Agents of Change

The beauty of brands:

accessing the aspiration imperative

Nick Clay, Newton1

For Newton's Global Equity Income strategy, exposure to the luxury goods sector is a route into the global middle class growth story

Tapping into the rising purchasing power around the emerging world, particularly in India and China, is a well-rehearsed investment story, but perhaps the idea that it also allows you to tap into aspirational growth is a little less appreciated. Branded goods are at the centre of this aspirational demand, because if humans did not have aspirations, everyone would simply buy unbranded goods.

Towards the end of 2018, fears over a slowdown in global growth – and especially the short-term slowing of the Chinese economy – led to a sharp sell-off for many consumer brands, particularly at the higher end of the market.

We were able to take advantage of this by buying into high-end brands such as Richemont, the owner of luxury brand Cartier among a number of others. Richemont is essentially a jewellery maker but it has been caught up in the slowdown in demand for luxury watches which has been pronounced in China following a bribery crackdown. This had a deep impact on luxury watch sales, but less impact on the overall profitability of Richemont, given that only around 10% of its business is in watches. We were able to take advantage of the shift in sentiment around the luxury watch sector to buy it when it was sold off.

Harley Davidson is another aspirational brand we have been able to buy for similar reasons. It is a luxury brand that dominates the US market, where it has around 50% market share of every motorbike with an engine above 600cc. Its overseas market share is tiny, but a shift in business strategy combined with its status as an iconic and aspirational brand means it has great potential to grow outside its home market. It is also worth noting that it has opened up another potentially lucrative new market with the manufacture of its first ever electric motorbike. At a time when populations are ageing (with middle-aged men a key target audience for Harley Davidson) and an aspiring middle class is growing fast in countries like China and India, the company has a long-term runway for growth. The brand might be part of a saturated market in the US, (and be facing some political pressure from US President Donald Trump over attempts to relocate some of its manufacturing to Mexico), but it is well positioned to tap into the long-term structural growth story associated with an emerging global middle class.

1 Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.

The value of investments can fall. Investors may not get back the amount invested.

Currency Risk: This Strategy invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Strategy.

Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.


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How to invest in the Agents of Change

The value of investments can fall. Investors may not get back the amount invested.