I have been thinking about how best to position my investment portfolio for the coming year and beyond. Here are three thematic ideas I am currently using that I think could help boost my potential returns.
Asset managers
2022 was a terrible year for asset managers. Where do my own shareholdings in the sector stand compared to a year ago? M&G is down 7%, abrdn has fallen 22% and Jupiter has shed 47% of its value. Ouch!
On the upside, the average yield of those three stocks at the current share price is a juicy 9.8%. Even that looks unlikely to last, though. Jupiter has announced a new dividend policy that I expect to lead to a lower payout.
Does a terrible 2022 mean that asset managers could rebound strongly in 2023? Or are concerns about falling profits due to customer withdrawals likely to grow with the recession, pushing share prices down further?
Either scenario is possible in my view. However, I feel the long-term investment case for the sector remains strong, meaning current share prices could present a buying opportunity for my portfolio.
Energy gluttons
As energy prices soared during 2022, costs piled on for energy-intensive industries. That ate into profits and pushed down share prices, sometimes dramatically.
But in many cases, I see such costs as temporary in nature. At some point in future they will fall again, while the underlying economics of a business will become clearer. In some cases that will be a reminder of how attractive the business is. So buying now while many investors are still fretting about energy costs could be a rewarding move for my portfolio.
Take polymer manufacturer Victrex as an example. Its shares are down 33% in the past 12 months. In its last financial year (which ran to the end of September), the company saw pre-tax profits fall 5%. The company’s chief executive described the energy inflation it faced during the period as “unprecedented”. But while profits fell, sales volumes grew 8% and revenue was up 11%.
Higher costs allow companies to push up their own selling prices. This can mean that, once energy prices fall again, they continue to benefit from higher selling prices. One investment theme I am exploring this year is power-hungry companies whose profits have been hurt by high energy prices, but whose underlying sales volumes remain strong.
Housebuilders
I have been eyeing an investment in housebuilder Persimmon for a while now. What has been putting me off is the deterioration in the housing market. So far this has been uneven and relatively small. But it is already taking a toll.
An imbalance between supply and demand could mean that what we see this year is a housing market wobble and then recovery. An alternative scenario is a full-blown property crash either happening or at least starting in 2023.
If there is a crash, I do not want any housebuilders in my portfolio beforehand. But if all we end up getting is a wobble, I see value for my portfolio in the current price of Persimmon and some peers. So I will be keeping a keen eye on the property market in 2023 to help me decide whether I ought to make an investment.
