Investors are urged to “ignore the hype” as they chase the latest thematic product offered by asset managers.
Monik Kotecha, chief investment officer at Insync Funds Management, said 2020 had been the year of hype similar to the tech bubble 20 years previously.
Many of these trends were found in new technology and Kotecha identified thematics such as electric vehicles, battery storage, climate change technologies and biotech, all of which had specific exchange traded funds (ETFs) dedicated to them.
Kotecha said: “To invest in something because it is going up in price (even when its business financials are not) is a readily acknowledged phenomenon intellectually, yet sometimes hard to resist in reality.
“It is one thing to witness their growth and technological acceptance, and another thing to see the businesses involved performing well today.
“The companies exposed to these trends often vow to ‘change the world’, have crazy-high valuations and mostly are wildly unprofitable, and usually backed by Wall Street and VCs [venture capitalists].”
He warned investors that it would be harder for these firms to raise capital in the future as the interest in the trend died down and unprofitable companies would be forced to exit, as was the case with the dotcom bubble.
To avoid this, Kotecha said it was crucial for investors to identify where a company was on the market cycle and whether it was in the “hype phase” or had a mainstream, established presence.