the long-term potential of sustainable brands.

investment viewpoints

the long-term potential of sustainable brands.

1 February 2019

Companies with a sustainable and prestigious brand have the potential to generate sustainable returns, outperform their peers and enjoy long-term capital growth.

Investors recently gathered in Geneva to hear from Head of Equities Didier Rabattu and Portfolio Manager Juan Mendoza on the subject of sustainability as a driver of growth and how this is applied to the LO Funds – Global Prestige fund.
In a world that is increasingly characterized by slowing growth, the Fund targets companies that can deliver high, sustainable economic returns through the power of their brands.

This high-conviction fund focuses on 25 to 45 high-quality companies, mainly from the consumer and technology sectors. The manager favours companies that specifically target millennials, the leisure sectors, ‘aspirational’ consumption, disruptive technologies and online distribution.

The power of their brands is a key strategic asset for these companies, which in turn build long-term competitive positions that allow them to generate growth in excess of GDP.

Attendees heard how powerful global trends are helping to create new prestigious brands and to strengthen some existing brands. At LOIM, we believe five sustainability megatrends will drive returns in the future. They include: changing demographics, the digital revolution, climate change, scarcity of natural resources and rising inequality.

The Fund invests in brand names that take full advantage of these trends that are already having the effect of reshaping our lifestyles and consumption patterns on a global scale.

For example, Mendoza explained how luxury brands are benefitting from the ‘digital revolution’ mega trend. These brands can now reach consumers who previously had less exposure to the point of sale. Strategic partnerships such as "e-concessions", i.e. structured agreements between retailers and online marketplaces operated by third parties, are becoming increasingly widespread. According to Goldman Sachs, the total market volume for online concessions is expected to grow from less than 500 million euros today to six billion euros in 2025.

Mega trends are also predicted to impact industries such as car manufacturers. Electric vehicles are set to reach 45% of annual car sales by 2030, by some estimates . Their popularity is, in part, growing in response to societal issues such as high pollution levels in key markets such as China.

Mendoza also updated attendees on his outlook for the broader economy in 2019. In his view, domestic consumption in China should benefit from stimulus and fiscal easing. There is also predicted to be an increase in M&A activity in consumer staples and discretionary.

The success of quality companies with prestige brands is based on a number of common characteristics. Chief among them are diversified and consistent earnings, price power with high margins and the sustainable generation of free cash flows. In addition, they can translate their strong organic sales growth into higher profitability.

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