Where to Invest $1 Million Right Now
It’s scary out there.

Investors trying to cut through the market noise face immense challenges. Rapidly rising inflation is stoking fears that interest-rate hikes from central banks could usher in a global recession. Stock and bond markets are in turmoil, with the S&P 500 down more than 20% from its peak and US Treasury prices plunging. That’s all against the global backdrop of the war in Ukraine and the continuing threat from Covid.

It’s enough to make you long for the safety of cash — if inflation wasn’t sure to eat away at cash’s purchasing power over time.

Bloomberg spoke with six professional investors to get their best ideas on where investors with $1 million might want to deploy their money now. Choices vary from municipal bonds to the blockchain to uranium miners.

The experts also shared where they would deploy $1 million if they could put it toward a personal passion, with ideas ranging from clean-water technologies to Portuguese real estate and horse farms.

Stephanie Larosiliere
Senior client portfolio manager, Invesco

The great thing about municipal bonds, particularly going into this year, is the fundamentals and how much funding has come from the federal government in terms of Covid relief and other stimulus. It adds up to $1.6 trillion through 2024. That’s honestly probably a little bit more than was needed. That’s why we're calling for a continuation of the golden decade of municipal credit.

The macro issues are throwing a bit of a monkey wrench into that. There’s a lot of speculation about whether there’s a slowdown coming for the economy. But when it comes to municipal issuers, there’s still a lot of money for them to tap. That’s a prime example of why we continue to see more upgrades than downgrades in the muni market. It takes a lot of time to eat through $1.6 trillion.

At the end of the day, though, munis are about the tax-exempt income. I’ve been talking to a lot of advisers, and there was a bit of sticker shock this tax season. People expected more of the norm, but it was a bit worse than most people thought. As we start to draw up plans, tax-exempt income will become more important.

For those in the highest tax bracket, getting 4% on a short-duration high-yield municipal bond is equivalent to almost 7% on a taxable bond. We haven’t seen that in a very long time. Right now the asset class is primed for investment because it’s not a crowded market like it was last year, when there were record inflows. Back then it was hard to find things you could really get excited about. The opportunity presented year-to-date has created opportunities and made it more interesting to invest.

It’s the retail-investor sentiment creating a negative feedback loop. When they’re fearful, they want to hoard cash and they’re afraid they’ll be catching a falling knife. At some point, munis will start to get cheaper and that will attract investors.

Another way to play it from Larosiliere: One of my outside interests are technologies designed to bring clean water to developing countries. It is estimated that 80% of illnesses in developing countries are linked to a lack of clean water. I believe this should be an area of interest for investors looking to align their investments with their values. When water supplies are improved and sustainable, it can significantly enhance a community’s economic growth, leading to a reduction in poverty. Investments in this space have the potential to not only add value to portfolios but make an impact in the lives of those in need. - Brian Chappatta

Kim Forrest
Chief investment officer, Bokeh Capital Partners

I like US stocks because they're liquid, and I like above a billion-dollar market cap because generally speaking those managements are a little more solid than at small-cap companies. In most cases, if you have a billion in market cap, you're not 100% in the US — you have a more geographically spread-out revenue stream.

Even though I want super-solid balance sheets, I need to see companies that have proven they can create whatever they do for at least one or two product lines, so they have more than one widget that they’re selling.

What I really want to see is companies, whether it’s a chemical manufacturer or a retailer, that use technology effectively. They may develop technology but they also need to use technology well internally because it gives you productivity. I was a software engineer — mostly what I did was custom software design to streamline operations — so I really value that.

Generally those companies have better margins than peers. You might think the technology would be robots and drones and stuff that looks cool, but what you really want is stuff that takes out error and a large amount of people doing repetitive tasks. It allows you to not have a bunch of people doing dumb work.

This is across all sectors — it could be even a utility company. The better a company can automate and focus whatever workforce they have on growing their customer base, that’s better for an investor. You can screen on things like return on invested capital or return on equity.

