Five trusts on an attractive discount
Over the past few years, multi-asset managers have increasingly turned to investment trusts as a way...
If I told you to picture someone crocheting a blanket in their free time, I’d guess the image brought to mind would be a sweet little grandma sitting in a rocking chair – certainly not me on the sofa watching Super Sunday.
Nevertheless, that’s exactly how I’ve been spending my weekends – making handmade baby blankets for two family members expecting their first baby in the coming months. It turns out that not only is making two blankets time consuming, but wool is surprisingly expensive. So it got me to thinking about all the added expenses come hand in hand with a new baby, and how to tap into this $10.91 billion market*.
“I’ve always thought: this place is borrowed. And, surely, being as intelligent as we all are, or as evolved as we all are supposed to be, we should be able to leave something better behind for the next generation.” — Prince Harry
According to the recent Cost of a Child report by Child Poverty Action Group, the overall cost of a child up to age 18 (including rent and childcare) is £151,000** for couples and £185,000** for single parents. That works out to roughly £8,389 and £10,278 a year respectively. However it’s not equal spending – in the first two years of a baby’s life it’s estimated the cost is approximately 20% of those figures – or £266.48** per week for couples and £328.04** for single parents! That’s a lot. Surely there’s a way to access all this spending?
Generation X will remember the days of one-stop baby shopping at Mothercare, the baby products retailer which has suffered on the UK high street and recently gone into administration. So where are all the parents-to-be turning today? The obvious answer: Amazon. Offering next day delivery for Prime members, easy returns and a long list of ‘shopping guides’ such as the New Baby Checklist and Hospital Bag List, Amazon, for many, takes the guess work out of the shopping and provides the convenience millennials are famous for requiring.
There are some things though that are simply best tested directly – your prams and car seats, for example. While popular brands like UPPAbaby and Britax are privately owned companies, you can of course view their range in retailer Mama & Papas, which unfortunately is also privately owned and a dead end for would-be investors. Once again we’re left with Amazon, a holding in Scottish Mortgage Investment Trust*** and Rathbone Global Opportunities*** as an option for those looking for general exposure to baby products and online retail.
The baby industry isn’t entirely privately owned though. Danone, the brand behind baby formulas Aptamil and Cow & Gate, as well as brands Activia and Evian to name a few, is present in over 100 markets worldwide. Danone has been a long term holding in the Guinness Global Equity Income fund, delivering consistent returns on capital and good dividend growth, with a plan to concentrate on sustainable premium products over the next 5 years.
Another option for baby formula is, of course, Nestle. A holding in Waverton European Capital Growth*** fund, manager Chris Garsten likes Nestle for a number of reasons. He told us: “CEO Mark Schneider’s focus on profitability and portfolio rationalisation, which should result in a return to faster organic growth and an uplift in margins, with strong brands delivering positive pricing power. Also, it’s apparent that strong cash flow will be returned to shareholders via dividends and share buybacks, rather than spending on large acquisitions which we had feared.”
When my eldest sister was pregnant with my first niece, I went slightly overboard, I filled an entire laundry basket with baby essentials from diapers and wash cloths to of course a wide array of bath products. It was essentially an ad for Johnson’s baby line, from lavender bath products to wipes and creams. Johnson & Johnson, a holding in Comgest Growth Japan^, is a highly diversified pharmaceutical, consumer and med tech business, with an excellent track record of long term dividend growth. Johnson’s Baby is also responsible for over 90%^^ of all industry-led baby skin care research.
Alas, my favourite gift to give at gender reveals and baby showers, Sophie the Giraffe, is also made by a privately owned French company. But doesn’t mean it’s not a cute ‘bow’ for my newly forming handmade blankets!
*Source: Baby product market size, share & trends analysis report, by Grand View Research, 2017
**Source: The Cost of a child in 2019, by Child Poverty Action Group, Sept 2019
***Source: Fund factsheet at 30 Sept 2019
^Source: FE Analytics at 31 Oct 2019
^^Source: Johnson’s Baby, Jan 2019