Investment fads of years gone by: Where are they now?
From the metaverse to meme stocks, investment fads have come and gone over the years, quickly disappearing out of the market’s collective memories.
While AI might be the latest trend gripping the attention of stockpickers, it is worth remembering previous crazes in the market, to learn from (and laugh at) the mistakes of previous cycles.
Football club fever
Listing football clubs was pioneered by Tottenham back in 1983, before being copied by Manchester United in 1991.
Throughout the 1990s, over 20 clubs joined the trend, with a stock exchange listing becoming the fashionable thing to do for top British football teams.
Football clubs saw the opportunity to cash in on the rising prosperity of football, using the stock market as a way to bring in money beyond conventional means, and investors were happy to jump on board.
“One of the first manias I witnessed in my career was in the 1990s when football clubs were the in thing on the stock market,” Eric Burns, fund manager at Sanford DeLand, told City PM.
“Of course there was little attention paid to the clubs’ valuation or profitability, which was often non-existent. Although it was the early days of lucrative TV deals with Sky Sports, most of that cash found its way into the pockets of the players and their agents rather than those of shareholders.”
While the fad lasted longer than most, it ultimately petered out. A football-club focused investment fund launched in 2007, before shuttering five years later after it lost more than 40 per cent of its value.
“Not many investors got rich by buying football clubs, but I bet many a bottom drawer is littered with share certificates, nothing more than memorabilia from a past market fad,” Burns added.
Cannabis stock craze
US states had slowly been legalising recreational cannabis for years, and 2018 saw California and Massachusetts join the party.
Most significantly, Canada became the first G20 country ever to legalise the cultivation and possession of recreational cannabis, which the market viewed as the beginning of a significant change in attitudes towards legalisation across developed markets.
“It drove a frenzy of excitement in listed names such as Canopy Growth and Aurora Cannabis,” said Roseanna Ivory, co-manager of the Abrdn Global Equity fund.
Altria, the parent company of Philip Morris and producer of Marlboro, even took a 45 per cent stake in cannabis company Cronos Group for $1.8bn, as it believed it could replace slowing revenue from cigarettes with cannabis.
However, the spread of cannabis deregulation wasn’t able to keep the market frenzy alive, and the craze quickly began to die down. The leading cannabis index is now down over 95 per cent over the last five years.
“As the barriers to entry to grow cannabis turned out to be fairly low, Canadian listed stocks such as Canopy Growth and Aurora Cannabis fell precipitously in 2019, and have not, to date, regained those levels,” said Ivory.
Aurora Cannabis is down 88.4 per cent since it floated, and 99.6 per cent since its peak in 2018.
Hydrogen stock hype
Green hydrogen was once promised as the fuel of the future, allowing cars to run on water and zero greenhouse gas emissions.
Investors rushed into companies promising to be the first to perfect this new technology, much as they have with the recent boom in artificial intelligence.
“Between 2020 and 2024, hydrogen stocks—particularly green hydrogen companies such as electrolyser and fuel cell producers—experienced a classic hype cycle,” said Blair Couper, co-manager of the Abrdn Global Innovation Equity fund.
Market belief in green hydrogen’s potential to transform energy systems drove up the prices of companies like Plug Power, Bloom Energy, Ceres Power, ITM Power, and Ballard to mind-boggling levels, despite their unproven business models.
However, the hype couldn’t last long. Ceres Power is down more than 80 per cent since its IPO, and 90 per cent since its 2021 peak. Plug Power has fallen even further, dropping 96 per cent since the start of 2021.
“This underscores the importance of maintaining valuation discipline and prioritising high-quality businesses within these thematic growth areas,” Couper added.
130/30 fund fanaticism
While stocks are normally the financial vehicles that go through hype cycles, funds definitely can too.
While thematic ETFs, which allow you to invest in more and more niche areas of the market through passive means, are currently exploding in popularity, the old equivalent used to be 130/30 funds.
Rising to prominence in 2006, the 130/30 fund added 30 per cent leverage to their favourite stocks and best ideas, while shorting their least favourite stocks by 30 per cent.
The idea arose “in an era when passive was ascendent but not yet dominant,” said Edward Allen, private client investment director at Tyndall Investment Management, and was meant to augment active manager performance.
It would be technically market neutral (as the 30 long and 30 short would balance each other out, while allowing the best ideas of stockpickers to pay off double.
“Suddenly, everyone and their dog was launching 130/30 funds with the mistaken idea that mainstream managers would be able to augment their returns through financial engineering,” said Allen.
The structure also allowed mainstream investment firms to charge hedge fund level fees, due to the complicated financial engineering, incentivising fund houses to keep launching them to rake in cash.
However, when the global financial crisis struck, the fad quickly ended, and now there are only a few 130/30 funds left, mostly in the US in the form of hedge funds.
“Anecdotally it was the short side of the book which defeated most of these products, proving to the buy side that shorting is a specialist subject, not to be done by halves (or thirds),” Allen says.