“If you want to identify long-term trends, you would do well to select mainly companies that are best positioned within that trend. In general, these are the more expensive listed companies in the stock market.”
This is the view of portfolio manager Jack Neele in a conversation with our sister publication Fondsnieuws. Robeco’s Global Consumer Trend Fund operates as much as possible independently of underlying macroeconomic factors such as interest rates and inflation. His approach is bottom-up when it comes to stock selection.
Neele points out that many investors choose cheap stocks because that’s where the up-side is, according to them. “More expensive stocks they often don’t find interesting because they have to pay the main price,” he says. But Neele doesn’t share that view. It is often the more expensive companies in terms of valuation that are worth investing in. For example, he has well-known names in his fund like PayPal, Nike, Google and Starbucks. “They are simply less sensitive to economic fluctuations and macroeconomic turmoil. Preferably, they are also companies with a competitive advantage.”
That focus on companies that are best positioned within long-term trends is not doing the Robeco Global Consumer Trend Fund any favors: since 2009, the fund has beaten the market nine times. Investing in consumer trends thus seems like a piece of cake, but according to portfolio manager Jack Neele, this is a lot more nuanced. “Of course we believe in clear long-term developments, but together with futurologists we identify specific trends that you don’t see from your desk.”
“Take PayPal for example, within digital payments they are by far the most important party. They have 350 million users and are active worldwide. If we are going to have more digital payments globally,” which is a clear trend according to Neele, “then PayPal is obviously going to benefit from that.”
Although Neele and his team are making active bets, the active share relative to the index is not something the fund is targeting. In the last measurement, the active share was around 85 percent. “This is due to the overlap of our positions in Big Tech companies, which also have large weights in the various indices. The average turnover of the portfolio is relatively constant at around 27 percent - meaning that the management team holds stocks for about 4 years.”
“We sell stocks primarily when the fundamental reasons (strong market position, above-average growth, etc.) for buying are no longer valid. We rarely sell stocks just because they have risen sharply,” Neele says. The fund records year-to-date returns of nearly 12 percent, while the annualized return since the fund’s launch is more than 10 percent.
China
About 15 percent of the fund’s portfolio consists of companies in emerging markets, 10 percent is Chinese. To get a good idea of local trends, Robeco gets advice from people in the field. “We speak to Dutch people who spend half their time in China,” Neele says. “They keep us informed about trends they see in Chinese consumer spending.”
A recent example of the added value of those contacts at the local level is online shopping. “Since the pandemic, entire villages have been ordering groceries together. Such a development is not isolated, it is happening in 5000 villages at the same time. Developments like that are almost impossible to detect from a desk, so we call in experts on the spot for that.”
Individualization is increasing at a furious pace in China. Compared to ten years ago, Chinese consumers today have much more to spend. “Worldwide, as much as fifty percent of luxury goods are sold to Asians. Directly to China or to Chinese in European stores. Logically, we have exposure to luxury goods, and have become more active in travel and e-commerce.”
Risks
A key risk for investors in consumer trends in China is the aging population, the country is bracing itself for a long-term population decline, according to recent research. According to Neele, this is certainly a development that should be taken into account by investors in Chinese companies. China’s population is still roughly 1.4 billion today, but that number is likely to start shrinking.
“We expect the Chinese population to shrink in the future. We are therefore also looking at countries in Latin America and countries such as Malaysia and Indonesia, where that problem is less of an issue, when putting together our portfolio. There are a lot of young people there with specific consumer behavior.”
In addition, the recently tightened internet regulation in China is also an important development. “It ensures that the risks for Chinese Internet companies have increased. As a result, we have reduced our exposure here somewhat.” Rapidly emerging automation in Asia is not a cause for concern in emerging markets, according to Neele. “India, for example, is a country where we offer exposure to companies that provide basic needs such as food and other supermarket products. India is still in a phase of development that can be described as very early. There will not be state-of-the-art automation there, nor will it cost a lot of jobs. We think efficiency can be gained there along other means and methods.”
