Top 10 ISA buys on Freetrade in February
What have stocks and shares ISA investors been snapping up over the past month?
Published
September 4, 2024
Index ETFs and US tech stocks topped Freetrade stocks and shares ISA investors’ wish lists in February.
It might be that core and satellite strategies are taking shape or that market watchers are eyeing up a world outside of the US (while keeping one foot in it).
There’s still a dearth of UK stocks among investors’ top picks. It’s likely a sign that the London market has a lot of work to do in attracting listings fit for new generations’ view of the future.
That said, a rising rate environment could be good for some of the UK’s legacy banks and insurers, whose reliance on chunky interest margins and rising bond yields have held them back over the past decade, but might soon be a boon.
Before we get stuck in, 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.
February turned out to be a pretty tepid month for Tesla.
The EV maker was front and centre of investors’ fears over what a rising interest rate environment would mean for richly-valued US tech stocks.
But, for every market watcher concerned about the top-down picture there’s usually one focused on the bottom-up stock story.
And that might be behind the appetite for Tesla’s shares last month.
Read more:
The (more realistic) ISA millionaire
15 ISA myths that could be holding you back
Sign up to Honey, our free stock market newsletter
Tesla’s Q4 and full-year 2021 results were strong, with fourth quarter revenue up 65% to $17.7bn. Operating profit hit $2.6bn (2020: $575m) even taking into account Elon’s $245m share-based payday.
The hike comes on the back of a record-breaking year for the firm, in which it delivered 936,000 vehicles. That’s almost double the previous year’s haul.
And just as the month was ending, investors managed to get a lift as battery partner Panasonic said it would take on production of Tesla’s 4680 lithium ion batteries. It could have them ready at its Japanese production facility in as soon as a year from now. That would be welcome news as the car maker grapples with ongoing supply chain struggles around chip shortages.
Already digesting what four rate rises would mean for US stocks in 2022, the S&P 500 had to deal with a lot more uncertainty in February.
Western sanctions against Russia amid the backdrop of a rapidly developing invasion provoked enough nerves to send investors into so-called safe haven assets like gold, and away from seemingly exposed stocks like international US-based banks.
The S&P 500 is now down 8.8% year to date but still sits on a forward valuation far above its global peers.
There are times when markets seem insignificant in comparison to genuinely life-threatening global events. What they can reflect, though, are very human worries over how our lives might be impacted as a result.
Oil prices rising and a flight to precious metals are two signs of how the market is already predicting further disruption in global supply chains and markets.
Past performance is not a reliable indicator of future returns.
Source: FE, as at 28 Feb 2022. Basis: bid-bid in local currency terms with income reinvested.
Whether you’re a Meta investor steadily building a position or an onlooker hoping for an attractive entry point, February either gave you what you wanted or made you run for the hills.
Shares in the Facebook owner tanked after the social media giant’s forecasts were hit by Apple’s latest privacy changes.
Apple’s choice to give users greater control of their data, adding targeted advertising headaches in the process, took $200bn off Meta’s market cap. The one-day hit was the largest drop in market value for a US public company ever, according to Reuters and Refinitiv.
The iPhone brand’s App Tracking Transparency feature has been a real hurdle for the likes of Facebook and Snap, which have built reputations as data-rich ad platforms.
According to Meta CFO David Wehner, the iOS feature could be a thorn in Meta’s side. He said, "We will lap a period in which Apple's iOS changes were not in effect and we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes."
And, rubbing salt in the wound, Meta's Q1 2022 revenue estimate range of $27bn to $29bn missed analyst expectations of $30.3bn.
While further US interest rate rises are on the horizon, that doesn’t mean the market-leading firms on the biggest stock market in the world have suddenly lost all value.
Investors clearly aren’t willing to throw in the towel just yet and stuck with the US theme in February.
For broad US exposure, ISA investors favoured the Vanguard ETF’s income-distributing share class last month. 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.
Past performance is not a reliable indicator of future returns.
“The strongest quarter in two years." That’s how AMC chief exec Adam Aron described the firm’s most recent performance figures, but it’s not all good news.
Yes, revenues climbed from $163m in 2020 to $1.17bn but the income forecast wasn’t as rosy. Expected losses in the range of $115m to $195m are potentially a lot worse than the $119m many analysts anticipated.
Aron did point to "a record year-ending liquidity position of $1.8bn" amid the negative figures and it looks like investors are willing the stock on, buying into ebbs and flows throughout February.
More broadly, cinemas across the board have been hit hard by Omicron fears - the sector has become a bit of a punchbag investors like to wallop when restrictions pop up. Cineworld is languishing in the UK and boutique offering Everyman is only faring slightly better, even as we eye up a hopeful return to normality.
