Why children point the way to future fund returns
Jan Ehrhardt, manager of the Gamax Junior fund, discusses why the consumer buying trends of young people give an insight into tomorrow’s fund returns.
Every fund manager needs a competitive advantage. Maybe a reliable ‘leading indicator’ justifying and guiding their decisions.
This challenge has become ever more difficult as high correlations on global stock markets in the crisis made stock selection even harder.
But the manager of the Gamax Junior fund says there is one ‘early signal’ he believes works well.
If you have bought products your children use – a mobile phone or computer, perhaps – that vindicates a key thesis behind Gamax’s Junior portfolio.
Jan Ehrhardt (pictured), who has run the youth consumer trend global equity fund since mid-2007, explains simply: “We like companies whose products appeal to young people, who adopt them faster than older people. That is a key reason we look at what young people buy.”
Power to youth
Arguably the two most obvious sectors are fashion and technology/internet. Ehrhardt has capital in both, but following the value philosophy instilled in DJE Kapital – the €10bn adviser to the fund – he also screens firms strictly on valuation criteria.
Thus, for example, he is not planning to buy into the most talked-about IPO: Facebook. Although used by nearly 900 million people worldwide, Ehrhardt says valuations are pricey.
The value philosophy in Gamax Junior means if Facebook becomes the next Deutsche Telekom of 1999-2000, he will not be there.
If Facebook had listed three or four years ago, he might have bought it “when it started in Harvard and young people first started using it. But now everyone does, so it is too expensive, and less than 50% of sales come from younger people. I would wait for a lower valuation”.
In the internet sector, Ehrhardt prefers companies such as Kabel Deutschland, which offers Germany’s fastest direct household connections to the internet, and has significant business advantages over Deutsche Telekom.
“When you look at streaming of videos and downloading of videos and VOIP, it is attractive,” he says.
Ehrhardt is also not afraid to deviate from index weights. Gamax Junior has just 32% in US stocks, compared to 53% in the MSCI World benchmark.
The fund had about 9% in software and internet at the start of the year, about 12% in textile, 9.5% on food, 9% in media and 8% in retail – very different to MSCI World.
Gamax Junior posted drawdowns of 2.72% in 2011 (MSCI World lost 2.38% in euro terms). It made 20.24% in 2010 (MSCI World made 19.53%) and 26.08% in 2009, compared to MSCI World’s 25.94%.