Should I buy growth stocks for 2023?Dr. James Fox, Sun

I’m generalising, but in 2022, most growth stocks tanked. There are several reasons for this, but perhaps chief among them is that the bull run of 2020/2021 was unsustainable.

In my portfolio, dividend shares are definitely better represented than growth stocks. And that meant I felt very little impact from the growth stock crash that wiped billions of growth-focus funds over the past 18 months.

In fact, even the best growth-focused investor lost money. Cathie Wood’s Ark portfolio has lost the vast majority of its value. According to data, her nine ETFs slumped to a value of $11.4bn in December, from a peak of $60.3bn in February 2021.

So as we enter a new year, should I be increasing my exposure to growth stocks?

Why did growth stocks crash?

These stocks surged in 2021 and were trading with multiples far in excess of revenue or earnings. Eventually, and predictably, there was a sell-off, prompted by a surge in treasury yields which hurt more expensive growth stocks.

While some stocks have continued to perform in 2022, the macroeconomic environment, characterised by soaring inflation, higher costs of borrowing and a recession forecasts, has remained challenging for most.

An important factor is interest rates. Higher borrowing costs increase the cost of growth. Firms with fewer debt obligations and plenty of cash could be poised to perform better than their cash-poor peers as we enter 2023.

Risk vs reward

In 2020, Wood was named best stock-picker of the year by Bloomberg News editor-in-chief emeritus Matthew A Winkler.

Wood’s disruptive investments soared in 2020 and the performance of her portfolios, named after the Ark of the Covenant, gained her notoriety.

However, the near-$50bn loss in over the past 18 months highlights the risks associated with this area of the market.

Limited exposure

I prefer only a limited exposure to growth stocks. Especially in the current macroeconomic environment that appears very similar to the conditions in which we ended 2022.

However, I have recently added some growth-focused stocks to my portfolio. For example, I bought Sociedad Quimica y Minera de Chile and Li Auto. Both of these decisions were based on China’s decision to ditch Covid-19 regulations and reopen the country to international travel.

Chinese auto stocks have been challenged by the lockdowns and restrictions that put strain on the supply chain. But 2023 should be a better year. And despite a global economic downturn, I’m betting that demand for lithium — SQM’s main product — will continue to grow throughout the year.

To that end, I’ve also bought more shares in NIO, as well as Scottish Mortgage, which has dipped 50% over the past 12 months. I choose the latter as the fund managers have an impressive track record of picking the next big winner.

So I’m buying more growth stocks. But they still represent just a small proportion of my portfolio.

The post Should I buy growth stocks for 2023? appeared first on The Motley Fool UK.

More reading

James Fox has positions in Nio, Li Auto, Scottish Mortgage Investment Trust, and Sociedad Quimica y Minera de Chile. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023

Legal

The note has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication and has been compiled from publicly available information. This note is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of this note is prohibited.

No Advice: Nothing contained in this note constitutes or should be construed to constitute investment, legal, tax or other advice. Crawford & Jones is not authorised to give advice to retail clients and, if you are not a professional investor, or in any other way are prohibited or restricted from receiving this information, you should disregard it. The note does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

No Representation or Warranty: No representation, warranty or guarantee of any kind, express or implied is given by Crawford & Jones in respect of any information contained on this note.

Exclusion of Liability: To the fullest extent allowed by law, Crawford & Jones shall not be liable for any direct or indirect losses, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note. In no circumstance shall Crawford & Jones and its employees have any liability for consequential or special damages.

This website is for information purposes only and is not intended to encourage the reader to deal in any mentioned securities. Some of the content in this website is sponsored and, although it abides by Content Principles and Objectives, (https://crawford-jones.com/content-principles) it is considered non-independent. Investments may involve a significant degree of risk, including loss of capital. The value of an investment and the income from it could go down as well as up. The return of your investment is not guaranteed, and you may get back less than you originally invested. Past performance is not an indicator of future performance. It is important that you read the Terms and Conditions before considering any investment.