Holiday Shopping Performance Wrap-Up and Brands 200 Index Outlook for 2020

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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.

In order to track an important theme, global lifetime spending, one needs a dedicated universe of the leading companies or brands that are serving this theme. Each December my team and I reconstitute the Brands 200 Index to reflect the brands that seem to be resonating with consumers here and abroad. This is a very detailed analysis using qualitative and quantitative factors that identify the most relevant brands. Consumers can be a fickle bunch so it’s important to consistently update this list of companies to reflect changes in consumer purchasing habits and brand preferences.

Before I get into that, just a quick update on 2019’s holiday shopping details:

  • E-commerce sales hit a new high, up 18% year-over-year according to Mastercard data.
  • E-commerce sales represented 14% of total retail between November 1 and Christmas Eve.
  • Amazon reported record growth as their one-day delivery aided sales with over one billion items sold across its platform. Top sellers included: The Echo Dot, Fire TV Stock, Alexa Voice Remote.

The Alpha Brands Consumer Spending Index:

The index of 200 leading brands serves as the investment universe for all our equity strategies here at Accuvest. The index spans across a broad number of sectors, industries, styles, and geographies allowing us to be agnostic about our investments, while always tracking the global consumption theme. Personal and household consumption is much more than food, beverages, apparel, and media. We spend our money differently according to our age, income, and our personal preferences. Older adults hit their peak earning and spending levels in their mid-50’s, while younger people begin their earning, spending and saving cycle in their mid-20’s. All in all, if you have a dedicated universe of the leading brands serving kids through adults and into the elderly category, you get a wonderful investment universe from which to build more concentrated portfolios.

Having an investment universe filled with companies that we know, trust, and love is a great starting point for making long-term investment decisions. The great Peter Lynch, former Fidelity Magellan Fund Manager and one of the most successful stock pickers of our time was interviewed in Barron’s a few weeks ago and described some of his most important parameters for investing. Clearly, we subscribe to many of these given our focus and dedication to the consumer:

  • Invest in what you know so you can sleep at night and not make poor decisions in tougher times.
  • If you can’t convince an eight-year old why you own a stock, you probably shouldn’t own it.
  • Far more money has been lost by investors preparing for corrections, or anticipating corrections, than has been lost in corrections themselves.

If there was any doubt about Peter Lynch’s ability to simplify investing, here’s a reminder of the Magellan Fund under his management. He outperformed the S&P 500 by almost 3x investing in things he understood and many of which that were tied to the consumer – Dunkin Doughnuts, Leggs, McDonalds, Dollar Tree, Walmart, Proctor & Gamble, Johnson & Johnson, etc.

The Know What You Own Universe

  • What brands led our Christmas
  • The Top 200 Brands Index Universe

What brands dominated your holiday shopping? Here’s our list:

The brands that dominated your holiday largely will depend on the make-up of your household and extended family. We had three kids, four parents, three grandparents, and two single Millennials. Here’s who won our mind and wallet-share. I expect good things from these companies when they report earnings in the first quarter:

  • Lululemon dominated the apparel category again this year – LULU
  • Van’s were a huge hit – it’s amazing how this show brand has stayed relevant for decades – VFC
  • Cosmetics – MAC & Sephora – vanity never goes out of style – EL & LVMUY
  • Nintendo – I’m super excited about the Switch and Ring Fit Adventure game – NTDOY
  • Google – ChromeBooks, inexpensive and effective Internet surfing devices – GOOGL
  • Starbucks – gift cards for the stocks were falling from the sky’s – SBUX
  • Luxury items for the single Millennials – shocker – Tom Ford, Chanel, and Hermes won big

Our Top 200 Brands Index to track global spending from infants to the elderly, here and abroad:

Familiarity breeds content. When the markets turn sour as they are prone to do on occasion, it’s important we understand what our money is invested in. Even in 2008/2009, we knew many of these companies were going to be fine. If the stores are crowded and the products are resonating, revenue growth is sure to follow. That’s what we want from our investment actions. Here’s a look at 2019 top brands constituents. Through this group of companies, we get to access these important household consumption themes:

  • Aging society – pharma, genomics, biomedical discoveries, managed healthcare, medical devices
  • Video gaming
  • Apparel
  • Footwear
  • E-commerce
  • Beverages – soft drinks, wine, beer, spirits
  • Insurance
  • Credit cards
  • Cell towers for communication
  • Saving & investing
  • Consumer electronics & devices
  • Media, movies & entertainment
  • Live events and experiences
  • Brick-n-mortar retailing
  • Airplane manufacturing
  • Restaurants
  • Farm & infrastructure equipment
  • Semiconductors for technology
  • Real estate
  • Online travel
  • Energy production
  • Personal & household products
  • Cable & Satellite
  • Digital ads and streaming
  • Robotics
  • Artificial intelligence
  • Internet of Things
  • Cybersecurity
  • Business to business services
  • Digital payments & mobile wallet
  • Discount retailing
  • Warehouse shopping
  • Cosmetics and beauty products
  • Luxury, electric & mass market automobiles
  • Logistics and shipping
  • Pet food and medicines
  • Hotels, cruise lines, leisure facilities
  • Home improvement
  • Automotive parts & accessories
  • Fitness
  • Paint & coatings
  • Social Media
  • Luxury home furnishings
  • Packaged foods
  • Telecommunication services
  • Waste management services

A very good collection of businesses indeed:

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. 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.