How millennials are changing food industry choices

Changing US consumption patterns are forcing big change in the food industry. Millennials don’t tend to eat three square meals a day like their parents. Millennials graze, often eating just one meal a day, supplemented with three to four nutritious snacks. This new way of eating favours small local food companies whose brands emphasise quality ingredients and sell through non-traditional channels with higher ‘snack occasion’ penetration.

Large companies are slowly responding. Some snacking leaders are launching new products, such as plant-based chips and nut snacks and repositioning ad campaigns to stress ingredient quality. Other companies have resorted to small bolt-on acquisitions to meet these consumer demands. However, most large-scale food companies acknowledge their inherent disadvantages on this new playing field and are focusing more on margin management to grow earnings. Some also view large-scale consolidation as a way to facilitate this margin strategy. Time will tell if these changes are durable and if larger snack manufacturers can adapt.

David Sealy, The Boston Company Asset Management, a BNY Mellon Company

Changing US consumption patterns are forcing big change in the food industry. Millennials don’t tend to eat three square meals a day like their parents. Millennials graze, often eating just one meal a day, supplemented with three to four nutritious snacks. This new way of eating favours small local food companies whose brands emphasise quality ingredients and sell through non-traditional … read more

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Can fund managers avoid the wrath of regulators in their portfolios?

Following the financial crisis of 2008, we have seen extreme monetary policy intervention in markets as authorities have sought to counter global deflationary pressures and weak growth. While we expect this to continue (and potentially to become even more extreme and intrusive as the years go on), a new wave of state intervention in the corporate sector is also on the rise.

There are a number of potential causes of authorities’ ever greater interest in corporate life:

  • A cultural shift towards increased corporate scrutiny and accountability to the public
  • Politicians’ desire to find scapegoats (for example in the banking sector)
  • Weak government finances and the need to raise revenues
  • The low-growth backdrop, and the focus on protecting/favouring domestic companies
  • The wish to prevent a repeat of previous misdemeanours

One way to demonstrate the scope of state intervention in the private sector is to look at some of the largest corporate fines over recent years. With these fines likely to be detrimental to shareholder wealth, they are of considerable interest to investors and our global sector analysts.

We think it is necessary to be wary of sectors which are politically sensitive at times of election or hung parliaments since politicians are prone to try and score points by attacking unpopular industries. Additionally, we watch out for local bias, as regulators and governments typically favour local incumbents over foreign competitors.

Matt Brown – Newton, a BNY Mellon company

Following the financial crisis of 2008, we have seen extreme monetary policy intervention in markets as authorities have sought to counter global deflationary pressures and weak growth. While we expect this to continue (and potentially to become even more extreme and intrusive as the years go on), a new wave of state intervention in the corporate sector is also on … read more

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Contending with political uncertainty

It is surprising how well markets fared after the shock UK referendum result. Clearly, the exit of the UK from the EU is going to be a protracted process and the economic consequences will only become apparent with time. For now, it is viewed as a UK-specific economic issue, with some European ramifications, rather than a global concern.

If anything, the additional uncertainty, combined with modest rates of growth and little inflationary threat, has served to push government bond yields lower, easing financial conditions and prompting investors to move abnormally high levels of cash into other assets in search of yield and return.

Markets will have more political uncertainty to contend with in the months ahead, in the form of the next EU summit (in September) and referendums in Hungary (on EU migration policy in September) and Italy (on constitutional reform in October). Given the UK referendum result, sensitivities will be high. Then, of course, we have the US presidential election.

Steve Waddington – Insight, a BNY Mellon company

It is surprising how well markets fared after the shock UK referendum result. Clearly, the exit of the UK from the EU is going to be a protracted process and the economic consequences will only become apparent with time. For now, it is viewed as a UK-specific economic issue, with some European ramifications, rather than a global concern. If anything, … read more

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What’s behind the EMD resurgence?

In the wake of the Brexit result, flows into riskier assets have increased as investors search for assets that are not subject to very poor liquidity and are offering some yield. EM debt in particular has continued to benefit from record inflows.

In EM, our allocation is very much influenced by our ‘Mind the Gaps’ theme, which recognises the increasing heterogeneity of economic and sovereign debt prospects (across and within regions) in a challenging global growth environment.

