Hedge Your Spending by Investing in the Brands You Like Most

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Eric serves as a Portfolio Manager and a member of the Investment Committee at Accuvest Global Advisors, sub-advisor to a consumer-oriented strategy at Rational Funds. As a member of the Investment Committee, his responsibilities include research, investment analysis, technical analysis, macroeconomic commentary, and portfolio strategy & implementation. Eric is a frequent writer about the power of the consumer spending theme and global consumption trends. He is a brand consultant and leads the Alpha Brands Consumer Spending Index committee. He holds the Series 7 and 66 licenses.
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As consumers, we work in order to spend our hard-earned money daily on both essential and discretionary products and services. But have you ever given it a thought to connect the dots between your spending patterns and your investment decisions?

It might come as no big surprise that most consumers haven’t connected these dots and their portfolios haven’t benefitted from their brand loyalty. As more consumers around the world spend and stay loyal to brands, the most relevant brands start to rise to the top. Not surprisingly, the most relevant brands also tend to be strong alpha generators. This begs the question: is there a way to hedge our spending habits by investing in the brands we are loyal to? Let’s use a few very popular brands and consumption categories to try to answer that question.

  • Athleisure & Apparel:


Lululemon is a dominant brand in the health and wellness apparel category we generally call athleisure. “Women influence $7 trillion of spending in the U.S. annually in this country and influence 83% of all consumer spending in the United States,” according to Jeffery Tobias, author of WHY WOMEN, The Leadership Imperative to Advancing Women and Engaging Men. Since many women love wearing yoga pants, the global trend towards athleisure as an everyday lifestyle has enormous implications for the brands that are the most relevant. As you might imagine, owning these stocks can also have significant benefits via long-term potential gains. Here’s a hypothetical example:

If a Lulu loyalist purchased $10,000 of the company’s stock five years ago at roughly $40 per share, today that investment in that company you are highly loyal to would have grown to just over $45,700. On the other hand, the same $10,000 invested in an S&P 500 index ETF (the market), SPY would have grown to roughly $16,500. The difference between your Lulu gain and the S&P 500 gain is roughly $29,000. That’s a lot of extra money to pay for your yoga apparel habit! 

  • Grocery & General Merchandise:


Costco is a dominant brand in the warehouse shopping, grocery, and general merchandise categories. The company has a loyal customer base that likes to save by making bulk purchases. The company has pledged to members that it will keep costs as low as possible, which has driven enormous consumer loyalty. The brand continues to expand overseas offering significant room for additional store growth and further revenue growth. They dominate by keeping margins low and sales volumes high.

If a Costco loyalist would have purchased $10,000 of the company’s stock five years ago at roughly $105 per share, today that $10,000 investment in a company you are highly loyal to would have grown to just over $25,650. On the hand, the same $10,000 invested in an S&P 500 index ETF, SPY would have grown to roughly $16,500. The difference between your Costco gain and the S&P 500 gain is roughly $9,150. Think you could use some or all the excess gains to offset your monthly Costco spend? I certainly could.

  • E-Commerce & Online Retail:


Amazon is a dominant brand for online retail as well as organic food grocery via its acquisition of Whole Foods. Look around your community, we constantly see Amazon delivery trucks and packages on our doorsteps. The shopping experience has become so wonderful that consumers no longer worry as much about Amazon being the cheapest option out there. Millions of people have become Amazon Prime members and reaped the benefits of free shipping, free Amazon Prime Video, and a host of other services. That builds loyalty which becomes a virtuous cycle of high brand relevancy ratings.

If an Amazon loyalist would have purchased $10,000 of company stock five years ago at roughly $324 per share, today that $10,000 investment in the company would have grown to just over $60,500. By contrast, the same $10,000 invested in an S&P 500 index ETF, SPY would have grown to roughly $16,500. The difference between your Amazon stock gain and the S&P 500 gain is roughly $44,000. The average Prime member spends $1,400 per year on Amazon so that’s $7,000 going out of your pocket if you are a “typical” Prime member. However, you would have had $44,000 in gains even after your typical Prime spending on Amazon you have a significant amount left over for other spending purposes.

As investors we have a few key choices:

  • Invest in index funds and get what the market gives us. I have nothing bad to say about indexing other than I’m not wired to just accept what the market gives me.
  • Invest in a collection of the brands we and other consumers are fiercely loyal to which offers the potential for better gains, while owning a small piece of the companies we love most.

The bottom line is that consumer spending drives our economy. The success we have as investors plays a key role in our future lifestyle. Investing in the most relevant brands, therefore could offer a wonderful hedge to the spending we do every day. Connecting the dots between our spending habits, our favorite brands, and our investment portfolios could be the most important investing decision we make over our investment careers.

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 the securities purchased, sold or recommended for client accounts.