The rise and rise of the global consumer
Peter Kirkman, manager of the JPM Global Consumer Trends Fund has urged investors not to overlook the power of the consumer post credit crunch and he believes that many investors are missing out on some of the better growth stories of the 21st century.
As manager of the JPM Global Consumer Trends Fund, Peter Kirkman has a first hand view of global emerging trends and the opportunities that exist in the sector. He comments: "The global consumer growth story is not reliant on whether global consumer demand overall is rising or falling, but on the emergence of new consumer spending patterns within that consumer pool. That's where the most profitable opportunities lie."
The JPM Global Consumer Trends Fund was launched in April 2008 at the start of a very turbulent time for world stock markets yet it has performed extremely well since inception. To the end of May 2010, it has returned 34.5% compared to the MSCI World Index which returned 3.9% over the same period. The fund is diversified across sectors and regions and the alpha generated by the fund has come from a very broad range of companies.
Kirkman explains: "Global consumer patterns are changing constantly. For example, our parents had very different spending patterns compared to many of us today. We use Google to search for information, they used encyclopaedias. Now, with coffee shops on nearly every corner, we may spend a few pounds on a cup of coffee every morning. These examples show that whatever the economic backdrop, new consumer opportunities will always arise.
"Of course, the drivers of these opportunities and where they reside is what matters. It's clear to us, that there is a global shift in consumption towards emerging markets. By 2015 emerging markets are expected to account for 37% of global consumption, which will make it the largest consumer by region ahead of the US and Europe."
Many emerging market portfolios do not have high exposure to the consumer, which leaves a gap within investors' portfolios.
The fund targets lucrative opportunities in consumption driven by three main structural drivers: demographics & urbanisation, aspiration and health & wellness.
Kirkman continues: "The world is experiencing a huge urban population shift which means that up to an estimated five billion people will live in cities by 2030, up from three billion in 2000. This will fuel higher levels of productivity, higher living standards, higher levels of GDP and higher levels of consumption, with much of the higher growth occurring in second and third tier cities, rather than the main population hubs."
On demographics, he states: "Japan has a rapidly aging population which should make it attractive for us to invest in companies like Zimmer and Medtronic, who make products for the elderly such as hip replacements.
"In terms of health and wellness it's no secret that many people in the West are taking better care of themselves through health supplements and organic food consumption. In emerging markets there are good investment prospects even at the lower end of the spending scale. For example, the UK has 1.7m babies, with 90% using disposable nappies while China has 40m babies with less than 10% using them- so the capacity for growth is considerable
"The rise in aspirational spending, particularly in places like China, has been quite staggering. While some brands, especially luxury brands, may be under pressure in the West, their sales growth in certain emerging markets, powered by consumer demand is rising very quickly. This gives us a chance to play the aspiration story through established Western companies that have been more successful at building their brands globally. This should mean that many established brands will continue to prosper as demand for aspirational goods continues to rise."