Consequently we feel long-duration exposure in countries characterised by sensible policy making/structural reforms and solid fundamentals – such as low debt levels and improving external positions looks attractive. In our view, some of these still offer relatively attractive spreads and capital appreciation prospects (e.g. Colombia and Indonesia). However, at the front-end stable credits/positive growth stories (such as Morocco and Vietnam) can be complemented by selective imminent USD obligations in lower rated and high-yielding countries. We view these as benefiting from stable adequate reserves and/or IMF programme support (e.g. Belarus and Ghana).

Paul Brain – Newton, a BNY Mellon company

In the wake of the Brexit result, flows into riskier assets have increased as investors search for assets that are not subject to very poor liquidity and are offering some yield. EM debt in particular has continued to benefit from record inflows. In EM, our allocation is very much influenced by our ‘Mind the Gaps’ theme, which recognises the increasing … read more

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Goldilocks stocks?

Mid-sized companies are mature enough to have successfully overcome the growing pains that upend many small- and micro-cap equities. But as established players with proven track records, they also benefit from better access to capital markets. The ability to redeploy lower cost capital often allows mid-caps to move into new markets, expand product lines and otherwise execute their strategies.

At the same time, these mid-sized businesses do not typically suffer from the growth challenges that plague many of the largest, most recognizable global brands. Mid-caps do not necessarily need to deliver results through financial engineering, cost cutting, or risky acquisitive strategies as many of the largest companies may do. To the contrary, mid-caps are just hitting their stride.

In our view, this combination of stability, attractive growth potential, and relatively strong liquidity makes mid-sized companies compelling.

Syed Zamil – Mellon Capital, BNY Mellon company

Mid-sized companies are mature enough to have successfully overcome the growing pains that upend many small- and micro-cap equities. But as established players with proven track records, they also benefit from better access to capital markets. The ability to redeploy lower cost capital often allows mid-caps to move into new markets, expand product lines and otherwise execute their strategies. At … read more

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Revving up for Fed action

Domestic economic momentum has been re-established, the UK shock has been distributed through global financial markets with little apparent consequence for the US, resource margins have mostly been eliminated, and inflation is on a modest incline. A 25 basis point higher nominal funds rate, even a 50 basis point higher one, by year end keeps the real federal funds rate negative and monetary policy accommodative even as it reassures investors that the Fed has not mislaid the keys to the monetary-policy-tightening machine.

We think that Chairwoman Yellen accedes to tightening this year because she recognizes that a one-quarter-point hike reminds the world that the Fed is on duty and reassures her colleagues that they are all on the same page. As for timing, Fed planners probably gravitate to December. For the dovish Fed leadership, an action postponed might never happen. Waiting until December gets a free look at the election results, which are surely material to understanding the other sources of policy impetus in 2017 and beyond. Any committee hurt about delaying in September can be salved by reporting in the Summary of Economic Projections that the preponderance of the FOMC prefers a one-quarter point higher policy rate at the end of the year, making the dots matter. After all, if they are willing to publish that, they are virtually contracting on a December move.

Vincent Reinhart – Standish, a BNY Mellon company

Domestic economic momentum has been re-established, the UK shock has been distributed through global financial markets with little apparent consequence for the US, resource margins have mostly been eliminated, and inflation is on a modest incline. A 25 basis point higher nominal funds rate, even a 50 basis point higher one, by year end keeps the real federal funds rate … read more

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The march of Millennials: What investors need to know

The Millennial generation is now transitioning from the 15-24 age cohort, which has little discretionary spending power, into the 25-35 age cohort associated with household formations and rising discretionary spending. This confluence of Millennials reaching ‘spending age’ and Baby Boomers ageing out of their spending years is expected to significantly affect consumption over the next decade. We believe this demographic transition will pressure consumer spending dollars by roughly 1% a year until 2019, at which point spending should then accelerate. The composition of spending dollars will likely be affected even more dramatically.

The Millennial consumer will represent the highest percentage of peak earners by 2020, and by 2025 will represent 50% of peak earners in the US. No wonder consumer companies have begun to focus on the Millennial customer in such a big way. Addressing the Millennial customer requires a change in strategic direction for many companies, which, combined with the digitalisation of the economy, creates both opportunities and challenges. This is a major focus for our analysts during our management interviews. How do you compete with online retailing giants? How do you acquire a new customer? How is your marketing budget changing? Does your brand have authenticity? How do you retain Millennial employees? These are the questions companies need to answer, which are critical for investment decisions related to this demographic theme.

