5 Massive Investment Trends (2023-2025)
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The investing landscape is changing faster than ever before.
Investor preferences are constantly shifting. And technological advances allow investors to construct portfolios in new ways.
Below is a list of the top trends impacting the world of investing right now.
1. Passive Investing and Indexing Become Mainstream Investing Strategies
Today, about 54% ($6.2 trillion) of total equity fund assets are passive.
Passive investing’s growth in U.S. equity funds.
Passive investing is a form of investing that involves no discretion on the part of a fund manager.
Contrasted with active investing (where managers pick the stocks), passive funds usually track some kind of index or group of stocks.
Passive investing still sits at about 43% of the total US fund universe (which includes bonds and other assets).
But its position has been growing steadily, rising from just over 30% in 2015.
Passive’s share of the entire US fund universe is getting closer to 50% every year.
This sudden rise is partially the result of a boom in index funds and exchange-traded funds (ETFs).
Search interest in “stock market index” has risen by 247% over the last 5 years.
Worldwide, the number of ETFs rose to 8,552 in 2021.
Searches for Exchange-Traded Funds (ETFs) has grown by 54% in 5 years.
According to ETFGI, the number of ETFs have grown at a CAGR of 11.76% over the last decade.
The largest providers of ETFs are three companies – BlackRock, State Street, and Vanguard.
Collectively, these three firms control more than $4 trillion in assets.
90% of the S&P 500 also counts at least one of these three companies as its largest shareholder.
According to PwC, the number of actively managed mutual funds still exceeds the number of passive funds. But this is expected to change over the next several years.
The makeup of the fund industry has changed a lot over the last decade.
2. ESG is Becoming Essential to Every Investment Strategy
Environmental, Social, and Governance (ESG) investing has taken the financial world by storm over the last several years.
Search interest in "ESG Investing" has grown by 490% over the last 5 years.
In 2020, US ESG funds added about $51 billion in new capital.
That’s up from just over $5 billion of inflows a few years earlier in 2018.
And US funds with ESG mandates brought in more than $21 billion in the first quarter of 2021.
Globally, ESG funds are growing faster than many other asset classes out there.
Global ESG assets under management grew from around $500 billion to close to $2 trillion.
Europe has been the biggest beneficiary, bringing in over $100 billion in new capital in Q1 2021.
Europe’s ESG growth in Q1 dwarfs the rest of the world.
But the US is starting to make moves as well. Some experts are even predicting over $1 trillion in ESG-focused assets by 2030.
The number of funds has increased as well.
Over the next three years, Deloitte expects 200 new ESG funds to be launched in the US.
A lot of this growth has taken place in new ESG-focused ETFs.
Search interest in the term "ESG ETF" has grown by 1,800% over the last five years.
Reuters reports that in Europe ESG ETF volume has grown by 3x compared to 2020.
Europe is the epicenter of ESG growth, typically foreshadowing what is to come in the US.
Therefore, it is particularly interesting to note that ESG ETFs currently make up more than 15% of the volume on the German electronic exchange Xetra.
And total ESG ETF assets under management have more than tripled in 2021, growing from 43 billion euros to 137 billion euros.
Even with all of this recent growth, there’s still room for expansion.
It’s estimated that just 3% of 401(k) plans offer ESG-focused investments.
As of 2021, there was $7.26 trillion invested in 401(k) plans across the US.
401(k) plan assets have grown from $1.7 trillion in 2000 to $6.9 trillion in 2021.
If even a quarter or a third of these assets are shifted to ESG-focused funds and investments, the amount of capital managed according to ESG principles could explode.
3. Meme Stocks & Retail Investors are Increasingly Influencing the Markets
While passive investing has been taking share from actively managed funds for years, retail investing is also on the rise.
Between mid-2020 and mid-2021, the popular trading app Robinhood grew from 7.2 million accounts and $19.2 billion in assets to 18 million accounts and $80 billion in assets.
The Robinhood app.
Other brokerages have seen similar jumps.
Charles Schwab, for instance, added 3.2 million new retail brokerage accounts in the first quarter of 2021 – more than all of 2020.
Web traffic to online brokerages is higher than ever.
A lot of this has been the result of individual traders looking to profit off of what are known as “meme stocks".
Stocks like Gamestop, AMC Entertainment, and Blackberry have all been forced higher by retail investors communicating largely in online forums.
AMC Entertainment market summary.
In fact, Morgan Stanley recently found that retail investor activity made up 10% of the trading volume on the Russell 3000 index.
Now Europe is following in the US’s footsteps. Reuters reported that Europe’s retail investor base doubled in 2021.
4. SPACs & Direct Listings Offer New Ways to Go Public
Traditionally, companies around the world have only had one option when going public – the initial public offering (IPO).
Today, several other options have become available.
A Special Purpose Acquisition Company (SPAC) is a publicly-traded company that raises capital explicitly to acquire another (typically private) company.
Once the acquisition is complete, the previously private company is merged with the SPAC and can be publicly traded.
Searches for "SPAC" have increased by 70% over the last 5 years.
The number of SPACs has exploded in the last year and a half. Before 2020, the number of SPACs going public never crossed triple digits.
Number of SPAC IPOs per year.
In fact, there were close to 400 SPACs created just in the first half of 2021.
According to Statista, in most years SPACs never raised more than $11 billion before 2020.
In the first 7 months of 2021, SPACs raised over $100 billion.
Some large and accomplished companies have been coming public through SPACs.
