Top 10 ISA buys in May on Freetrade
.jpeg)
What have investors been putting in their Freetrade ISA?
Published
September 4, 2024
The US has been the big attraction for investors over the past year. But look past the pandemic trigger and it’s clear the foundations for the tech boom were being laid long before 2020.
Coronavirus-induced lockdowns have accelerated the changes we all saw happening, like working from home, but the US has also housed opportunities already in motion that investors couldn’t seem to find anywhere else.
The UK market started to look a bit fuddy duddy and backward-looking with its legacy banking, oil and pharma companies.
And how do we know those companies still aren’t jumping out at Freetrade investors?
Well there isn’t a single UK stock on the list of top stocks and shares ISA buys in May.
But rather than focus on what we weren’t interested in en masse, let’s see just what our users were stocking up on 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 - our guide to 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.
🤔 Deep dive: What is a stocks and shares ISA
If you want to get an idea of an investor’s take on Tesla, start by asking them what the company does.
If they call it a car company, chances are a few comparisons with competitors’ production volumes will follow. There might even be room for a comment on its ‘sky-high’ valuation.
If, on the other hand, they focus the conversation on what Musk and Co. are doing to alleviate the world’s reliance on fossil fuels and, ultimately, change the way we see energy, that valuation might not seem so ridiculous.
This is the debate starting to become even more entrenched between Tesla’s supporters and detractors. One’s loose cannon leader is the other’s unique visionary.
Whatever side you come down on, for now the firm produces cars and does so at a valuation much higher than the wider market. Eventually earnings will need to support that lofty price, or the price will have to come down to better reflect revenues.
And it seems its investors are happy to look beyond the short term, to the possible value the company could create beyond cars.
That brings in another important aspect to valuations - it’s not just about the worth of what a firm is doing now, it’s what it’s capable of unlocking in the future.
AMC drew a lot of interest from investors amid the flight to heavily shorted stocks earlier this year.
The chain was hit hard by the pandemic, and the resultant shock to trade, but securing some major financing will have been good news for investors.
AMC recently raised $230.5m to help it buy new cinema leases and "make investments to enhance the consumer appeal" of its current portfolio.
As we all eye a return to normal, the question will be whether the company can boost profits after hanging on for dear life in 2020.
Similar firms like Cineworld in the UK are facing the same pressures but with high levels of consumer savings banked over lockdown, there is the potential to get bums on seats when silver screens open up fully again.
A key part in all of this is getting film studios back to full steam and making sure customers have a reason to get back to cinemas.
Streaming services have benefited hugely from populations stuck at home so cinema chains will have to do something special to make sure we see the value in coming back.
The poster child of the meme stock mania has left an indelible mark on this year’s market narrative but, short squeezes aside, why are investors hanging onto the stock?
One reason might be the hope of a turnaround in light of activist investor Ryan Cohen joining the GameStop board.
The incoming chair is part of the firm’s reshaped leadership and has made it very clear where he sees the future of the company.
Cohen’s focus will be on driving digital sales and services, drawing on gamers’ knowledge and relationship with the GameStop brand, but in a manner that minimises heavy costs like store footprints.
A revamped strategy is not necessarily a quick fix to release immense value though.
Turnarounds can take time no matter who is conducting them. Investors used to a thrill ride in the stock should ask themselves whether they are truly ready to stay in for the next chapter.
What’s more, as part of a good long-term investing strategy shareholders should almost always aim to pay a cheap or reasonable price for company shares.
At the moment there are some signs that pockets of GameStop’s investor community aren’t being sensitive enough to that aspect of good investing.
Once the excitement dies down, it may be that the value they predicted fails to materialise in the actual business performance. Caution should be very much part of the arsenal here.
Still a relatively new market entrant, Palantir recently released its first quarter earnings for 2021.
In the update, the software and data analytics firm reported increased revenue numbers of just under 50% compared to 2020, with sales totalling $341m for the first three months of the year.
One swallow doesn’t make a summer but it’s a positive start to Karp’s goal of delivering annual revenue growth of 30% or more from 2021 through to 2025.
Stability of this kind means winning large and long-term clients. For Palantir, that might mean going beyond the corporate sphere.
Of its reported revenues, $208m was from government agencies, both in the US and abroad, with business customers making up the rest.
The firm said in a regulatory filing, prior to going public, it wants to be “the default operating system for data across the US government.”
That suggests the firm could become more akin to a government contractor than a regular software business.
That’s not necessarily a bad thing. Governmental contracts tend to be sticky and can be lucrative the more a country relies on a service it deems valuable but can’t provide itself.
iPhone sales came in $6.4bn higher than predicted in Apple’s recent Q2 earnings, with Mac sales up 33% and sales in the important Chinese market doubling.
The result was a huge boost for profits, up to $23.6bn from $11.3bn for the same period last year.
That’s a huge climb and has been touted as an antidote to fears that we’re hitting, or have even passed peak iPhone.
Reflecting upon super sales thanks to a unique set of circumstances risks missing the forward-looking nature of the stock market though.
But even if the commute is back in fashion later this year, Apple boss Tim Cook doesn’t see an almighty drop-off in demand coming for Apple kit. He said, “Where this pandemic will end, it seems like many companies will be operating in a hybrid kind of mode.”
Investors hoping for a bit of news away from device mania might have been attracted to the announcements concerning the rest of Apple’s portfolio.
The firm is pumping over $430m into US suppliers and data centres, and Apple TV+ productions, adding 20,000 new jobs over the next five years.
Even with their individual stock picks, Freetrade investors are clearly leaving room for broad market index ETFs in their portfolios.
The US has been one of the best performing regions since last year’s pandemic lows, thanks in large part to its thriving tech sector.
Valuations in the space have largely 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 insanely important to the value of total returns.
Past performance is not a reliable indicator of future returns.
It may have ‘All World’ in the title but such is the weight of the US in global markets that it makes up around 60% of the geographical exposure of this ETF.
Japan’s next with nearly 7%, China has 4.7% and UK companies make up just 4.1% of the mix.
As you might be able to imagine, the top names are a who’s-who of the tech squad, with Apple, Microsoft, Amazon, Facebook and Alphabet (two share classes) making up the first six places. Tesla, Taiwan Semiconductors, Tencent and JP Morgan Chase make up the rest of the top 10.
The same is true here of the previous example. Investors are opting to have their income land in their account as cash more than they are reinvesting it. There might be a good reason for that but be sure to ask yourself which option is better for you before you think about either.
More broadly, looking at an ETF’s top holdings on the fund factsheet is a great way to see what’s under the bonnet and make sure it’s giving your portfolio what it needs.
If you thought the global theme meant staying away from US tech, it might be surprising to see all the same names represented. Buying without looking could mean you double up on those names instead of diversifying away from them.
The cryptocurrency platform started trading on the Nasdaq on 14 April. Rather than opting for a regular initial public offering (IPO), Coinbase used a direct listing to go public.
Last year the company managed to capitalise on the surge in crypto trading and rake in $1.3bn in revenues and net income of $322m. That was compared to revenue of $534m and a $30m loss in 2019.
We caught up with Coinbase managing director for Europe to talk about the listing, the company’s plans and where he thinks the crypto sector is headed next. Have a watch here or see our interview page for the full transcript.
Keep more of your investment gains with a tax-efficient savings and investment account. With a stocks and shares ISA or Freetrade personal pension, you control where your money is invested while benefiting from tax advantages. To help you get started, we’ve written an ISA explainer and a guide to how SIPP pensions work.