The Boston Company US Small Cap Growth Team

The Millennial generation is now transitioning from the 15-24 age cohort, which has little discretionary spending power, into the 25-35 age cohort associated with household formations and rising discretionary spending. This confluence of Millennials reaching ‘spending age’ and Baby Boomers ageing out of their spending years is expected to significantly affect consumption over the next decade. We believe this demographic … read more

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Venezuela’s sink-or-swim moment

Determining just when Venezuela might run out of money is complicated by several factors, one of which is the poor quality of official economic data, which makes it difficult to gauge precisely how dire the country’s fortunes are. While many energy-producing emerging markets are struggling due to low oil prices, Venezuela’s unique political culture and fiscal policies leave the country with fewer options than other countries have in order to address a balance of payments crisis of this nature.

Venezuela’s relationship with the IMF and other international institutions has been so strained by the anti-free market policies of former president Hugo Chavez and his successor that getting assistance from multinational institutions is not an option. Any sort of international financial assistance would likely come with conditions that would require a massive revamping of an economy that has diverged sharply from international norms over the past 14 years. While a similar package of reforms imposed by international donors kept Greece from defaulting last year, Venezuela is not politically capable of doing what Greece did in accepting an international bailout, which was the introduction of painful cuts to government programs.

Venezuela is an idiosyncratic case. It is not the same as any other oil producer. Most other oil producers are suffering just as much, but they have flexible exchange rates and better managed economies. The fact that the foreign exchange in most cases is floating has helped those countries to alleviate the pressures of a low oil price. While the oil price has fallen, the government in Venezuela has kept spending just the same, so the country has a huge fiscal debt. This is a self-imposed crisis, and I cannot think of many countries in the world that have managed to destroy their economy in such a short period of time.

Javier Murcio – Standish, a BNY Mellon company

Determining just when Venezuela might run out of money is complicated by several factors, one of which is the poor quality of official economic data, which makes it difficult to gauge precisely how dire the country’s fortunes are. While many energy-producing emerging markets are struggling due to low oil prices, Venezuela’s unique political culture and fiscal policies leave the country … read more

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A Golden Opportunity

Year to date, the price of gold has climbed over 16% in US dollar terms – and our view on the use of it within an investment portfolio has not significantly changed. Much of the polemic surrounding gold involves a comparison with other assets such as equities. The inference is that if you are pro-gold, you are anti-stocks, anti-innovation and anti-prosperity.

We see gold as a non-yielding real asset that should act like a ‘safe-haven’ currency to paper-based ‘fiat’ money. We do not think gold should be grouped with other commodities that are consumed to create economic activity. It’s the very fact gold is not used like other commodities but accumulates gradually over time without degrading (it has a high stock-to-flow ratio), that lends it the ability to be a monetary unit. This relatively low and stable production growth when compared to paper money confers gold some ability to appreciate over time.

In an environment of increasing paper currency devaluation denominating a portion of a portfolio in a monetary asset outside the current credit driven financial system can aid diversification. Indeed, with cash rates below zero across many major economies storing gold in vaults ‘costs’ relatively less. It is worth remembering that although gold is no longer used to back currencies, nation states continue to hold it as part of their reserves as long-term financial insurance. As such it doesn’t seem unreasonable to us  to do the same.

Suzanne Hutchins, Newton – a BNY Mellon company

Year to date, the price of gold has climbed over 16% in US dollar terms – and our view on the use of it within an investment portfolio has not significantly changed. Much of the polemic surrounding gold involves a comparison with other assets such as equities. The inference is that if you are pro-gold, you are anti-stocks, anti-innovation and … read more

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EM dividends: Olympian returns?

The Czech Republic takes an unlikely first place as the emerging market with the highest average dividend pay-out ratio for equities, with podium finishes for Brazil and Qatar.

At around 40%, Mexico’s average pay-out ratio is below that of these medal winners’ – but it is broadly in line with emerging markets as a whole. In our view, the quantum of pay-out is not necessarily the best indicator of successful equity income investment. Far more important are the sustainability of the pay-out ratio, and the potential for future dividend growth (clearly influenced by level of debt penetration too).

On this basis, we view Mexico as one to watch for the future and a worthwhile scouting ground for winners in the long-term equity income space.

Sophia Whitbread – Newton, a BNY Mellon company

The Czech Republic takes an unlikely first place as the emerging market with the highest average dividend pay-out ratio for equities, with podium finishes for Brazil and Qatar. At around 40%, Mexico’s average pay-out ratio is below that of these medal winners’ – but it is broadly in line with emerging markets as a whole. In our view, the quantum … read more

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