2021 ALPHA BRANDS CONSUMER SPENDING INDEX: NEW YEAR, UPDATED CONSUMPTION LEADERS

Key Points

• To track an important theme, you need a dedicated universe of market leaders.
• The 2021 Brands Index is our dedicated global consumption universe.
• A peek inside the new index constituents and the themes we think are very important.

Thematic investing can add significant value to a portfolio.

The global household consumption & business investment theme is >$44 trillion a year by our estimates.

The sheer size of the consumption theme makes it the ideal core equity portfolio allocation.

One of my favorite times of year is the period between Thanksgiving and New Year’s. After a wild 2020 and global pandemic, I think we are all looking forward to the holidays. Another reason I love this part of the year is because it’s when my team and I get a chance to analyze consumption and business trends for the purpose of re-constituting our investment universe: The Alpha Brands Consumer Spending Index.  Each year we go through a very detailed analysis and get very granular at the industry level to identify who the leading companies are within important consumption and business investment categories.  Where are businesses spending to upgrade their infrastructure, to service clients better, to provide for a high level of internet security, to upgrade supply chains or accelerate the digital transformation of their business?  What spending categories are consumers focused on? Which brands are really resonating with consumers here and abroad? Are there any brands that lost their way over the last few years and seem to have found their footing and are making a comeback? Are there new innovators carving out new markets or disrupting the legacy brands that have thrived for a long period of time? Which brands are key enablers to other businesses or consumers behind the scenes? It’s a very exciting time and we are very happy with the new 200 brands in the Brands Index.

If you have been reading my blogs for the last few years you know that our investment universe is the 200 brands we choose each year for the Brands Index. Our goal is to track lifetime spending not just through discretionary and consumer staples. People spend their money on a much more diverse set of items, so the Brands Index holdings offer us strong investment ideas from Pampers to Botox and hip replacements. The more spending categories we track, the more diversification we can offer across the theme of lifetime spending. The vast majority of brands in the Brands Index sell products and services direct to the consumer but we also include a handful of brands that we believe are vital to the consumption supply chain. These are leading companies enabling consumption in important consumption categories and are often top Business-to-Business (B2B) brands that are increasingly building brand awareness with consumers.

The 2021 Brands Index Reveal:   

Here’s the 2021 Brands Index Names: https://www.globalbrandsmatter.com/alpha-brands-index

Tracking lifetime consumption broadly across sectors and industries.

Before our team created the Brands Index and the Brands equity strategies, investors interested in investing in the consumption theme had limited choices and they were narrow in scope. No one invested in this theme by dedicating to identifying the most important and admired brands. In a world of crowded trades and me-too product offerings, the global consumption theme is a $40 trillion secret to investors. We like that set-up.

To create a top brands investment universe, we analyzed the over 150 industry groups across the broad market indices and deleted the industries not serving the consumer directly or indirectly as a consumption supply chain enabler. For the index, we anchored on over 70, or roughly half, the total industries for our analysis. From there we analyzed all the businesses in each of our chosen industries to assess how much exposure was needed to get a large portion of the category & theme revenues. The team utilizes data science to help us identify the brands that are winning across important financial metrics like revenue growth, margins, free cash flow, and debt management.  We choose the number of brands in each industry then move across the 70+ industries. Using a proprietary brand relevancy audit system, the team then decides which 200 brands offer the most diverse group of stocks to invest in this important global theme no matter what the economic environment.

This year is quite unique for the Index, we are holding 4 spots open for upcoming IPO’s that are very important brands for consumption. Airbnb being the most important to consumers & the lodging category. The pandemic has changed the way consumers view lodging and they have a very bright future in our opinion. The below image highlights the detailed process our team goes through each year to identify the brands that track the consumption theme best.

Alpha Brands Consumer Spending Index

Investment Universe

Brands Index Characteristics

The Consumer Discretionary sector will always be the largest sector in the index given we are tracking consumer trends. In our experience, most investors are chronically under-weight the Discretionary stocks which is odd given Retail Sales alone is about $5 trillion each year. Our strategy allows a portfolio to get right sized to this important global theme.

The sector weights can vary year-to-year according to the trends we see but Consumer Discretionary is always 35%+ of the total. Having a weight so high makes the Brands Index a much more appropriate universe than the S&P 500 to track the real economy. Remember, roughly 70% of U.S. GDP is household spending and about 60% of world GDP comes from the consumer so if an index is designed to track the real drivers of an economy, and consumer spending is by far what drives economic output, the index should hold a significant weighting in leading stocks that are highly correlated to the consumer spending beneficiaries.

As consumers we work, save, invest, and spend.  The more people around the world that favor the same brands, the more iconic and powerful the brand becomes. Highly admired brands in important spending categories tend to be wonderfully special stocks. Brands Matter.

As an example of the process, the top 3 industry groups hold a significant amount of brand-power:

1. Internet & Direct Marketing is where important e-commerce brands live.
   1. Amazon
   2. Alibaba – Asia consumer spending leader
   3. Ebay
   4. Etsy – global, hard to find specialty e-commerce platform from local artists
   5. Travel platforms: Booking, & Expedia
   6. Online pet retailer – Chewy
   7. Global luxury goods platform – Farfetch
   8. Grubhub – food and eventually merchandise delivery
   9. Stitchfix – an innovative AI-driven online retailer
   10. Jumia – the dominant e-commerce platform for Africa – enormous and underserved
   11. Mercadolibre – the dominant e-commerce & payments platform in Latin America
   12. Wayfair – discount online housewares leader

2. Apparel, and Apparel Accessories & Luxury Goods
   1. Lululemon
   2. Adidas
   3. TJX – the leading off-price apparel & home fashions retailer which includes HomeGoods
   4. Canada Goose – high-end jackets and accessories
   5. Capri Holdings – the holding company that owns Michael Kors, Jimmie Choo, Versace
   6. Levi Strauss
   7. LVMH – Louis Vuitton
   8. Tapestry – the holding company that owns Coach, Kate Spade, Stuart Weitzman
   9. Under Armour – a once dominant athletic brand now making a comeback
   10. Gap – a brand in transition with key brands like Old Navy, Athleta, Gap, Banana Republic

3. Interactive Media & Home Entertainment
   1. Facebook – Instagram is becoming a dominant, in-app e-commerce leader
   2. Google – digital advertising leader, YouTube, YouTube TV, and consumer products
   3. Twitter – news and social media leader
   4. Snap – teen social media and augmented reality leader
   5. TenCent – the world’s leading video game company & and social commerce leader
   6. Match – the world’s largest online dating brand
   7. Pinterest – advertising based social commerce platform
   8. Zillow – Internet-based real estate brand
   9. The leading video gamers: Nintendo, Electronic Arts, Activision, Take-Two Interactive, Sea Limited (Asia leader)

SUMMARY:

• Tracking an important theme requires a dedicated universe of stocks that gets updated yearly.
• The process my team uses to create and update the Brands Index is detailed and intuitive.
• Each year the Index offers a fresh look at today and tomorrow’s most admired mega-brands.

Disclosure:
This information was produced by and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts.  The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.