Long-term investing is partly about taking a view on what the world will be like one, five, or 10 years from now.
I have been thinking about some of the big themes I may choose to invest around towards the end of this year and across 2023.
1. Fund management
Are UK asset managers a screaming bargain — or a value trap?
A quick look at the price-to-earnings (P/E) ratios of some of the big players suggests that valuations may be attractive. Abrdn has a P/E ratio of seven while Jupiter is even cheaper at six.
But such seemingly cheap valuations could simply signal that the sector carries high risk. A recession means consumers will have less spare money to invest. That could hurt sales and profits at asset managers. Asset management shares may turn out to be a value trap if profits in the sector plummet.
However I continue to feel upbeat about the long-term outlook for this field. As the economy strengthens and weakens, investors may change their approach. But taking a longer view, I expect resilient demand for asset management. Established asset managers with well-known brands and long experience should be able to benefit from this.
On that basis, I think the UK asset management sector currently looks cheap. If I had spare cash to invest today I would consider buying more Abrdn shares for my portfolio.
2. Tobacco
The long-term decline in cigarette smoking can make it look like the writing is on the wall for big tobacco manufacturers.
Yet that has already been true for decades and the industry is still a moneymaking machine. Last year, British American Tobacco reported profits of just under £7bn after tax.
As sales volumes decline, the ability to increase prices on an addictive product can help to offset the profit impact. Eyeing the longer term, firms including British American Tobacco are busy growing their non-cigarette businesses.
Tobacco shares have long looked cheap to me. I think many buyers hunting for defensive choices have realised that there can be attractive investment opportunities even in a mature industry. British American shares have moved up 29% in the past 12 months while rival Imperial Brands has surged 35%.
I think improving investor sentiment towards tobacco could last across 2023 and beyond. I continue to hold my shares in firms including British American.
3. Transportation
It has been a tough time for companies in the transport sector, due to everything from high fuel costs to unpredictable demand.
The Wizz Air share price has halved over the past year. Coach operator National Express has tumbled 28% in that period. Other formerly listed transportation companies like Stagecoach and Go-Ahead have been bought out.
Such takeovers suggest to me that knowledgeable trade buyers see compelling opportunities for investment at current prices. I expect the industry will adapt to an inflationary environment better in 2023 and that could help boost its prospects. I am therefore considering adding more transportation shares to my portfolio in the coming year.
