There will be those capable, organised parents who have already planned a full schedule of activities for those long, long summer holidays. And there will be those of us who will be relying on a little external help. You’ll probably be paying a fortune keeping your kids entertained over the next six weeks – can you get a little back?
It may all start with good intentions, but three weeks in, most parents will be looking for something to keep them sane. Major consumer goods companies are well aware of this and will aim to make a packet out of parental fatigue. By investing in these companies, you can recoup some of the profits.
Which companies could benefit most?
Apple is certainly going to be high on many people’s list. The electronic babysitter is a handy way to buy a few hours of peace. Disney, Meta Platforms (owner of Instagram and Facebook) and Netflix are also likely to relieve you of your cash over the summer months. Your kids will also need to be fed and watered, which brings many consumer staples companies into the mix.
However, investing in individual companies can be fraught with problems. There can be many factors at work in the share price performance of individual companies and there can be significant risks associated with single-stock investing. A collective fund can be a way to get exposure to some of these companies, but in a more balanced way.
For example, the JPM Global Equity Income fund has plenty of companies that will be easing your summer holiday burden. It has Apple and Meta Platforms among its top holdings. Coca-Cola and Nestlé are also important positions for the fund – and who hasn’t resorted to a KitKat or two when bribery is required.
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Similarly, the Trojan Global Income fund has PepsiCo, Reckitt Benckiser and Unilever. The Reckitt’s brands read like a summer holiday packing checklist – Dettol, Disprin, Gaviscon, Veet, plus Clearasil, Vanish and Cillit Bang. (Though the summer holidays may also lead to a decline in demand for another of its flagship brands – Durex).
A note on the consumer staples sector
There is a more serious point here. The share prices for many of these ‘consumer staples’ companies have had a more difficult time recently. Investors have assumed that the new weight loss drugs, such as Wegovy, will lead to a significant decrease in demand for the type of food and drink they produce.
Also, share prices had been pushed higher during the pandemic as investors retreated to apparent ‘safe haven’ areas. The unwinding of this trade has also hurt share prices.
These companies are often a significant portion of global equity income funds. They tend to have reliable long-term revenue growth that doesn’t bounce around with economic conditions. This allows them to pay consistent dividends, leaving them as a natural choice for a fund manager trying to pay a growing dividend to their unit holders.
While their recent run of weakness may have hurt performance, it is possible that a recovery is imminent. James Harries, manager of the Trojan Global Income fund, says: “Consumer staples have been poor performers over the past 12-18 months. We still think their long-term attractive attributes are intact – brands, distribution and pricing power. The core point is to look at the long-term attractiveness of a business, as opposed to the environment in which a company finds itself currently.”
Consumer staples have proved themselves ‘defensive’ areas over time. That means that they tend to do well when the economy is weaker, but may lag the market when growth is pushing ahead. As such, they can be a useful backbone to a portfolio in all conditions – not just for the summer months.
The ‘summer’ sectors
The other sectors that tend to do well out of the summer holidays are clothing and gaming. Getting access to clothing companies through stock market investment isn’t easy. The clothing companies currently faring well with the teenage market, such as Zara (owned by Spanish group Inditex) and H&M (owned by Swedish Group H&M Hennes) are majority-owned by their founder families. They have external shareholders, but don’t tend to be a major holding for active fund managers.
Cosmetics companies may be a more fruitful option. French cosmetics groups L’Oréal and L’Occitane en Provence might be a way to recoup some of the many pounds your teen spends on beautifying. Jupiter European holds L’Oréal among its top 10 positions.
The other major beneficiary of teen spending this summer could be Nintendo. The Japan-listed company is a favoured holding for the Orbis Global Balanced fund, with manager Alec Cutler saying: “Nintendo looks like where Disney was in 2005, just before it started monetising its properties. Nintendo has incredible content and an incredible user base and hasn’t monetised any of it ever.”
If that user base is your child, you might want to be an investor before Nintendo management gets started on merchandising.
These companies can’t make the summer holidays go faster, but at least you might feel that you’re getting something back for your money. Roll on September.
Juliet Schooling Latter is research director at FundCalibre and Chelsea Financial Services