Beyond the virus, there’s still a lot for AMC and the rest of the silver screen gang to contend with, not least the rise of stay-at-home streaming services. That trend might have boomed during lockdown but it was already in full force before the pandemic and its success continues to hit cinemas hard.
Google parent Alphabet started February on a high after announcing record annual revenues for 2021. The search giant saw a 41% rise year-on-year to $257bn thanks in part to revenue of $75.3bn in the fourth quarter of 2021.
Chief exec Sundar Pichai said, “Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continuing to grow strongly.”
And the firm seems to be navigating Apple’s privacy changes better than Meta. Google’s advertising revenues came in at $61.2bn for the quarter as the firm was buffered by collecting its own search data through online traffic and YouTube. The latter accounted for revenues of $8.6bn in Q4 2021 alone.
Investors have clearly used the tech stock sell-off during the month to buy into the firm, which managed to surpass $200bn in revenue for the first time in 2021. That’s very nearly triple the level the company brought in five years ago.
Anything UK-related has been a rare sight among ISA investors’ top buys in the past few months.
An index filled with big pharma, financials, tobacco and oil has looked a bit backward in comparison to the tech-fuelled recovery across the pond over the pandemic.
But higher rates on the horizon and the tail end of any immediate lockdown bursts to stock performance have investors eyeing up Blighty again.
Part of the reason is just how out-of-favour those dusty old stocks are starting to look. Valuations mong the nation’s banks and insurers are very low, with price-to-earnings (P/E) ratios below 10x in a lot of sectors.
Compare that to the tech high flyers with multiples in the 30s and 40s (let alone Tesla’s, which would give any value investor a nosebleed) and they’re getting too cheap to ignore for many.
But cheap doesn’t necessarily mean good value. What the likes of the banks do have in their corner is a global admission that rates need to head up sooner rather than later.
Investors should be careful not to lump all financials in with that theme. That said, downtrodden stocks like Lloyds have attracted attention thanks to the size of its mortgage book (it’s the biggest lender in the UK) and hopes for what a rise in rates could mean for net interest margins.
Broad market index ETFs can be useful building blocks for our ISA portfolios. But we need to make sure we know what’s under the bonnet.
Rushing into a global ETF might seem like it gives instant diversification (and it does compared to just holding a few stocks) but it pays to see exactly what you’re getting.
This All World ETF gives access to a range of global markets but the fund is organised by market weight. That means 59.5% of its holdings are in the US (as at 31 January 2022) with just over 6% in Japan and 4% in the UK.
It reflects the size of these markets and might be a useful learning point for anyone thinking it was simply a case of splitting exposure evenly around the world.
Tech made up a quarter of the fund at the end of January with the top names looking like a roll call of the usual suspects: Apple, Microsoft, Amazon, Tesla, Alphabet, Meta, NVIDIA, then followed by semiconductor firm TSMC & insurance provider UnitedHealth Group.
That might come as a surprise for anyone hoping to avoid the tech names by casting their net a bit wider.
And again, make sure you’re opting for for the version that suits your income needs. A distributing share class might be handy to supplement your salary but pumping those dividends back into the ETF could really kick start the compounding over the long term.
Apple wasn’t immune to the February fall-off in tech stocks.
But Freetrade ISA investors are clearly still keen on backing the iPhone maker, even after a bumper 2021.
High demand for iPhones in China helped Apple top earnings estimates and report record sales over Christmas, even with supply chain problems and the ongoing Omicron spread.
Despite warning investors that chip shortages could lead to $6bn in lost sales, first quarter revenues came in at $123.9bn. That’s 11% higher than the same time last year and above analysts’ estimates of $118.7bn.
New models of existing products like the Apple Watch and iPad helped propel figures higher but the main tailwind still seems to be the iPhone. The flagship product saw record sales in the run up to Christmas despite naysayers the world over who’ve been calling time on the range for years.
CFO Luca Maestri said, “The very strong customer response to our recent launch of new products and services drove double-digit growth in revenue and earnings, and helped set an all-time high for our installed base of active devices.”
And Maestri was just as bullish for near-term 2022 figures too, saying “We expect to achieve solid year over year revenue growth and set a March quarter revenue record despite significant supply constraints.”
All eyes on March then.
Invest in cannabis stocks
Invest in tech stocks
Make your money work a little bit harder with a tax-efficient investing account. First, learn the basics of how stocks and shares ISA works with our guide. Then, if you know that ISAs are right for you, go ahead and open an ISA account or transfer from another provider to start contributing regularly. Download our iOS trading app or if you’re an Android user, download our Android trading app to get started investing.
