Kames equity manager looks to play on millennials trend
Craig Bonthron, portfolio manager of the Kames Global Sustainable Equity Fund assessed that millennials, defining individuals in their early/mid-20s to mid-30s, tend to spend more on leisure experiences than on material possessions and are in demand of very high standards in terms of infrastructure and lifestyle.
Bonthron has unveiled four of the stocks he picked in the Kames Global Sustainable Equity Fund and that he believes well positioned to meet millennial boomers’ needs.
The fund holds global food ingredient companies Ingredion, based in the US, and Kerry, headquartered in Ireland. Both work for branded or large own-brand (supermarket) consumer food manufacturers.
“They enable these firms to develop new products which consumers want and help them to adapt to new trends and tastes: i.e. millennials’ shift away from traditional packaged foods with artificial processed ingredients towards fresh, organic and healthy alternatives.
“There is also a strong growth in smaller niche brands. As such, there is a growing demand for the services of these ingredients companies as they can support (a) the need for large global players to adapt and (b) emerging new niche brands’ growth. Ingredion and Kerry compete to a certain extent globally but tend to have different niche specialities,” Bonthron explained.
Another stock selected in the fund is the US listed designer and manufacturer of flooring for residential Mohawk Industries.
Bonthron observed that the initial carpet manufacturer has diversified into different flooring types (ceramic, vinyl etc.) and different regions through acquisitions.
“It is a big beneficiary of what Americans refer to as Repair and Remodel (R&R) activity in the residential housing market. It is a very well-managed business and the largest player in a fragmented market, giving it scale, distribution and cost leaderships versus the competition.
“Mohawk will benefit from the millennial boomers as they form families and shift from urban living in apartment blocks to suburban living in houses. This has been delayed up until now and is currently running five years behind expected estimates. But it won’t be delayed forever and as this evolves over the next five years (assuming we avoid another economic shock) we will see a meaningful uptick in R&R spending which will benefit Mohawk,” Bonthron said.
The fourth stock of the Kames Global Sustainable Equity Fund Bonthron discussed is Mednax, a US provider of neonatal care clinics, anaesthesiology and radiology services within US hospitals. Neonatal care remains the original and largest part of its business.
“The number of sick and premature babies is a direct function of the total number of babies born in the country and US birth rates have been depressed relative to history for a number of years. Americans have historically had babies earlier than the UK / Europe (average around 25 years), but millennials have delayed having children due to generational and economic factors; birth rates have yet to pick up to reflect the demographics.
“As with Mohawk, it is expected that family formation birth rates will pick up over the next five years, benefiting Mednax due to this direct relationship,” Bonthron said.
The Kames Global Sustainable Equity Fund has been launched on 21 April 2016.
Kames Capital had €60.3bn of AUM as at 30 June 2016.