I believe in concentrated positions, so 3% for starting positions. We get about 31 to 33 holdings and then some cash. You're diversified but you can still outperform. A lot of years some of those companies are going to get bought out, so you have a pretty good shot at getting some buyouts each year.

Another way to play it from Forrest: A horse farm where you cater to the hunter-jumper crowd. It takes a lot of money to run, but you're charging people a lot of money to take care of their horses, and man, oh man, do you have a whole lot of fun. It can really be profitable. I don’t own a horse but I take riding lessons at a very fancy farm where they really take care of their horses. I would assume there’s pretty good margins because you're having a relatively small number of people take care of 60 horses and it’s skilled labor but it’s not crazy. Then you probably get agricultural tax benefits. Here in Pennsylvania, we have Clean and Green — you get a lower tax rate on your farm. If you have 10 acres or more you can apply for those. - Claire Ballentine

Claire Madden
Managing partner, Connection Capital

There are often requirements for liquidity between fundraising rounds at fast-growing tech companies, such as from seed investors who’ve been in for a long time. We’ve invested in a fund manager that targets this area, focusing on the UK and Europe, and you can often get into a company at a discount to their last fundraising round. The tech selloff means that a lot of companies are having to push their next fundraising round further out into the future as it’s just difficult to raise money. That means the universe of opportunity and therefore the discount you’re able to get in this area have increased.

It gives you exposure to tech outside the traditional tech funds that tend to be at least 10 years, meaning a lot of the liquidity is very back-ended. Secondary funds are normally going into businesses that will be doing another round in the pretty near future, and they’re not so wedded to seeing it through to the end, so they’re not as precious about selling out later. That means liquidity can happen quite quickly from these investments. You’re not having to take this long-term view.

Another way to play it from Madden: I am obsessed by big-wave surfing — watching, not doing — at Nazare in Portugal. I would invest in a getaway there. I think more and more people are waking up to the beauty of Portugal’s Silver Coast and its wild beaches and fantastic food. Who says an investment can’t also be good for the soul? - Ben Stupples

Luis Berruga
Chief executive officer, Global X ETFs

When I consider the increased digitalization of the economy and the growing demand for clean energy, three themes stick out as especially compelling: blockchain, cybersecurity and uranium.

Blockchain technology is upending many traditional areas of finance, and institutional investors are increasingly showing interest due to its many valuable use-cases beyond cryptocurrencies. Delivery of digital assets using blockchain technology can be a critical tool in tackling global poverty by providing millions of unbanked people across the developing world with access to banking services.

In the context of blockchain, I see this recent drop in market prices as an opportunity — blockchain is fundamentally different from some of the cryptocurrencies we’ve seen. The case for blockchain as a technology I don't think has changed.

Another theme that will be critical is cybersecurity. As cyber attacks rise in both scope and frequency, more companies are committing resources to protecting themselves from costly attacks. New tools including artificial intelligence and machine learning allow security firms to identify and investigate devices diverging from their “normal” behavior. We estimate the network security ecosystem could grow by an average compounded annual growth rate of 24% through 2026.

Another structural shift is the green energy transition. Governments are setting aggressive timelines for achieving net-zero carbon emissions, and many realize that nuclear energy, powered by uranium, will be central to reaching those goals. Pro-nuclear energy sentiment is growing, especially as countries weigh the effects on oil supply due to the war in Ukraine. Currently, Asia is the leading hub for new reactor construction. China has 18 traditional reactors under construction, India has six and South Korea has four. In total, over 50 reactors are under construction, representing significant annual growth. Uranium miners should benefit from growing demand, especially given that current supply lags could help sustain high prices for years.

