Index ETFs and US tech stocks were the most popular buys for Freetrade stocks and shares ISA investors in April.
With markets taking a dip due to the war in Ukraine, renewed Covid fears in China and an upward-looking interest rate trajectory, ISA investors were clearly opting to double down on their tech holdings.
There’s still a noticeable lack of UK stocks among investors’ top ISA picks. That’s probably not surprising, given how unfashionable the UK’s stalwart sectors have been over the past few years.
Financial services and oil just don’t capture our imagination in the same way as big tech does. And 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. Whether higher rates translate into greater investor appetite for ISA stocks this side of the pond is still up in the air though.
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.
It’s official. Freetrade stocks and shares ISA investors still love Tesla.
The EV poster child entered April on the front foot after reporting a first-quarter delivery haul of 310,048 vehicles, with production numbers hitting 305,407. That was a huge jump from the 184,800 deliveries and 180,338 cars produced over the same period last year.
But the big news during the month was, of course, the $44bn Elon Musk slammed on the table to take Twitter private.
Free speech is the name of the game for Musk here and, despite the deal taking Twitter off the public market, the nature of the business means the world will be able to see pretty much everything Musk does to the platform.
What role he’ll actually take and how involved he will end up being isn’t clear yet. Those are a couple of areas Tesla investors will want to see clarified pretty soon though.
Revolutionary thinker or not, Musk can only increase his attention on Twitter if he takes it from somewhere else. And, with the war in Ukraine bringing into sharp view the need to push further into renewables, Tesla doesn’t need any distractions now.
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Again, we don’t know if that’s even on the cards. Musk could feasibly parachute in some trusted enforcers to enact his Twitter vision. But it’s the uncertainty that’s making Tesla investors a bit uneasy at the moment.
Another source of nerves is the prospect of Musk selling Tesla shares to fund the acquisition.
The EV boss sold $8.5bn in Tesla stock last week to boost his cash pile ahead of the deal. Musk quickly took to Twitter (where else?) to quell any fears over more short-term sales. But even with a categorical “No further TSLA sales planned after today” he’ll still need to hand over around $21bn eventually.
Investors will be keen to see where all the cash comes from, though it doesn’t necessarily have to come from Elon’s pocket. The terms of the deal allow him to involve other backers, further to putting up a chunk of his Tesla stake as collateral and $13bn in bank loans.
Musk hasn’t said whether anyone else has come in with him just yet but Tesla fans might just prefer that route to seeing some more stock shifting in the next few months.
April was a tough month all round for the US S&P 500 index.
“Just how tough?” you may ask. Well, both the Dow Jones and S&P 500 had their worst month since the very start of the pandemic in March 2020. And the tech-heavy Nasdaq went quite a bit further, recording its worst month since 2008. Yep, that tough.
It was driven by fears of an economic slowdown in the US, a punchy global interest rate trajectory, Covid still affecting supply chains and the war in Ukraine boosting commodity prices.
That’s quite the amalgam of top-down influences weighing on market sentiment. And while some investors have used depressed prices to snap up stocks on their watchlists, corners of the market are still asking whether the short relief rally at the end of the month will give way to another leg down soon.
Despite positivity briefly returning among traders, inflation is still running high. The prospect of slowing growth and an interest rate trajectory that will have to stay nimble to combat inflation might mean the index continues to look uneasy in the second quarter and maybe even beyond.
As the sagging Nasdaq index shows, tech took a big hit in April and Google-parent Alphabet wasn’t immune to the downturn.
Apart from the general market malaise though, the main driver for GOOGL’s fall from grace was sluggish performance from YouTube.
With TikTok pulling us away from the platform and marketing budgets across the world going back to normal after dizzying spends over the pandemic, YouTube’s ad revenue came up short against analyst expectations (again).
The segment has shown signs of slowing growth for a while now. Whether YouTube can reaccelerate or not will be crucial in the upcoming quarters for Alphabet’s stock price.
It wasn’t all doom and gloom though.
Most of us still see the firm as a giant in search and Alphabet didn’t slouch on that front, growing by over 20% during the quarter.
Other parts of Alphabet were also strong, with the firm’s cloud business maintaining its impressive 44% growth rate.
Zooming out, Q1 revenue growth soared by 23% overall.
Apparently, that still wasn’t enough for investors though. GOOGL shares slid in the aftermath, with Alphabet becoming yet another victim of investors' heightened expectations of the tech titans.
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.
And this looks to be a sentiment shared by Freetrade ISA investors who stuck with the US theme in April.
For broad US exposure, stocks and shares ISA subscribers favoured Vanguard’s income-accumulating ETF last month. That’s because dividends are incredibly important to the value of total returns.
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.
But, with the dividend taps getting steadily loosened after a dry 2020 and somewhat kinder 2021, investors have also been looking to payouts to supplement incomes.
It can be nice to see those payments land in your account, just make sure you’re putting them to good use. The last thing you want is to miss out on that glorious compound effect just because you chose the wrong version of an ETF.
Past performance is not a reliable indicator of future returns.
There are certain responses you can bank on hearing when you bring up a few specific topics.
UK house prices? “Criminal. I don’t know how they expect anyone to buy these days.”
Starbucks? “That’s just coffee for people who pretend to like coffee.”
