Accessing the emerging consumer: Babies, biscuits and booze
Ravenscroft Investment Management's head of fund research, Samantha Dovey, explores an inerently uncertain future how they are responding to that challenge.
'One of the biggest challenges we face as investors is that of an inherently uncertain future. Our response to managing that uncertainty is to build a robust and repeatable investment process, coupled with continuous monitoring, which seeks to mitigate the risks that uncertainty brings. One of the ways we do this is by aligning our investments with long-term themes driven by structural forces; examples include mankind’s continuing technological ability to innovate and the increasing consumerism associated with population growth in emerging markets.
The world population in 2013 was just over 7.1 billion, of which less-developed countries accounted for 5.9 billion. Looking forward to 2050, the population is forecast to increase to 9.7 billion and the majority of this 2.6 billion growth is expected to come from Africa (1.3 billion), Asia (0.99 billion) and South America (0.17 billion). That 0.14 billion from the rest of the world only serves to highlight the increasing importance of emerging markets.
We invest into one particular fund that is dedicated to the global emerging consumer – the Arisaig Global Emerging Markets Consumer fund. Arisaig’s sole focus is the consumer sector in emerging markets. They first started investing in this area in 1997 with their Asia Consumer fund and have since grown their range to four dedicated funds with their most recent addition being the Global Emerging Markets Consumer fund, which launched in January 2014.
The depth and breadth of the team is impressive: they have undertaken over 15,000 meetings with companies over the past 18 years. They are sector pioneers – their name is widely known and respected – and this opens doors that may be closed to others. The portfolio is made up of businesses that cater to the domestic consumer. They say, if ‘you cannot eat it, drink it, wash with it, wear it, or shop in it... we are not interested’.
They regard the rise of the local consumer in the emerging world to be a multi-decade event and they look for dominant, brand-owning consumer companies that by virtue of their cash generative, low asset intensive, master of their own destiny business models tend to grow shareholder value over the long term. Even better, these businesses typically pay generous dividends (another thing we like to see in companies).
Arisaig are not market-timers and hold companies for the long term; when we initially spoke to them they used the term ‘patient capital’. We like that, since we, too, are investors in this theme for the foreseeable future and are not swayed by market noise.
As the title of this article suggests, the fund owns companies that invest in babies (through Unilever Indonesia), biscuits (via Britannia) and booze (via Diageo and its associated subsidiaries). All the underlying investments make eminent sense to us and, given the expected growth in population and mankind’s drive to better itself, tick all our fund research boxes. I genuinely look forward to Arisaig’s monthly newsletters because they are both insightful and interesting.
Valuations in this region and sector do tend to be at the higher end due to the anticipated growth so, given that we asset allocate based on valuations, where does this leave us? We remain patient, waiting for a pull-back before increasing our exposure to babies, biscuits and booze at a good price.'
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