Investing in Niche Sectors

Introduction

I have also said that I prefer to focus on these broad investment vehicles in order to get the best possible returns with the lowest possible risk, due to the diversification that these products offer.

However, this approach may be boring, and we can always allocate some of our savings to have some fun, either in the way of cherry picking some stocks or in this case with some niche sectors. The idea on selecting these specific areas for the ETF, is because we think that there will be a huge growth in these sectors in the upcoming years (or in the short-term). Depending on our strategy, they help us combine our defensive and aggressive options in our portfolio.

Please note that the price of a security is composed of the current earnings and the estimated growth. This also means that for sectors with a high growth, the current price already reflects it.

In any case, these are some of the industries that will create a considerable impact in the years to come, and for that reason it may be worth to have some of our portfolio destined to any of these sectors.

1. Videogames

When I was young, the video games sector was already important, but it was below the movies or the music industry. Today, this industry’s revenue is bigger than the one of these two industries combined. The growth has been incredible in the last 15 years, but it will for sure not stop there.

While some years ago, most games could not be played online, this activity has also changed in the last years, opening new possibilities. For example, we have also seen this with the different organizations supporting and investing in eSports. New ways of entertainment have been included, giving more importance to social or mobile games.

The latest trends such as NFT or the metaverse have also an important role on some of these games and the different unique items that the players may get. In some cases, the trends could change completely the way we game. Therefore, if the growth in the last decade was already impressive, these two blockchain phenomenon will help to push the videogames even further.

In just a few decades, the growth of the video consoles and other devices has been immense

2. Artificial Intelligence

The advance of Artificial Intelligence is unstoppable, as organizations are adopting different branches of this technology to boost their digital transformation, giving great strength to a market that encompasses AI software, hardware, and services.

Today, the application fields of AI range from finance to robot control, from image recognition to vehicle driving and much more. We can see that big players like Google, Apple, Intel, Amazon, IBM are investing massively in the development of this sector. For example, not long ago, Google bough the company DeepMind for $400 million.

Artificial Intelligence (AI) is a branch of computer science that seeks to bring technology to mimic human behavior. Theorizing of a computer mind that mimics the functioning of the human goes back more than half a century, in 1956, when the term Artificial Intelligence was introduced as part of the Dartmouth Summer Research project.

The shift from theory to practice came hand in hand with the rise of computer skills. The technological acceleration of recent years has allowed the development of increasingly sophisticated and powerful algorithms. Today, the application fields of AI range from finance to robot control, from image recognition to vehicle driving and much more. Big conglomerates like Google, Apple, Intel, Amazon, IBM are investing massively in the development of this sector.

According to some sources, sales in the next eight years may grow by up to 35,570 million dollars, or what is the same, an increase capacity of more than 600%. In addition to this astonishing information, investment in AI is increasing at a rate of 37% per year and by 2022 it will exceed 77 billion dollars, three times more than the current 24 billion.

3. eCommerce

Although eCommerce had been growing steadily for years, COVID-19 was the trigger that changed in many cases how we buy different products and articles, and in general the shopping experience. Due to the loosen restrictions in most countries, the growth has been normalized in 2021, but predictions say that eCommerce will be growing every year. Indeed, the pandemic helped some people discover that buying could be much easier and without any issue.

Some factors helping the growth will be related to mobile phones and faster technologies such as 5G. More services such as augmented reality, virtual reality, image recognition or artificial intelligence will be possible to offer a broader range of possibilities to the customer. Besides, almost every company today has an online application and from there the user can buy directly almost anything.

Furthermore, the rise of more payment options such as of cryptocurrencies will also be an added benefit to customers wanting to buy online.

While more senior people were initially reluctant to online shopping, younger generations such as the millennials are the early adaptors of this trend. This means that this way of buying will be already inculcated for the new generations to come and will be seen as something completely normal in the everyday life of every customer in a few years from now.

4. Cannabis

This is a controversial topic in some cases, but the truth is that more and more countries are allowing the usage of marijuana for therapeutic treatments. I have said that it is a polemic aspect because Cannabis has been seen as a criminal or something that should be avoided until recently. Although, we need more education on this topic, mainly for younger generations. it has been proved that the Marijuana derivative medicaments or therapies have multiples benefits in diseases. Furthermore, the price of this medication is generally lower compared to other alternatives, and it also has less side effects.

The US and Canada have been two of the latest countries that have approved the usage of Marijuana, and as many things occur, some other regions such as Europe or Asia may also follow soon.

It is expected to grow between 2022 and 2030 with an annualized rate of 25%. Apart from the medical advances, the decriminalization has also an important role in this rise.

There are two factors that will be key for the expansion of the Cannabis sector:

In terms of regulation, it is predicted that more and more countries will allow medical treatment with Marijuana or derivatives from this drug.

Another key aspect is the global population aging. We live more years, and because of this, we also suffer from more diseases. In some cases, Marijuana can play an important role to mitigate of our life expectancy. All in all, Cannabis has the potential to help humankind, being part of the different breakthroughs in terms of health.

There is still a lot to learn in the Cannabis industry

5. Water

Because all these investments don’t have to be necessarily related to technological improvements, we refer in this section to one of the oldest things in history. We are made for the most part out of water and we need water to survive. While people think on electricity or gas when investing in different companies, we could survive without these two, but water is essential for our survival. Other utilities such as oil and gold are also commodities that are not necessarily essential for our survival.

Unfortunately. due to climatic change and other linked problems, water is becoming scarcer. Besides, accessing to water in some countries is still a nightmare. Out of the total water on earth, 97% is saltwater, and out of the remaining 3%, another percentage is frozen.

Since we all need water and there is less for all of us, with the expected growth of the global population, the more demand and less supply means that the value of water will increase.

Conclusion

We have described 5 sector that are expected to grow in the years to come at cruise speed. Investing in companies that are focused on these sectors can add additional diversification to our portfolio, add defensive or aggressive variants to it while we have some fun with our choice.

There are other sectors that were not included in this post, but that will grow very much in the next decade. Some of them are the following ones: Blockchain, semiconductors or metaverse

As mentioned in the introduction, even if they are expected to grow, the current price may already reflect the expected expansion and development of these industries.

Another factor to be noted is liquidity. For example, if you want to buy or sell, there may be less options, not just in the form of funds or ETFs, but in the number of orders.

All in all, there are some advantages and disadvantages when selecting niche funds. Therefore, I would not recommend including 100% of your portfolio into niche sectors. On the other hand, allocating just some part of the money into these funds could be a wise and fun option for the future.

If you are interested on how to access to buy them, an example of different funds and ETFs has been included on each analyzed sector. You can see a list of brokers in one of my past articles: Achieving Economic Independence