Apple? “It’s all style over substance. We’re past peak iPhone anyway.”
And whether you’re nodding or lolling along, what they have in common is people have been refining all three party lines for quite some time now.
But, on the latter at least, it doesn’t feel quite right.
Strip out all the headwinds, like exiting Russia and China’s lockdowns, and Apple would have grown at a double-digit clip in its latest quarterly update.
Which, when you consider the firm was up against its iPhone 12 launch this time last year (iPhone sales grew 65% in Q1 2021), should be proof enough the world’s biggest company can still grow like a nipper.
But CEO Tim Cook poured cold water on some initial enthusiasm by quantifying the impact of ongoing supply chain challenges in China. The headline: factory closures will take $4-8bn off next quarter’s sales.
The challenge now is figuring out whether supply interruptions from lockdowns and other global issues will be temporary, a series of temporaries, or something more endemic.
If it's the former, Apple sales and profits should continue to grow nicely. If not, the iPhone maker faces permanently higher costs and lower profits. If that’s the case, expect that stock response to be trotted out even more over the next few quarters.
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.
Although this All World ETF gives access to a range of global markets,the fund is organised by market weight. That means 59.2% of its holdings are in the US (as at 31 March 2022) with 6.4% in Japan, 4.2% in the UK and 3.6% in China.
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 23% of the fund at the end of March with the top names looking like a roll call of the usual suspects. Apple, Microsoft, Alphabet, Amazon, Tesla and NVIDIA are followed by Facebook parent Meta, semiconductor firm TSMC and 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, if you’re considering VWRP or VWRL, make sure you’re opting 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.
While Elon Musk usually reserves Twitter for a light-hearted meme or two, it looks like investors were right to take him very seriously on the platform in April.
Given the value he has created at Tesla, Freetrade ISA investors clearly thought his passion would be too hard for the Twitter board to resist, sending the stock soaring up the list of top buys.
He’s certainly an avid user of the platform and maybe that’s exactly what the firm needs to iron out the wrinkles that only a frustrated customer could identify.
The headlines might inject a bit of life into Twitter’s share price but it could mean SEC scrutiny bleeds over from Musk’s mere use of the platform to the platform itself.
Let’s not forget his view of simply voicing his opinion has been seen as reckless by regulators in the past. That’s not something the firm will want hanging over it.
Away from grand ideas about promoting free speech though, what Musk probably sees is a special situation here, in much the same way as any other value-minded investor. Get in, assess what needs to be done to get the cylinders firing and execute. That’s normally the process.
But there is also the cultural chasm between what Musk is used to and what’s ingrained at Twitter. Will his new employees buy into the plans? Have they been waiting for a new direction or will the reception be as hostile as the bid?
The more you look at it, the task starts to get a little more complicated than adding an edit button.
Stepping back again, what Musk is doing doesn’t sound all that different from the private equity firms circling public companies on the UK market over the past few years.
But, whereas that opaque world comes with a reputation for ruthless job cuts, asset stripping and a relisting after loading up a firm with debt, Musk has a clean slate.
If he can do what he says and unlock value, this could be the first of many acquisitions. Making a success of Twitter could mean the first step on the path to becoming the ultimate tech landlord.
First things first though. If the deal closes, Elon will have to act swiftly, engage Twitter users and employees like he has done at Tesla and keep the EV giant’s fans happy at the same time.
Amazon was another stock to be slowly punished throughout April, only to get a Mortal Kombat-esque finishing move at month end.
With geopolitics and interest rates putting pressure on the shares, ultimately it was a damp squib of a trading update that pushed them even lower.
Amazon crossed the line with sales just 7% higher than last year. Cue headlines of “bleak outlook”, “sluggish growth” and the like.
But on closer inspection, it might not be as bad as the post-market drop in the shares suggests.
Firstly, Amazon was up against a 44% growth rate this time last year.
Secondly, all seems well in the company’s other growth engines. AWS chalked up a 37% growth rate. That might be the slowest growth of the major public cloud businesses, but it is the largest by some distance.
And Amazon’s ad business chipped in with 23% growth, beating Meta and Alphabet.
So the issue is with the core retail business, which flatlined. Not only that, Amazon’s selling operations are facing the same supply chain-related cost pressures as everyone else. This is weighing on overall profits for the firm.
For now, as it so often does, it comes down to valuation, and whether the stock price is baking in a growth rate that Amazon can actually achieve.
Although Amazon has a history of growing faster for longer than expected, at some point, the firm will mature. Time will tell how long history will keep repeating.
The AI-powered e-commerce firm boomed over the start of 2021 as part of the short-fuelled meme stock push.
But, after falling from grace spectacularly into the summer months, the company’s share price is miles away from where it was in February last year.
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 ebbed and flowed but tends to run high from month to month, with outspoken shorters openly fighting with company management online.
Analyst firm Culper Research didn’t hold back last year, saying Aterian relied upon an “overhyped ‘AI’ narrative and a string of garbage acquisitions”. Ouch.
Inflammatory language like that tends to attract those who start to wonder if that’s a short-seller’s way of sending the stock south.
Whether buyers were simply alerted to the stock after the damning report, or thought they’d have a go at GameStop 2.0, shareholders could be in for a lot more volatility before the year is out.
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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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