as ETFs also offer the benefit of diversification and offer a wide variety of underlying assets that can be tracked. These include a benchmark such as the S&P/ASX 200 on commodities such as gold, natural resources or agricultural commodities or even sector funds such as energy or real estate ETFs or thematic ETFs such as ethical investments.

5. Crypto

The cryptocurrency felt the full force of selling pressure in 2022, with Bitcoin slipping about 70% from its all-time high. However, despite major declines in the crypto space, the development of crypto and its use cases as well as industry regulation continues regardless.

Diehard crypto believers continue to take the opportunity to invest money in Bitcoin and its peers like Ethereum to buy the dip despite the ongoing market carnage. These investors believe that the blockchain technologies that underpin crypto-assets have a good solid foundation for the future and see a growing group of people who are now accepting digital assets in the real world.

The more assets you have, the more you diversify.

And while these are just food for thought, it could help an investor create a diversified portfolio. Which of the options above an investor chooses often depends on their risk profile and time horizon. Multi-asset platforms like eToro offer broad exposure to all of these assets on a single platform.

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