While some short-term investors took fright at the fourth quarter sell-off in the IT sector, and across growth stocks generally, longer-term investors can see lower valuations as opportunities to increase exposure to their favored stocks. As such, the Robeco Trends team’s focus has been on technology companies that are capitalizing on consumers’ insatiable appetite for voice-controlled devices.
Smart speakers, such as Google Home and Amazon Alexa, form a key element of the Internet of Things, which connects devices across the home, including smart TVs, fridges, central heating thermostats and home security systems. Voice control is the latest step in facilitating easy access to technology systems, being easier, quicker and much more intuitive than typing on a keyboard.
Consumers are flocking to the technology - around 25% of US households now have at least one smart speaker and Neele and Speetjens expect this trend to gain momentum in other countries, initially led by English-speaking markets. In time they foresee similar levels of penetration as in the US. Chinese platforms are already replicating the technology with a view to capitalizing on the growth potential. The investment case for companies enabling voice-controlled technologies is not without risk, including regulatory factors, such as growing regulation in the EU and the Digital Services Tax based on revenues.
Neele and Speetjens fully anticipate ongoing regulatory scrutiny as to how the big players handle information from devices such as always-on smart speakers. Hence, to fully capitalize on the growth potential, companies will need to maintain, and in some cases, raise investment in areas such as data security. Nevertheless, even in the face of a push for tighter regulation over the use of data, they believe that the growth story for voice-controlled technologies remains compelling.
Even as the economic slowdown in China plays out, emerging consumer classes offer huge growth potential, according to the Robeco managers. While China has been the big growth story over the last decade, consumer markets there have become much more developed, and very competitive. However, Neele and Speetjens have become increasingly interested in the growth of the consumer space in India.
Having lagged China, perhaps by up to ten years, in terms of urbanization and consumerization, they believe that India now offers exciting prospects, helped by rapidly growing population ¬¬- in contrast to China, where the population has largely plateaued. In fact, many of the developments seen in China over the last decade are now playing out in India, driven by factors such as urbanization and the rapidly growing consumer classes’ appetite for both premium food products and basic necessities as retail channels increasingly commoditize.
Hence, Neele and Speetjens have built exposure to companies similar to those their team bought into in China a decade ago, including those with unique, efficient distribution channels, category leaders in areas such as supermarkets and in particular food product producers (such as biscuit manufacturers). Distributors with a distinctive presence, such as high number of High Street outlets and/or a dominant online position - also have caught their attention.
While the Chinese consumer market has become crowded, the Robeco fund managers recognize that it’s still a huge market with some interesting opportunities, albeit that they are scarcer nowadays. India is at an earlier stage on the growth phase, a factor that can carry higher risks as well as opportunities. While China’s been trying to rebalance its economy away from exports towards the rapid growth of domestic consumption, India remains more of an internally focused economy, with relatively high levels of domestic consumption, a factor that underlines the growth potential given the ongoing emergence of the domestic consumer class.
Neele and Speetjens have built exposure to companies geared to the long-term trend of growing awareness of health & well-being amongst consumers. Think of the surging popularity of health-based smartwatches, such as FitBits, or note the growing consumer interest in the composition and provenance of the food they eat.
Although this trend is not limited to any one demographic, many young people in particular now pay more attention to the ingredients and composition of the food they eat, with a willingness to pay a premium for more natural, ethically sourced and/or organic foods, including foods that are compliant with specific dietary requirements. As well as specialized food producers selling direct to the more health-conscious public, opportunities can also arise among specialized ingredients suppliers to larger food producers.
Such suppliers fitting the Robeco Trends team’s theme are, however, becoming more difficult to identify as the biggest food producers, themselves mindful of the health & wellness awareness trend amongst consumers, engage in M&A activity. For example, French headquartered food giant Danone bought US-based WhiteWave Foods, a supplier of organic dairy products and plant-based dairy substitutes, with a view to better meeting consumers’ changing preferences.
While the fourth quarter sell-off saw 2018 calendar year returns brought back down to earth, with market returns for the year turning negative but the fund retaining its good relative performance, the companies Neele and Speetjens invest in have continued to enjoy double-digit earnings growth. Valuations are now back towards the lower end of our longer-term range, therefore making them more attractive, even on a timescale stretching back three or four years.
Hence, for the stocks the Robeco managers like, the expected earnings growth-to-valuations relationship has become more favorable, giving them strong grounds for optimism over their potential returns. Looking ahead, Neele and Speetjens are prepared to look beyond short-term market fluctuations as they aim to capitalize on powerful underlying global growth trends in consumer markets.
The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).
This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.
This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.