- Kevin Philip believes that the COVID-weakened sectors are poised to make big gains this year.
- He also says that Web3 applications will be a big economic driver, allowing tech to dominate.
- Philip shared how he plans to use “classic” investing methods to gain crypto exposure.
In the first innings of COVID-19, recreation, travel, leisure, and hospitality were among the industries to suffer the greatest economic losses. And while the lasting extent of damage is still yet to be fully realized, global consulting firm McKinsey estimated that it could take more than five years for these hardest-hit sectors to recover back to their 2019 levels of GDP contribution.
With the pandemic still raging globally, it may seem slightly counterintuitive to even consider investing in these COVID-weakened sectors. But that’s exactly what financial advisor Kevin Philip recommends investors do in 2022.
“I think the weaker players will be the strength of this coming year’s market,” said Philip, a partner at Los Angeles-based Bel Air Investment Advisors, which oversees $8 billion in assets for high-net-worth clients, including Hollywood celebrities.
The key driver behind Philip’s view is his opinion that this year, COVID will begin taking a back seat as the world “returns toward normalcy.”
“The markets are reflecting the new reality that COVID is here to stay, albeit more on our terms than its,” he said.
While the three biggest topics in markets today are COVID-19, the Federal Reserve , and inflation, Philip ultimately believes that these factors will not hamper US growth. On the contrary, he believes that the overarching theme in 2022 will be the continued growth and resilience of the US economy.
For one, Philip is optimistic that inflation will begin stabilizing as consumers begin winding down their savings by spending more and loading up on more debt. And even though the supply chain bottlenecks which have exacerbated the macroeconomy have not been fully fixed, “the stress should likely be significantly less in the coming six months,” he said.
COVID ‘losers’ hold the key
According to Philip, 2022 will finally spell the “end of COVID driving our daily lives.”
“What that means to me in the market is a return, somewhat to normalcy, where stocks that have not been the beneficiaries of the COVID era — typically in the value space — will catch up,” he explained, which will allow the so-called COVID “losers” to “become the new winners.”
“Coming out of the COVID era, you’re going to see continued appetite for travel and leisure,” said Philip, also citing the hospitality industry as one that will benefit from dwindling pandemic pressures. He’s also bullish on energy stocks as workers begin commuting to their offices again.
Philip also likes the banking sector, which he says has suffered in recent months with emergency stimuli and central bank measures flattening the interest rate curve.
“In that type of environment, banks don’t make a lot of money,” he explained. But this year, he believes that banks will be stronger as the Fed tightens its monetary policy and raises interest rates, which will provide them with “a more profitable world.”
Finally, he predicts that the technology sector will continue to dominate, crediting the pandemic’s work-from-home measures for “pulling forward” innovations and developments by up to ten years. In particular, Philip says that Web3 “will be an even more accretive economic driver for years to come.”
Philip believes that growth stocks will perform better than value stocks over the long-term, but caveats that he’ll be “less overweight” growth names than before. He also recommends increasing exposure to large-cap companies, cautioning investors to be wary of small- and mid-cap (SMID) stocks in light of upcoming rate hikes.
“SMIDs are more sensitive to rising interest rates, because they tend to have to borrow money to grow,” Philip explained, adding that rotating into US large-cap value stocks was a “big win” for him in 2021. “If loans become more expensive, smaller and medium-sized companies tend to experience the pain more than large companies do.”
Applying ‘classic’ investing to cryptos
Despite Philip’s bullishness on technology in general and Web3 specifically, he’s still cautious about investing in cryptocurrencies.
“I believe that while crypto could go to infinity, they will ultimately end up at zero,” said Philip, whose skepticism stems from his belief that owning crypto only makes sense if a token “becomes the anchor of a really successful commerce environment.”
Philip said that Ethereum is an example of a successful crypto that has become a standard in the space. Philip is also partial towards central bank digital currencies (CBDCs) because of their increased stability from government backing.
But despite his wariness, Philip still asserted his intention to enter the crypto market, albeit through more “classical ways of investing that will give you exposure.”
“I think we’ll participate in it through publicly traded, well-known companies that already exist and are profitable, the likes of which could be a Meta, Google, or Nike,” he said, specifically pointing to Nike’s recent massive strides into the metaverse. Besides stocks, Philip also said that he planned to use “carefully curated” private funds to gain crypto exposure.