Another way to play it from Berruga: Growing up in a small town in Spain called La Roda, I saw many people who had a positive attitude and work ethic but weren’t given a real chance to succeed because of a lack of financial resources or training. I’ve always thought setting up a platform to connect these communities with capital and training would provide a very attractive return on investment from a financial and social standpoint. It would provide financial resources and industry expertise while functioning as a hub for hiring and cultivating local talent. The structure would probably be a small private-equity fund with a social element as part of the investment guideline. I’d try to bring in my own capital and capital of third parties that bring some sort of operational expertise, and use that to co-invest with founders of these local businesses. - Claire Ballentine

Gabriela Chagas
Partner, Vox Capital

In a world struggling with Covid, inequality and climate change, the key word we've been repeating to our investors is legacy: How you can use your investments today to see the future you want to live in materialize?

So one of my biggest motivators right now, coming from an emerging country such as Brazil, is investing in assets that can help reduce inequality. That's why there's such a strong case for companies that help close the gap in financial inclusion. Brazil is a huge country with an immense percentage of unbanked population, something that's also true for other emerging markets. That means people have a lot of difficulty in making day-to-day payments and end up having to go to banking branches.

That’s an opportunity for startups. One of the main companies in Vox's portfolio, for instance, is Celcoin, which provides financial infrastructure that basically turns thousands of small-store owners around Brazil into mini-banking branches. They also get some extra revenues whenever someone pays a bill there or charges a prepaid phone. Ultimately, I believe that by giving people access to the financial system, financial inclusion ends up turbocharging the fight against inequality as whole.

Another way to play it from Chagas: A lot of people, myself included, have been looking for ways to achieve their own personal net-zero emissions. I’d do it though investing $1 million in recovering forests, in particular the Amazon. Today there are even NFTs backed by specific pieces of the rainforest because standing forests have become such a scarce asset that there are growing financial incentives to protect them. And prices of carbon credits tend to rise, so finding projects that generate them could end up paying off down the line. - Felipe Marques

Laura Tuttle
Co-chief investment officer, Boston Family Advisors

There's a lot of debate about the excesses in venture right now and whether we are facing another bear market similar to 2000. That said, we still see great opportunities in early-stage venture and believe now is a good time to be putting money to work. We actually think it's going to be good for the industry overall to have a bit of a shakeup.

We really like early stage. While those valuations have really been driven up, they have such a long runway they're a bit more insulated from what's going on in the public markets right now. And by the time they're thinking about IPOing or exiting, the environment can be very different. We've intentionally avoided late-stage venture, which we believe will be the area the most impacted by the downturn in the market.

We're asset allocators, we're not investing in portfolio companies directly, and it's our job to make sure we're investing in the right managers. We have a bias toward managers that are sector specialists — so not just folks that are good at doing deals and writing checks but that roll up their sleeves and work hand-in-hand with founders. The managers we back tend to take a more measured approach and are extremely disciplined. Over the past three to five years, for many, there were no rules and the playbook was thrown out. Now, the spotlight will be back on growing revenue, conserving cash, hiring methodically and improving business models.

Firms with clear specialization are our sweet spot. One manager we backed, for example, was one of the earliest East Coast firms focused on AI innovation. AI and how it's influencing cybersecurity is a really interesting area. We're investing in one manager that's focused on life sciences, early therapeutics. They've got a bunch of labs across the country where they can really cherry-pick great companies. The portfolio construction part of the equation is paramount — you want managers that complement one another.

Another way to play it from Tuttle: I will answer this with more of my “life dream” hat on versus my CIO hat, but you could call it a long-term real estate play that combines my love of a good fixer-upper and France. I spent a college semester abroad in Provence, and since then I have felt a pull to return to the French countryside to buy a dilapidated French farmhouse — something right out of “Under the Tuscan Sun” or Peter Mayle’s book “A Year in Provence.” Plus right now the dollar definitely goes a longer way. I would hire a small cadre of French artisans to restore my rustic residence that hopefully would quickly become an Airbnb hot spot. I could spend vacations surrounded by good wine, friends and family in my belle maison. — Devon Pendleton


Source: https://www.bloomberg.com

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