Companies that are exposed to structural trends like e-commerce and movie streaming have performed very well within the consumer discretionary sector in the last six months, according to Citywire AA-rated Jack Neele.
Neele, who manages the Robeco Global Consumer Trends Equities fund, said the fund has benefitted from its increased exposure to luxury goods and leading Internet platforms.
Robeco’s fund takes second place in our risk-adjusted ranking for the sector’s strongest players over the past three years. The fund returned 37.84% over the past three years, against the average manager’s 24.33%.
‘Most luxury goods derive the majority of revenues from emerging markets like China. As the Chinese economy is growing at a relatively fast pace, luxury goods companies have thrived,’ he said.
Meanwhile, the fund has also increased its holdings in companies that are exposed to mobile and digital payments, as well as to companies that are exposed to game hardware and software.
These companies are expected to benefit from millennials’ online shopping habits and their preference to spend more time playing video games to watching TV, Neele said.
Fourth place in the risk-adjusted ranking is the Parvest Consumer Innovators fund. The fund returned 25.16% over the past three years.
Citywire + rated Pamela Woo, who managed the Parvest Consumer Innovators fund, said consumer discretionary was the top contributor in the MSCI World Index from a total return perspective during the last six months ended April 30.
Global consumer discretionary stocks outperformed the broad market, and the Parvest Consumer Innovators fund also outperformed its’ benchmark during the period.
Woo said the fund’s investments in the health and wellness sector such as athletic or active apparel, as well as digital content and gaming, and beauty are the biggest contributors to Parvest fund’s performance.
Meanwhile, the fund’s bets towards eCommerce and digital content providers, and away from traditional retail, media, and auto companies also worked in its favour she said.
Woo said the fund has repositioned some of its holdings from “bricks and mortar” retail to eCommerce. It has also added exposure in mobile payments.
‘With the volatility earlier this year, we opportunistically increased exposure to social media, as we view this as having a strong influence on purchase decisions,’ she said.
The Parvest fund also selectively reduced traditional media and added to digital content and streaming, Woo said, adding that she believes these trends will continue.
Additionally, the fund continued to increase its exposure in beauty and skincare, as millennials spend a disproportionate share of their wallets in beauty compared to any other generation.
‘Regionally, North America, was the fund’s largest contributor to total returns, followed by Japan and Europe,’ she said.
Meanwhile, the Jeff Meys, came fifth in the category. The fund returned 27.67% over the past three years.
Meys said the consumer discretionary outperformed the broader market in the past six months, thanks to the good returns of cyclical sectors.
The NN (L) fund invests in the luxury segment of the consumer discretionary sector as well as luxury cosmetics and beverages which are part of the consumer staples sector.
‘We remain optimistic that demand for luxury goods will continue to grow strongly in the long-term, Meys said.
He said the demand for luxury goods will be driven by increasing demand from emerging markets, increasing numbers of high net worth individuals and the ongoing polarisation of consumption.
Luxury companies have pricing power and face no issues regarding significantly higher input costs, Meys said.
‘In this environment, we have a preference for companies that can gain market share because they have strong luxury brands, a global reach and good management with a long-term focus,’ he said, adding that scalable luxury brands are scarce and highly valued assets for those looking to access growth.
Meys said the fund has largest positions in LVMH, Kering (Gucci) and Estee Lauder.
The main fundamental drivers of luxury demand are emerging markets growth, global wealth creation through growing number of millionaires, as well as development of China towards urban society and increasing travel, he said.
The article was published in the June issue of the Citywire Private Wealth magazine.