Happiness is a state of mind, not an asset class. But Infusive Asset Management has developed a strategy which sets out to invest in companies best equipped to deliver it.
It believes the pursuit of pleasure by consumers drives corporate performance. The Infusive Global Consumer Champions Index has benefited by delivering an annualised return of 13.7% over ten years, against 5.8% from the MSCI ACWI index from which its stocks are selected.
Investors like to invest in companies who can claim strong franchises, or brands, by keeping their customers happy. Warren Buffett’s Berkshire Hathaway extensively backs “wide moat” franchises like these…
Infusive has launched an ETF, trading under the name JOYY, which tracks its consumer index. It also runs an active fund, which has marginally lagged the MSCI World index over recent years, but roared back in the first quarter after hedging out nearly two-thirds of the market collapse.
Infusive’s total assets are $125 million. The company is led by chief executive Andrea Ruggeri, who previously worked at Goldman Sachs.
Infusive calls its philosophy Consumer Alpha. It has been developed, over thirty years, by Luca Padulli, a wealthy Italian count with extensive interests in UK real estate, ground rents, farmland and art.
Padulli also started a hedge fund business called Camomille Associates, which trades using patterns of behaviour relating to market sell-offs, consolidations and recoveries.
Patulli, an Infusive director, fully comprehends the power which lies behind the pursuit of happiness. Infusive goes further by quoting Aristotle on its website: “Happiness is the meaning and purpose of life, the whole end and aim of human existence.”
Scientists say happiness results from the interaction of four chemicals in the brain, namely dopamine, oxytocin, serotonin and endorphin. Their influence has a positive impact on wellbeing, although abuse can lead to addiction, or worse.
Pleasure, rather than necessity, gave early man a taste for cooked meat. Trade is expedited when a society seeks pleasure from goods another can supply. Sports stars are revered when their display of skill brings pleasure to a team. Entire religions are based on spiritual fulfilment through rapture.
Investors like to invest in companies who can claim strong franchises, or brands, by keeping their customers happy. Warren Buffett’s Berkshire Hathaway extensively backs “wide moat” franchises like these, and Buffett is adept at strengthening his personal brand by adopting a pleasant, folksy, charm.
Morgan Stanley has spawned several franchise specialists. One of its former managers, Andy Brown, has built his Cedar Rock Capital boutique into a massively profitable boutique on low overheads. In the year to October 2018, Cedar boasted a 95% operating margin on turnover of £93 million, before distributing gains to shareholders.
In tapping more directly into happiness, Infusive specialises in companies in the best position to make consumers happy, although it also backs Visa and Mastercard, whose credit cards facilitate purchases. It divides its active portfolio between distributors of consumer staples, discretionary goods and digital services.
It uses data to analyse where consumer purchases are happening across borders, and sectors, to achieve as diverse an exposure as possible.
Emerging markets, for example, see less wealthy individuals enjoying small-ticket purchases. These wouldn’t excite affluent individuals, but they can find pleasure in luxury goods, particularly when purchases are admired (or envied) by peers. As a result, there is room for Nestle, as well as L’Oreal, in the Infusive portfolio.
Infusive goes on to analyse the cash flow of different companies to verify their financial success in achieving happiness. It has found that US corporate platforms tend to be best organised, and financed, to develop their consumer businesses. But it also sees potential in China, whose companies comprise three of its active top ten, namely gaming company Tencent, distiller Kweichow Moutai and TAL Education.
Infusive continually researches new topics. It recently looked into vegan burger company Beyond Meat, but chose to rely on McDonalds to discover whether or not vegan food would amount to a trend, rather than a fad.
Infusive likes content streaming rather more. It has become an investor in Netflix, as well as Disney and Apple, which has just announced its own service.
Infusive invests in companies for the long term. But Padulli has built in options strategies to protect active performance in a severe downturn.
Last year, Infusive bought market options which would trigger in the event of a downturn because they were so cheap. Their value has now rocketed, as a result of which Infusive’s active fund only fell by -9% against a -25% drop in the market.
In the first quarter, partly thanks to a relatively strong performance from big tech, Infusive’s consumer index also outperformed with a fall of -13.9%, against – 22.4% from the MSCI index.