Hedge fund firm Infusive gains on global consumer-alpha plays

It may sound like Japanese lifestyle consultant Marie Kondo decided to create her own hedge fund strategy, but the concept of consumer joy is a distinct form of investment alpha that has fueled returns at Infusive Asset Management. Infusive’s UCITS fund ended 2020 up 43%, while the firm’s companion ETF had performance of 31% for the full year ending December 31. “We are specialists in human psychology and specialists in joy,” said Infusive CEO Andrea Ruggeri. “That’s what we learned from the past and the performance so far is there.” ‘People will always buy things that bring them joy’ is the firm’s simple investment maxim that is decades in the making. While the UCITS fund is now celebrating a five-year track record, Ruggeri said it has worked for decades, and well, he sees little reason for that to change despite a global economic downturn. After all, why change a good thing? The fund was up 30% in 2019 is up over 100% since inception, Ruggeri added. The $475 million firm has a global reach, and the strategy is global in scope with offices in London and New York. The strategy, according to Ruggeri, has room to grow and can handle up to $3 billion to $5 billion and that is a long-term goal of the firm. The investment philosophy has its roots with a longstanding European family office. It all began with consumer stocks in Switzerland such as Nestle. The question in the early days that the team sought to answer intellectually was what it was about coffee, chocolate and beer and certain brands that are deliver compounding power over and about global equity returns. “Understanding what made Nestle and Colgate is that connection with consumers,” said Jacques Jenny, portfolio manager at Infusive’s New York offices. It is insensitivity to price, a better margin structure, but more importantly when there are times of stress and there are things that fall out – it tends to be the things that people love that gain in favor. In 2020, a geographic wrinkle emerged when Jenny noticed a new trend. As U.S. and European consumer stocks were hit hard in Europe in March due to the pandemic, China was already coming back. “The Chinese consumer is driving growth,” he noted. “From a consumer standpoint, the growth coming over the next decade is from China and Southeast Asia.” And while traditionally GDP and consumer trends develop as the middle income rises along with disposable income, but the new trend is the acceleration of consumer behavior on the back of technology with well-known companies such as Tencent and Alibaba. Throughout the pandemic there have been massive change in the luxury space, for instance, Jenny said. One-third of the spending globally is from Asia and pre-pandemic a lot of that was tourism luxury shopping. And now that shopping is moving online and in China shoppers are flocking to Farfetch, an online luxury retail platform. Looking at the lens of the consumer, Jenny said that teenagers often provide a good idea of what will be the default in years to come. The majority of the portfolio is in North American companies (41%), while less than 30% is in China names. That is something Jenny expects to change this coming year as China’s consumer influence continues to grow. Ruggeri added that basically China will be the only of the major economy in the world with GDP growth this year of maybe around 4.5%. It is half of its historical average of recent years yet is still a great number by any standard. “It feels as if, and our assessment is, that in six to eight months China has made progress that they normally would have achieved in five to 10 years,” Ruggeri said. It places the economy in a leading position going into 2021 and market participants agree that it will be a big China year in terms of growth, according to Infusive. And Jenny points to one more interesting Chinese company worth remembering and that is Kweichow Moutai, which is the world’s largest spirits company and maker of Moutai, which he sees as being more Chinese than Jack Daniels is American. A Chinese A share, it is a difficult stock for Western investors to get access to. Still Infusive is able to put money to work in this robust now consumer-driven economy. For now, the fun is focusing on what brings others joy and in turn is primed to keep investors happy too. Ruggeri and his team plan to continue to improve the strategy they inherited from the European family no matter what the rest of 2021 holds.

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