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Demographic novel

A fund with the word “consumer” in its name? I must be mad. With house prices falling rapidly in the UK, Spain and Ireland and looking truly awful in parts of the US, surely the consumer is buried?

Well, not completely – not everyone has a mortgage and the baby boomers are in their 50s and 60s and have plenty of money. Couple this with the growing wealth of emerging market consumers and you could have quite a growth story.

The JPM global consumer trends fund looks to find long-term themes that are durable rather than short- term spending fads. These consumer trends are not constant – they keep changing – but globally they are worth $30 trillion.

One of the essential areas of the shifting consumer landscape is the emerging markets’ story. As more people ascend to the middle classes in these economies, there is an increase in consumption growth. This is illustrated using the example of beer and packaged foods.

In the US, where per capita income is $43,000, consumers are spoiled with a choice of 132 varieties of beer and 1,055 different packaged foods. In Russia, there is a selection of 74 beers and 340 packaged foods, looking east to India, they have only one beer and nine types of packaged food.

Placed in the context that their per capita incomes are $4,460 and $720 respectively, it is evident that there is a long way to go.

Consumer trends can simplistically be broken down to three parts – demographics, health and wellness and aspiration.

Looking first at demographics, we see the re-emergence of a regular theme in my column – urbanisation. Today, 49 per cent of the world’s population lives in towns and cities and by 2030 this is forecast to grow to 60 per cent. In addition to this, the global urban population will grow from three billion in 2003 to five billion by 2030.

These changing demographics will affect the way that wages grow and living standards change, providing fantastic profit opportunities for the likes of convenience stores, branded products, healthcare and retailers generally.

In the developed world, demographics are changing as a result of the baby boomers approaching retirement. Not only are they expected to outlive their forefathers by 19 years but they have also adopted a much more youthful outlook with associated spending habits.

Financial services, healthcare, leisure and travel are all industries set to benefit from this shift.

Tied up with living longer is the preoccupation with living healthier that has gripped the Western world, providing incredible growth opportunities for areas such as organic food sales. In 1997, US organic food sales were worth $3 900; now that figure is closer to $18 000.

A company leading the way in our quest for healthier lifestyles is Herbalife, one of the world’s biggest network marketing companies, supplying us with anti-ageing creams, weight management products and dietary supplements.

In respect of healthier living, two-thirds of the global population suffer from dietary deficiencies which opens up a market to offer health and hygiene solutions to the emerging markets that currently spend just a fraction of what we spend in the West. Hong Kong-based Hengan is poised to take advantage of this rising trend.

The ever expanding middle class being produced by urbanisation is leading the way in aspirational consumption, with a huge appetite for branded products. In Asia, particularly, these branded goods are seen as a mark of success, although few of these high-demand brand products belong to Asia, leaving Europe to benefit. Of the top 100 global brands, 53 are North American, 36 are European and just three are Asian.

This new fund will have around 40 to 80 stocks, with Europe the biggest weighting at 38 per cent and North America at 27 per cent. In terms of themes, the most prominent are demographics at 39 per cent and aspirational spending at 37 per cent. The fund will be investing with a clear, focused approach in areas that are easily understandable and in which the manager has high conviction.

Alongside long-term themes such as infrastructure, energy and water, this JPM fund does seem to make a large degree of sense.

Mark Dampier is head of research at Hargreaves Lansdown


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