Investors who want to build up their assets over a longer period of time are now more likely than ever to turn to the stock markets. This is because, in light of the extremely low interest rates, the mere preservation of wealth is an ambitious goal when using traditional savings products and fixed-term deposits. This is true even in view of today's correspondingly low inflation rates.
Equity investments, on the other hand, can deliver real growth in assets: returns that exceed the rate of inflation and tax deductions. Many investors, however, are particularly prone to shy away from the risks associated with equity exposure in times of increasing uncertainty. In a world of technological change, fluctuating, but generally stagnating stock markets and increasing uncertainty over the world’s future economic development therefore call for a particularly proactive management approach – one which identifies opportunities and minimises risks.
There are various strategies for limiting the fluctuations in a stock portfolio while simultaneously maintaining its profitability. It is possible to focus on promising regions or industries, control the rates of investments and/or apply intelligent hedging strategies. One alternative that is receiving increasing attention is an approach to investments that is independent of regions, industries and benchmarks.
The identification of sustainable, relevant themes is naturally crucial to the success of such a strategy. Focusing on merely fashionable trends is just as counter-productive as choosing an overly narrow focus, which carries with it undesirable and potentially significant sector risks. If sufficiently broad, a thematic approach can provide an efficient framework for the global search for investment opportunities and, properly implemented, lead to long-term, risk-adjusted outperformance.
Such an approach, which according to many studies promises to succeed, is a focus on companies with strong brands they can call their own. Although the specific value of a brand is difficult to quantify, an established brand is of course associated with considerable advantages. Leading brands like Apple, Google, Shimano or PepsiCo find it easier to increase revenue and increase their margins through higher prices. They have more influence over the suppliers and distributors of their products. And finally, it is easier for them to recruit highly trained experts and strengthen their position with their help.
These competitive advantages resulting from having a strong brand are often underestimated by investors. If the company concerned combines these with a solid product pipeline, foresight and an innovative spirit, then studies show that they also generate superior long-term results. In the long term, their shares develop better than the overall market and show greater stability, especially during economic downturns.
However the fact that a strong brand alone is not a sufficient argument to invest in a given company is clearly demonstrated by former market leaders such as Kodak or Nokia. There are many reasons for the failure or destruction of a brand: a lack of innovation, market saturation, badly chosen strategic alliances and acquisitions, or just bad management.
Accordingly, the current strength of a brand is not by itself sufficient criteria to indicate successful development in the future. It is important to identify the strong brands of the next generation, as well as those companies that are in a position to sustain their brand.
The behaviour and preferences of young consumers have proven to be particularly reliable indicators in this regard. Young adults in particular are trendsetters when it comes to their consumer decisions, and they can provide insight into how successful a company may be in the future. This applies to more than just the young generation aged between 18 and 35 living in Western industrialised nations In emerging markets in particular, these young consumers are forming an affluent and rapidly-growing middle class. They offer enormous growth potential to those companies best able to adapt to their preferences. Even today, young Chinese adults have higher monthly incomes in comparison to other age groups. They are better educated than the older generation, and take jobs that require higher qualifications. At the same time, they show a particularly strong interest in branded products – often produced by companies in industrialised nations. This is because these promise more than just better quality, but also innovation and prestige.
It is clear that flawless products on the cutting edge of technology and real product innovations are crucial for finding and retaining the favour of young consumers. More than this, the strategic maintenance of the emotional value of the brand is critically important as this plays a deciding role, particularly for younger generation. This is because consumers of the younger generation are, above all else, loyal to those brands, products and services which continually and credibly support and reflect their own lifestyle. In addition to market research, direct evaluation of consumer behaviour via digital media provides important insight on this.
Companies with a strong brand position and which have established themselves with a young target group must also fulfil certain additional criteria in order to be considered for inclusion in a theme-driven investment strategy such as this. They should have a solid financial position and a low level of debt. Furthermore, these companies should be realistically valued by the market with regard to their justified expectations in terms of revenue. Where these conditions are met, there is good reason to invest – especially by young adults who have yet to build up their assets.