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Key Points
- As business spending & consumer spending evolve, new brands will rise to the top.
- Our 2023 top 200 brands list is now complete, there are some interesting new entries.
- The 200 brands cover many key mega trends happening across the globe.
2023: A new year brings new brands to the Global Brands Index.
Happy New Year! The Brands portfolio 2022 letter is in its final stages of compliance review, I’ll report back in next week’s note.
As a reminder, each December our team at Accuvest goes through a rigorous process to update the investment universe for the Dynamic Brands equity strategy. The result is a 200-company list called the Alpha Brands Consumer Spending Index. 90% of the 200 brands are domiciled in the U.S. and 10% are international brands. The majority of the 200 leading brands have sales that come from outside their local borders. That is the nature of being a global brand. Why do we anchor to a smaller sub-segment of the market for our investment universe? Because we are singularly focused on the massive portion of global GDP that comes from household and business spending. This component accounts for more than 60% of global GDP or roughly $44 trillion each year. If the definition of “core” is: the most important part of something, could there be a better core equity choice than something tethered to the largest portion of global economic activity?
Thirty-five brands in total were replaced and added in this year’s selection process. Some brands made significant headway on a fundamental basis (increased sales, margins, free cash flow), and others were added because they have shown signs of emerging leadership in important innovation industries and mega-trends. I won’t discuss all the new entrants today, but I wanted to highlight a few interesting stories.
Here’s the link to the full 200 brands in our index. This is our investment universe.
New Entrants: Emerging Brands
Mega-trend #1: The continuation of the real assets, Private Equity allocation boom.
New entrants: Apollo Global (APO) and Brookfield Asset Management (BAM).
The index already has two key mega brands, Blackstone and KKR but given how powerful this theme is, the team wanted to add more exposure. There’s currently over half a $trillion in dry powder available to be put to work by these global leaders. Any weakness in markets will be used as opportunities.
Apollo is an emerging growth brand and has significant exposure to the stable insurance market, private credit originations, and private equity business lines.
Its retail business is ramping up as well and there’s enormous potential helping to democratize the real assets space for the mass affluent. Its goal is to build a $50 billion global wealth platform, grow originations to $150 billion and generate >$500 million in capital markets revenues from $400 million currently. Our view, like Apollo’s management team, is the idea that big alpha is generated in private markets over public markets and global flows will seek this opportunity in a continued way for many years to come. Very few investors have an allocation to private markets or the leading stocks serving them. These stocks are great diversifiers to a portfolio.
Brookfield Asset Management is a bit more of a complicated animal, but the management team here has a tremendous long-term track record of generating strong returns for LP’s. The company recently completed a spin-off of the asset management business from the mother ship, and we are excited to be owners of this one-of-a-kind business. BAM is one of the largest global alternative asset managers with over $400 billion in fee paying AUM and gives the portfolio exposure to many of the fastest growing parts of the market including clean energy, infrastructure, differentiated real estate, and credit. We are enormous fans of Howard Marks at Oaktree (BAM ownership stake) so this addition adds a ton of diversity to the alternative assets thematic while adding a nice >3% dividend yield.
Mega-trend #2: Battery innovation & clean energy.
New entrant: Freyr Battery (FREY) – Norway
Our holdings in Blackstone, KKR, and BAM also offer private company exposure to clean energy but FREY offers a public company peer. Norway has always been more forward looking than most countries, particularly in the energy category. As more global consumers adopt EV autos and more industrial storage use gains traction, the need for battery technology and innovation should provide that hockey-stick growth curve ramp in demand. FREY has emerged as one of the key innovators in this emerging category and their opportunities offer an asymmetric potential opportunity for the stock. Nothing is a sure thing when talking about emerging technologies but FREY and their manufacturing prowess thus far, have shown they are a leader. We are excited to add an emerging mega brand in a vital part of the global growth in clean-tech.
Mega-trend #3: The eventual national approval of cannabis and wellness, CBD-based businesses.
New entrant: Green Thumb Industries (GTBIF).
There is a ton of white space to become the most important brand in the national cannabis & wellness category. Thus far, Green Thumb has shown its strength and durability. Make no mistake, cannabis is becoming a huge growth market in consumer-packaged goods & retail. There continues to be strong evidence that CBD is an important wellness ingredient for all sorts of ailments. The industry is still not nationally recognized, but states are legalizing cannabis every year and the banking regulations will only get better over time. When that happens, there will be a rush of investors wanting access to the leading brands in the space.
Mega-trend #4: The growth of India as the world’s manufacturing & IT partner.
New entrants: Banking giant Icici Bank (IBN) and professional services firm Infosys (INFY).
I wrote about India as a huge investment opportunity for companies and investors in a recent blog. Here’s the link India is Kicking Into High Gear. Do you have any exposure?
As the fastest growing major economy in the world, the leading banks and consulting firms should benefit for many years to come so we wanted to get some initial exposure to the country. Many U.S. and European brands have already made inroads with Indian consumer’s and as this country evolves and more consumers join the middle class, more sales of global brands will occur.
Mega-trend #5: Technology innovation, cloud migration, Security, and “data as you go” business models.
New entrants: Snowflake (SNOW) and Palo Alto Networks (PANW).
Trends in technology are always changing and evolving. With that, new entrants arrive, and others begin to lose relevancy. One company we are incredibly excited about is Snowflake. SNOW is a cloud computing-based data cloud company. On the surface, this space is incredibly crowded, but SNOW seems to be shaking things up in a meaningful way. The data and analytics thematic is a very important one for tech investors and while many companies are similar, there are some key nuances that make SNOW a very intriguing emerging brand add to the index. A recent Goldman Sachs IT survey showed this thematic being the #2 most important spending category for Chief Investment Officers, second only to Security. Their platform is cloud-agnostic, which becomes increasingly strategic as enterprises deploy multi-cloud strategies. The company has ambitious goals of >$10 billion in product revenue by 2028 and the company estimates a total addressable market opportunity of ~$250 billion by 2026. The stock has fallen heavily from its IPO last year but seems to have stabilized in 2023. As one might expect from an emerging grower, the stock is not even close to being “cheap” but if they deliver on stated goals, it will have looked cheap today when looking back 5+ years from now. Because of time constraints, I won’t add much color on our new security selection, Palo Alto Networks other than to say, it’s a clear mega brand in the category and benefitting from strong secular growth in firewall demand while adding significant new opportunities in other security business lines. Many top tech brands have security divisions embedded inside them but the importance of the thematic warranted a dedicated leader in PANW.
Bottom line:
Consumer preferences and business trends change over time so astute investors must also change and identify the new emerging winners. Not every great brand is always a great stock but having a solid group of leading legacy and emerging brands as our investment universe gives us the opportunity to generate alpha over time as new trends emerge. We are always on the lookout for the next trillion-dollar brand!
Disclosure:
This information was produced by Accuvest 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.
