Navigating market themes with ETFs this ISA season

Since the ISA was invented, the way people invest has changed dramatically. Now in its 25th year, the ISA has become the go-to tax-efficient wrapper for retail investors. In a world full of choice, it is now harder than ever to decide where to invest. Investment options cover geographies, sectors, and asset classes and when you mix in the range of vehicles available, such as exchange-traded funds (ETFs) and mutual funds, the choice can be daunting.

Whether it is navigating geopolitical risks, understanding which megatrends have the strongest lasting power or capturing regional investment opportunities, investors have the tall task of deciding where to invest. To help investors navigate these challenges, WisdomTree has compiled a list of investment themes and a variety of relevant ETFs to gain exposure to the key themes expected to play out in 2024 and beyond.

Geopolitical risks

Geopolitical risks are elevated and driving raw material prices higher. For example, the skirmishes in the Red Sea threaten supply and are driving oil and other commodity prices higher. As with other supply-driven supply shocks we have seen in recent years, commodity baskets could prove to be the best hedge against this cost pressure. Gold is often seen as a safe-haven asset and in a year with a dense global election calendar it could be used more as investors hedge against what they believe could be adverse outcomes.

Artificial intelligence (AI) powers other thematics

The AI revolution is about to enter a new and exciting phase in which the technology’s potential will become apparent across multiple industries. In 2024 we expect industries that have already benefitted, such as cloud computing and cybersecurity, to continue doing so. However, the scope will widen to biotech, automobiles and energy transition technologies.

Energy transition

While investor attention towards the energy transition faded in 2023, policymakers are intensifying their resolve. Breakthrough agreements at the COP28 are a case in point. Our long-term outlook for commodities is conditioned on the energy transition and we believe that the potential for medium-to-long term supply deficits in metals will generate a commodity supercycle.

Japan continues to reform

Japan is transforming into an asset management-led nation under the leadership of Prime Minister Kishida. Japan continues to benefit from investors rotating out of China. Investment in productivity remains high on the agenda in an ageing country, with capex set to rise 14.6% this fiscal year.¹ Government-driven corporate reforms, accommodative monetary policy and rising wages could favour domestic equity markets.

Quality dividend growers for resilient core equity investments

When it comes to short term moves in markets, “nobody knows anything”. Successful investors are long-term investors that aim to harness the equity risk premium, over the long term, through time-proven, consistent strategies. In the words of Kenneth Fisher, “Time in the market beats timing the market”. Core, resilient equity investments that do not rely on knowing the future should be investor’s best friends. Consistent exposure to highly profitable companies with solid dividend-paying credentials could continue to be the best answer for long-term minded investors.