Welcome to the December 2023 issue of Mintos Insight, where we focus on the latest financial updates shaping the landscape. This month, we delve into the key trends that emerged in 2023.
If you’d like to gain more insights from 2023, check out our coverage in our 2023 editions of Mintos Insight.
1. Rising popularity of fractional investing
Fractional investing represents a transformative shift in the investment landscape, particularly in markets traditionally characterized by high entry barriers, such as bonds and real estate.
This investment approach allows individuals to purchase fractions or smaller portions of assets, enabling investment in assets that would otherwise require substantial capital. The trend towards fractional investing has been growing across various asset classes, including stocks, bonds, and real estate.
Fractional investing offers two key benefits: it grants access to a wider range of assets and requires a lower minimum investment. Both aspects contribute to portfolio diversification, albeit in slightly different ways, by spreading investments across various asset classes and sectors, thereby reducing risk.
Mintos and Fractional Bonds
In 2023, Mintos introduced Fractional Bonds, a step towards making bond investments more accessible to a wider range of retail investors. These Fractional Bonds enable investors to buy into small parts of larger assets, traditionally out of reach due to high minimum investments.
This initiative aligns seamlessly with our mission to democratize investing, allowing individuals to diversify their portfolios with smaller investments. Traditionally, bonds demand large investments, often over €10 000, a threshold too high for many individuals. By introducing Fractional Bonds starting at just €50, we open the bond market to a wider audience. This shift allows more investors to tap into regular income streams from interest or coupon payments, opportunities previously reserved for those with larger capital.
Investing in Fractional Bonds has several advantages. They yield steady income via regular coupon payments and are less volatile, ensuring predictable income. They also aid in strategic asset allocation, allowing diversification across various asset classes, which can enhance portfolio returns and lower risk exposure.1
Find out more about Fractional Bonds on Mintos.
2. Investing in emerging markets in 2023
In 2023, there has been a significant pivot towards investing in emerging markets, seen as a strategic move to hedge against uncertainties in developed markets like the US.
Emerging markets (EMs) are countries with economies that are progressing towards becoming more advanced, typically characterized by rapid growth and industrialization, and are increasingly integrated into the global economy. Notable examples include the BRICS countries: Brazil, Russia, India, China, and South Africa, recognized for their swift economic development and growing global influence.
This shift is evidenced by substantial investor fund flows into EMs, with €35.5 billion invested in EM equities and €1.8 billion in EM fixed income as of May 2023.2 Key factors driving this trend include:
- Shifts in global supply chains: The US’s trade restrictions on China have led to a decline in imports from China, creating opportunities for countries like Mexico, Vietnam, Taiwan, and India to increase their share in the US market.
- Monetary policy and inflation control: Some countries, such as Brazil and Chile, have managed to significantly reduce inflation, allowing their central banks to cut rates. However, EMs might face challenges in controlling inflation due to factors like rising crude oil prices, as seen in India.
- Fiscal constraints and consumer spending: Most economies, including EMs, face challenges in stimulating domestic demand due to increased debt and higher interest rates. However, some regions, such as Latin America and Eastern Europe, are better positioned for consumer spending growth due to their earlier recessionary periods and subsequent recoveries.3
3. Revival of value investing in a volatile market
In 2023, amidst market volatility and economic uncertainties, value investing has seen a resurgence.
Value investing involves picking stocks believed to be trading below their intrinsic or book value. Investors adopting this strategy perceive that the market often overreacts to news, causing stock price movements that do not align with the company’s long-term fundamentals. Value investors focus on the gap between a stock’s market price and its intrinsic value, analyzing company fundamentals like assets, liabilities, cash flow, revenue, and other financial metrics to estimate this value.4
The shift toward value investing is largely attributed to changing economic conditions, particularly the end of the era of easy money and rising interest rates. The Federal Reserve’s plan to raise short-term interest rates and curtail monthly bond purchases signals a significant shift in monetary policy, influencing the stock market’s dynamics.
Mintos Activity: November 2023
In November, Mintos saw investments in Notes reach €135.2 million, the largest growth in two years. According to Peteris Mikelsons, Head of Partnerships, this upward trend can primarily be attributed to “larger than usual repurchases, primarily made by Eleving Group, which, afterward, transformed into new investments.”
Due to the mentioned repurchases, Notes available for investments as well as interest rates decreased during November. Notes available for investments in EUR at the end of November stood at €63.4 million, compared to €81 at the end of October.
The average interest rate for November went down to 12.3%, leading to an annualized average net return of 11.21% (YTD 10.21%). Interest earned by investors climbed to €4.6 million. The platform’s cumulative interest earned by investors has now amassed to €259.4 million, while the total assets under administration have reached €608.2 million.
This was further complemented by the amount invested in Fractional Bonds on Mintos during the month, reaching €1.1 million. Mikelsons added, “Keep an eye out for more Fractional Bonds, coming soon.”
Disclaimer:
This is a marketing communication and in no way should be viewed as investment research, advice, or recommendation to invest. There is no guarantee of recovering the invested amount. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.
1 Investing in Fractional Bonds on Mintos involves purchasing bond-backed securities from a special purpose entity within the Mintos group, which holds the underlying bond. The returns from these underlying bonds are then passed on to the investors. While these Fractional Bonds mirror the returns of the underlying bonds, they also carry similar risks, including the possibility of the bond issuer defaulting.
2 E. (2023, August 9). EPFR in the news – May 2023. EPFR | Global Fund Flow Data. https://epfr.com/insights/citation/epfr-in-the-news-may-2023-fund-flows-asset-allocations-investor-sentiment-financial-markets-data-money-market-fund-flows/
3 Emerging markets outlook, October 2023. (2023, October 5). Deloitte Insights. https://www2.deloitte.com/us/en/insights/economy/emerging-markets-outlook.html
4 What the “resurgence” of value stocks means for investors. (2023, January 26). FTAdviser. https://www.ftadviser.com/investments/2023/01/26/what-the-resurgence-of-value-stocks-means-for-investors/
