Should you rotate out of stocks into bonds and funds? Are cryptocurrency investments worth the volatility? What are the dominant themes for investing in 2022? 

Predicting the future can be a fraught exercise at any time. It can be especially so in uncertain times, and there is no shortage of uncertainty heading into 2022. But a group of panelists took a shot at it anyway at a panel discussion on Jan. 4, 2022, convened by Investopedia and ETFTrends.com.

Their assessments of 2022 come at a particularly unpredictable time in the markets. At the end of 2020, asset prices had skyrocketed, and the S&P 500 had racked up gains of more than 16% in a year during which the pandemic had ground the U.S. economy to a halt. Then, investment strategists said that prices were "stretched" and that there was a "good possibility" of a pullback in 2021, reminding investors that "share prices don't go up forever."

But the stretched prices did not pull back or fall. Instead, the S&P 500 rose by almost 27% in 2021.2 The coming year presents an even more confusing landscape. Inflation is on the rise. New COVID variants have emerged. And the Federal Reserve is expected to raise interest rates in the coming year.

A Fresh Take 

For 2022, the panelists recommended a fresh take on the markets. "Throw [out] your [portfolio] model. It doesn't make sense," said Joshua Brown, founder of Ritholtz Wealth Management, an investment advisory firm. He noted that the past three years have been the best period for the stock market since 1999, despite the COVID disruption.

In 2022, large-cap growth stocks, which include the stocks of prominent tech companies, will take a "break" from leading market gains, according to Brown. Instead, he urged investors to look at other places in the market that might promise profits, such as small-cap growth or small-cap value stocks. 

Liz Young, head of investment strategy at millennial-focused personal finance company Social Finance (SoFi), echoed Brown's view. "In an environment where interest rates are rising, other sectors [not tech] take the lead," she explained, referring to an anticipated monetary tightening by the Federal Reserve expected in 2022. For younger investors who may have followed the herd into technology stocks, this means it might be time to diversify their money into other sectors like healthcare and financials. The clean energy transition also offers several investment opportunities, Young said.

The panelists also identified other themes that are expected to take centerstage in the coming year. Cryptocurrencies are one of them. Stimulus money coupled with low interest rates drove investor cash into risky assets, such as cryptocurrencies, during the pandemic.

The market capitalization of cryptocurrencies grew to more than $1 trillion during this time. Decentralized Finance (DeFi) and non-fungible tokens (NFTs) became the latest buzzwords, and governments around the world are mulling the introduction of central bank digital currencies (CBDCs).

According to SoFi's Young, currency volatility will multiply in 2022 as central banks around the world chart their respective economic recoveries from the pandemic. The volatility will drive greater adoption of cryptocurrencies throughout the global economy, said Young. During 2021, markets witnessed debut of the first futures-based bitcoin ETF in the economy. This year will have many more thematic bitcoin-adjacent ETFs, according to Leah Wald, chief executive officer at Valkyrie Investments.

Exchange traded funds were another asset class that had a banner year in 2021. Dave Nadig, chief investment officer at ETFTrends.com, said that four new ETFs opened for every one that was closed. By the end of 2021, ETFs had received more than $900 billion in inflows. "There is a bit of manifest destiny here that the ETF is going to be a powerful wrapper for any type of exposure that the investor is trying to get," Nadig said.

The hunger for ETFs as a vehicle to spread investments across different asset classes is reflected in the breadth of ETFs that cater to investors of all hues. The big investors, like Vanguard, have already swathed large-cap stocks with money in their funds. That means that risk-on assets, like bitcoin, stand to gain favor with investment managers looking for profits.

The Ark Transparency ETF (CTRU), which seeks to mirror performance of the 100 most transparent companies in the world, is a "hot sauce" offered by the company to investors, said Eric Balchunas, senior ETF analyst at Bloomberg. He also identified the Avantis International Small Cap Val ETF (AVDV) as another pick. However, a spot Bitcoin ETF, long considered the holy grail by crypto enthusiasts, will not be approved by the SEC this year, according to Nadig of ETFTrends.com.

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