Now put your money where your mouth is

Consumer stocks often bring balance to a portfolio

Recently I have become a fan of Marmite, a spread I never thought I liked much before. I love the smell of Dove soap; I am also keen on luxe Hourglass lipsticks.

Such personal preferences do not usually prompt my investment decisions, although according to one school of thought, you should buy shares in companies of which you are a satisfied customer.

currently, however, there are other arguments in favour of backing Unilever – the £105bn group behind these and many other brands – and the other companies that supply the things we need and the treats we enjoy such as ice cream, champagne and brandy.

these businesses should benefit from economic growth and ought also to have pricing power during inflationary times, which is important since the OECD forecasts that the cost of living may continue to rise for the next two years.

Star fund manager nick train has renewed his commitment to consumer stocks ‘that produce real stuff that people can’t do without’, rather than companies which deliver digital services.

His Finsbury Growth and Income trust and UK equity fund both own Unilever, Burberry, Diageo, Heineken and Mondelez, the owner of cadbury, and Remy cointreau. UK equity also has a stake in the Daily Mail and General trust.

train particularly favours drinks firms, having increased UK equity’s stake in Fever-tree, the mixers producer. He says: ‘We note the great and enduring fortunes built by the owners of successful beverage brands and are keen to share in the durability and cash generation of such brands.’

But cash generation is not the only lure. Bruno Monteyne, of Bernstein, and other analysts believe US activist investor nelson Peltz (future father-in-law to Brooklyn Beckham) is itching to shake up Unilever, whose shares have fallen 22pc since their 2019 high. Some of this is due to the investor backlash that has hit the group following the announcement its Ben & Jerry’s subsidiary (whose board is autonomous) would boycott Israel.

Peltz, who forced an overhaul of Procter & Gamble, the Pampers and Ariel business, is said to want to do it all over again. Some claim he sees a geographical split as one way to boost Unilever’s performance. For example, it owns 70pc of its separately quoted £64bn Indian subsidiary, Hindustani Unilever.

But some seem to believe Peltz will not proceed, since it may be tricky to challenge Unilever CEO Alan Jope, a champion of a ‘new type of capitalism’. Unilever’s shares are also being held back by the view that it may be unable to raise prices to counter soaring material and other costs. Household spending power could tighten, as global growth slows.

So, are Unilever and other consumer stocks best avoided? Possibly, in the short term. this week’s market sell-offs, while aggravated by indebted chinese property firm evergrande, were also spurred by supply-chain issues and fears that the economic upturn is losing momentum.

But there are more reasons for optimism in the sector. Ian Mortimer and Matthew Page, of the Guinness Global equity Income funds, say that one of

Unilever’s strengths is its diversification – 58pc of sales come from emerging markets.

Also, it is trying to appeal to a younger clientele, including plant-based foods and cruelty-free skincare such as Paula’s choice, acquired in June; Hourglass now offers vegan lipstick.

Since black teas such as PG tips are less popular among younger people, Unilever is auctioning them off. Advent International and several private equity groups could pay as much as £4bn.

MeAnWHIle, Diageo, a Guinness Global equity Income top holding, is gaining market share in the US. It could also make further headway in India. Mortimer and Page say: ‘the UK is negotiating a trade deal with India which includes a reduction in import tariffs on alcohol – these are currently 150pc!’

If your treat is a Diageo vodka, or a Unilever Magnum, you could put your money where your mouth is. But you may also be minded to gamble on others developing an appetite for these items.

Darius McDermott, of Fund calibre, suggests the RWc Global equity Income, 18pc of whose portfolio is consumer staples. As a play on rising global affluence, he considers Matthews Asia Pacific and Aubrey Global emerging Markets are worth a look.

It would be a mistake only to invest in what you know. But it is a means of balancing a portfolio full of technology firms whose businesses most people struggle to understand.