investment viewpoints

In conversation: Juan Mendoza

In conversation: Juan Mendoza

Juan Mendoza is the portfolio manager of the LO Funds – World Brands fund (formerly known as LO Funds – Global Prestige). He recently participated in a panel discussion on mega trends at the annual Finanz 19 financial fair in Zurich on 23 January. We believe there are five mega trends which will shape our economic and social outcomes. These are Demographics, Climate Change, Natural Resources, Digital Revolution and Inequality. The following Q&A was conducted after the event.


Where can we see the impact of the demographics mega trend?

Asia is going to be a huge influencing factor because of the demographic changes which are unfolding. The middle class is expanding and this is going to continue to have an impact on demand. 
The expansion of the middle class in Asia, and the accompanying rise in associated discretionary spending, has been such that it has opened up new areas of focus. This investment theme is another which is to a degree shaped by the potential of the 'digital revolution'. 

A defining characteristic of this consumer class is a greater focus on convenience. Leading premium food and drink brands are already forging partnerships in Asia that are designed to disrupt conventional distribution channels and capitalize on this growth opportunity. 

This burgeoning middle class is driving innovation and development when it comes to electric vehicles. In China especially, technology associated with clean air is in the midst of a boom as this consumer class uses its discretionary spending capabilities to combat the pressing issue of pollution. Sports and athleisurewear has also been growing exponentially.
Companies which are best positioned to meet the demands of this consumer class will be at an advantage. There will be a very noticeable impact on brands which effectively align themselves with this development.


What makes a brand sustainable?

Companies with a prestigious brand can enjoy significant and enduring competitive advantages. They have a proven ability to create premium products and are skilled at introducing them to new markets by means of strong distribution networks. 
There are also a number of long-term trends are reshaping the global landscape. There are a number of established household name brands which stand to benefit from these trends and they will also inevitably fuel the rise of newer names.  

We aim to identify companies with sustainable financials, sustainable business practices, and sustainable business models which can benefit from these long-term trends. We believe these attributes equate to a sustainable investment opportunity. Especially when we invest in consumer-facing brands, we do believe sustainable business practices are key. 


Distribution channels are evolving. How is this taking shape?

Distribution channels are evolving and strategic alliances such as ‘e-concessions’ are becoming more commonplace. ‘E-concessions’ are structured agreements between retailers and third party online marketplaces and this market is expected to hit EUR 6 billion by 2025 for the European sports and fashion brands1.

This type of arrangement is effective in bringing local brands to a wider base, as demonstrated by the growth of online fashion retail platform Farfetch2. Small leading brands and rising new brands are given the chance to compete in the global marketplace while still retaining their physical presence.


What other global megatrends are shaping brand prestige?

In our view, there are five global megatrends which stand to have a material impact on the prestige brands of tomorrow. These are centered around healthy living, leisure, the rising middle class in Asia, aspirational consumption, and disruptive technology.
We can already see evidence of how brands which react to these trends can place themselves at an advantage. A significant global market for wellness has emerged in recent years, for example, ranging from fitness to organic foods. This healthy living trend has boosted a number of leisure firms, including athletic apparel retailers.

Disruptive technologies represent a fascinating area of growth. Digitally-driven services, from streaming media to online marketplaces, are replacing traditional channels at an incredible rate. From ground coffee to luxury fashion, few brands can ignore the digital race, paving the way for e-commerce solutions. 

We are facing significant long-term structural trends that we believe will have far-reaching implications for our sector. In addition to strengthening existing brands, they stand to fuel the creation of new prestigious brands. 



1 Source:Goldman Sachs Global Investment Research, March 2018.
2 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document


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