Brand manufacturers grow with trend-aware young consumers in emerging markets

August 17 2011

A clear focus on consumers in emerging markets and a sure instinct for current and future trends: these are the guiding principles for GAMAX Funds Junior (ISIN: LU0073103748 / WKN: 986703) fund managers. Their strategy concentrates on brands such as Apple, Abercrombie & Fitch and Volkswagen which appeal above all to a younger international target group – investors’ focus is on this growing global group of trend- and brand-aware consumers. Rating agency Feri has confirmed the excellent quality of the DJE Kapital AG managed fund, awarding the top “A” rating.

“Many manufacturers of brand products already generate much of their growth in new emerging markets such as China, Russia, Brazil and India rather than in western industrialised nations”, explains Dr Peter Fischer, board member at GAMAX Management AG.

Fischer believes global diversification and the significance of these markets will grow even further in the future. Products from western companies are in high demand among the young in particular and are seen as status symbols. Rapidly rising wages in the middle and lower income segments and the large proportion of young consumers on these markets means high growth potential in the long term. Investors should therefore be looking at businesses whose successful product developments in western industrialised nations have already testified to an innovative ability and an understanding of these target groups.

Apple Still Leads the Field

Not for nothing is Apple the largest item in the GAMAX Funds Junior portfolio at 4.3 percent. The US hardware and software giant proves with each quarterly report not only that it offers good products, but also that it is able to combine these with the right marketing and a customised sales strategy – the best possible basis for sustainable, long-term market success.

“Future prospects are good”, says Fischer. “The successful iPad is as yet only available in around half of the markets on which the iPhone is sold.“ However, customers are still faced with fairly long delivery times.” With extremely strong future prospects and an excellently managed product cycle, Apple has obtained a unique position in this electronics sector and remains inexpensive.

Recurring criticism from data protection advocates and consumers concerning both data protection and the fact that users are tied to Apple products such as iTunes is clearly not affecting the healthy sales figures. “Social networks such as Facebook and blogging sites like Twitter are extremely popular. The culture of use, in which so much information is provided voluntary, does not appear to us to be one of oversensitivity to issues such as data protection”, Fischer adds.

International Growth Sectors: Textiles and Retail

The fund management also holds promising securities for the portfolio in the textile and retail segments. Inditex (which includes the clothing chain Zara) is one such portfolio business which has been growing steadily for years. It primarily serves the lower price segment and is able rapidly to bring the latest fashions to the shops.

Companies such as Abercrombie & Fitch have yet to undertake international expansion; however awareness of their brands already extends far beyond the domestic market. In the retail sector, Yum! Brands is amongst the companies expanding extremely successfully with brands including Taco Bell, Pizza Hut, KFC and Little Sheep in Asia, and now generating 49 per cent of operating profits in emerging markets. Yum! Brands’ percentage turnover generated in these fast-growing regions is around three times higher than that of competitors such as McDonalds.

Pinpointing Trends from Different Sources

Two experienced fund managers from DJE Kapital AG in Munich, Jan Ehrhardt und Moritz Rehmann, are responsible for successful implementation of the GAMAX Funds Junior investment strategy. They pick up on promising trends through intensive research using a large and varied range of sources.

“The fund managers find out key information in the shopping areas of major cities, by surveying the young target group and by analysing the sales statistics of large online shops”, explains Fischer.

Once trends are pinpointed, a company is closely analysed using indicators such as the price-earnings ratio, price-to-cash flow ratio and debt indicators.

Ultimately, however, personal contact with the management and evaluation of a company’s long-term innovation and therefore growth potential is a key, indeed almost the most important aspect. The time and work involved is well worth while. With a three-year performance of 23.85 per cent, the fund management has put its benchmark, the MSCI World (10.81 per cent), in the shade. An “A” rating from fund rating agency Feri has confirmed the fund management’s potential to achieve a steady and strong average performance in the medium term with a relatively low risk exposure.

“The clear focus on companies which exploit their growth potential with products for the younger generation makes GAMAX Funds Junior a strategic element in asset allocation for investors with a medium to long-term horizon” says Fischer, outlining the GAMAX target group.