The largest SPAC to date is Altimer Growth Corp.’s roughly $40 billion merger with Southeast Asian ridesharing and delivery company Grab.
Searches for "Grab" have grown by 487% over the last decade.
Along with Grab, other popular companies have been choosing the SPAC route as well.
At the end of 2019, fantasy sports company DraftKings announced it would merge with Diamond Eagle Acquisition Corp. to go public at a value of $3.3 billion.
The stock now trades at roughly $7 billion.
Searches for "DraftKings" have grown by 1,900% over the last 10 years.
One of the biggest beneficiaries of the SPAC boom looks to be the nascent space industry.
Virgin Galactic was one of the first SPACs to bring attention to this new way to access the public markets.
Searches for "Virgin Galactic" have grown by 300% in 5 years.
In fact, Virgin Galactic’s $1.5 billion SPAC merger with Chamath Palihapitiya’s Social Capital Hedosophia in 2019 may have set off a wave of space and rocket company SPACs.
Some of the more recent space-focused SPAC deals include two satellite firms: BlackSky and Spire.
BlackSky is a satellite imaging firm that announced a $1.5 billion SPAC merger back in February 2021.
Search interest in "BlackSky Global LLC" has grown in the last 2 years.
BlackSky uses its SpectraAI platform to combine images from satellites, data from IoT devices, and information from other third-party sources to provide monitoring services to its customers.
Spire also announced a deal in February 2021 to go public via a $1.6 billion SPAC merger.
Spire has roughly 110 low-earth orbit satellites and provides services to global logistics providers, global governments, the US government, and other businesses.
In addition, Rocket Lab – a company that has launched many of the BlackSky and Spire satellites – has announced a SPAC deal as well.
The deal is valued at $4.1 billion and marks the first entrance by one of the major rocket companies (SpaceX, Blue Origin, and Rocket Lab) into the public markets.
The SPAC market has grown so popular, that Defiance ETFs even created an ETF to track SPACs.
Search interest in "Defiance ETFs" has grown by 7,300% over the last 5 years.
Direct listings are another alternative to traditional IPOs that have become more prevalent in recent years.
A direct listing occurs when a private company goes public simply by offering outstanding shares to the public. Many times, the company isn’t trying to sell any new shares but is instead trying to offer liquidity to current investors.
In a traditional IPO, an underwriter (usually a Wall Street investment bank) helps a private company create new shares and offer them to the public.
To do this, the underwriter typically purchases the shares themselves at an agreed-to price. They then offer them to select institutions, who distribute them to the general investing public (usually at a much higher price than what they bought them at).
Direct listings were practically unheard of until 2018 when music streaming company Spotify went public via a direct listing.
Search interest in "Spotify" has grown by 309% over the last 10 years.
After that, successful tech companies like Asana, Palantir Technologies, Slack Technologies, and Roblox, all went public through a direct listing.
5. Robo-Advisors are Taking Over Wealth Management
Robo advisors are one of the fastest-growing trends in investment management.
Searches for "Robo-advisor" have grown by 4,400% over the last decade.
What constitutes a robo-advisor varies depending on who you ask.
But, for the most part, a robo-advisor is defined as software that manages an investor’s portfolio and savings automatically.
Typically, these services are focused on younger investors and lower balance accounts, giving non-wealthy clients access to cheaper alternatives than traditional wealth advisors.
Total assets under management are difficult to estimate, but Business Insider places it at over $500 billion in the US in 2020.
This is less than 1% of the $58 trillion wealth management market, leaving a lot of room for growth.
Business Insider predicts that the robo-advisors’ share will be over $830 billion by 2024.
Growth of robo-advisors’ AUM over the next few years.
Others predict that the global AUM of robo-advisors will reach $2.5 trillion in 2023.
And Traders Magazine predicts that the number of global robo-advisor users will jump from about 70 million in 2020 to just under 150 million in 2023.
A lot of this growth will be due to the changing marketplace for wealth management services.
The changing wealth management ecosystem
Central to this change are new digital offerings created by robo-advisors.
Bloomberg Intelligence predicts that over the next 10 years, millennials will control about 5x more wealth than they have today.
Half of them already say that they want to use digitally-focused wealth management services. The change over the next decade could be very profitable for robo-advisors.
One of the top firms looking to take advantage of this is Betterment.
Searches for "Betterment" have grown by 925% over the last 15 years.
Betterment was launched in 2010 to help remove bias from investing. It offers completely automated investing, constructing low-cost portfolios based on how customers answer questions.
Since its start, Betterment has evolved to connect clients with human advisors if they wish. And it has created Betterment Institutional – a platform that allows financial advisors to use Betterment to construct and manage portfolios for their clients.
As of the first quarter of 2021, Betterment serves 615,000 accounts that contain over $29 billion assets under management.
Wealthfront has a story similar to Betterment.
It too was founded in the depths of the 2008 financial crisis.
And it too has AUM in the multi-billions ($25 billion in 2021).
Searches for "Wealthfront" have grown by 840% over the last 10 years.
And Wealthfront may not have started courting advisors, but it has started offering cash accounts with checking features.
Customers can also park money in high-yield savings accounts, treating Wealthfront like a normal bank.
As more investors seek out digital wealth management, expect robo-advisors to increasingly influence investment strategies.
That’s all for the top investing trends of 2023.
Whether it’s a new way to access the public markets, a digital offering, or a new investment strategy, there is no shortage of innovation in the investing world.
And if the rise of meme stocks and retail traders has taught us anything, it’s to expect the unexpected in this space.