Here’s how you can benefit from BITCOIN MANIA
The 187 per cent rise in the share price of US semiconductor giant Nvidia, valued at $3.44 trillion (£2.7 trillion) is hard to ignore.
But let’s take a moment to focus on the 509 percent jump in shares of a smaller American tech company – MicroStrategy, a software company that is mainly putting money into Bitcoin, the world’s largest cryptocurrency.
It has been amplified by the bitcoin mania that emerged from Donald Trump’s election victory; Suddenly, crypto has acquired a new stature.
But the upward trajectory of MicroStrategy and other US small-cap stocks should also serve as a warning to British investors who may be skeptical of crypto but feel they need to adjust their portfolios before Trump comes to the White House.
The surge in MicroStrategy shares reflects the growing belief that US small-cap stocks will achieve star status under the Trump administration, after an era in which Nvidia and the other mega-cap members of the Magnificent Seven of tech – Alphabet, Amazon, Apple, Meta, Microsoft and Tesla – have enriched shareholders enormously.
‘Small’ in this sense does not mean a ‘mom and pop’ business, but a business worth millions or billions: the average market capitalization in the Russell 2000 index for smaller companies is $3.5 billion (£2.8 billion ).
Boost: Donald Trump’s victory in the US elections has caused the cryptocurrency to skyrocket
The index is up more than 15 percent this year, fueled by excitement about the prospects for lesser-known U.S. companies and Bank of America’s latest fund manager survey. Respondents to this hugely influential survey acknowledge that the president-elect’s policies could fuel inflation, meaning interest rates will fall more slowly than expected.
Still, they are optimistic about the prospects for all U.S. stocks, particularly believing that smaller, domestically focused companies will get a boost from Trump’s plans to cut taxes and reduce regulation.
Such a move would allow them to compete more fiercely with larger competitors; Bureaucracy can place a disproportionate burden on smaller companies. The introduction of tariffs on imports could also be a boon for small caps.
The energy, financial and industrial sectors are seen as the biggest beneficiaries of the range of populist and other measures the Trump administration could implement – but the prospects for other types of companies could also improve.
Blair Couper, investment director at Abrdn, said: ‘Financial companies, such as banks, could perform well if interest rates remain high for longer. If borrowing costs remain high, real estate companies could be negatively affected, but this could be offset by Wall Street’s positive reception to Trump’s policies.”
At the same time, the takeover “guardrails” could be dismantled, allowing more companies to be snapped up by predators at ridiculous premiums.
Wall Street thinks current Federal Trade Commission chief Lina Khan is about to be replaced by an official who would be much happier presiding over a wave of mergers and acquisitions.
Bank of America analyst Jill Carey Hall has already mentioned some potential acquisition targets.
The list includes Apogee Enterprises, a maker of architectural glass products, Bread Financial, a lender, and the shipping company Scorpio Tankers.
Other analysts have cited companies like Hims & Hers Health, a telehealth platform whose shares have tumbled following news that Amazon will also start offering consultations on things like hair regeneration.
Hims and Hers is one of the holdings of Legal & General’s L&G Russell 2000 US small-cap quality ETF (exchange traded fund). The fund also has an interest in Mara, a bitcoin miner.
These outfits process the transaction after the creation of a new bitcoin. This process involves a lot of complex mathematics.
Also in the portfolio is Phoenix-based Sprouts Farmers Market, whose shares have risen 248 percent to $146 in the past year on the belief that more Americans will adopt healthier diets and enjoy consuming the supermarket’s grass-fed beef. organic milk and vegan snacks. Kirsty Desson, manager of the Abrdn Global Small Companies Fund, also points to a retail group: Casey’s, which operates gas stations on its premises and is the fifth-largest pizza chain in the US.
Desson says: “Casey’s operates in rural areas and small towns, targeting mid-market and mid-market consumers. In other words, voters will most likely try to take advantage of Trump’s ‘Make America Great Again’ policy.”
Desson likes Wintrust, a Chicago-based regional bank whose shares are up 42 percent this year. This institution should be able to increase its lending and also take full advantage of the consolidation in its sector, as regulations become less stringent and the pace of mergers and acquisitions increases. A lack of familiarity with Wintrust and other US small cap names can make a foray into this area daunting.
The Magnificent Seven Titans are well-known names whose services we use, or whose brands we know.
These behemoths have already enriched shareholders immensely, and more gains could follow as the artificial intelligence industrial revolution progresses.
Nevertheless, it seems wise to try to make the most of the coming trends in the US economy.
I plan to move some money into funds like Artemis’ smaller US companies, Interactive Investor’s fund recommendation, and Premier Miton’s US opportunities, the Fundcalibre platform pick.
Jason Hollands of Bestinvest is also in favor of this fund: ‘It is solid, not spicy or speculative; small and mid-cap stocks make up 75 percent of the portfolio.”
He also suggests the Federated Hermes US SMID equity fund. Its manager, Cormac Weldon, claims that ‘investing in smaller US companies is a way to gain more direct insight into the intricacies of the US economy’.
More skeptical investors may believe that Trump could be dangerous for the US because it could add trillions to the national debt.
It is worth noting, however, that Trump, a New Yorker, craves the good opinion of Wall Street, the city’s most powerful industry. He also knows that Americans are happy with rising stock prices.
Veteran investor Warren Buffett’s claim that you should “never bet against America” has proven largely reliable.
But it might be wise at this point to widen the spreads of these investments from the mega-caps to the small-caps.
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