Asia's Taste for Luxury Driving Robeco's Consumer Stock Strategy

(Bloomberg) -- The rising affluence of Asia's middle class is changing how Richard Speetjens picks his stocks.

The Rotterdam-based fund manager at Robeco Groep NV is positioning to reap the benefits as an improving global economy changes the tastes of Asian consumers -- especially in China and South Korea. His 1.34 billion euro ($1.49 billion) global consumer fund, which has returned 16 percent over three years to beat 95 percent of its peers, is focusing on shoppers' desire to move beyond basic needs and embrace a more “premium” lifestyle.

As the market has matured, “you see that people are spending money on experiences, consumer-discretionary items, travel, more higher-end products,” Speetjens said. “Where we have been shifting is toward the big internet companies, but also luxury in general.”

While he declined to name specific companies, citing Robeco policy, the global consumer fund listed Chinese internet companies Tencent Holdings Ltd. and Alibaba Group Holding Ltd. as the No. 1 and No. 7 holdings at the end of March, data compiled by Bloomberg show. Other Chinese investments included Kweichow Moutai Co., which makes high-end spirits, and India's Eicher Motors Ltd., owner of the Royal Enfield motorcycle brand.

Speetjens shared his views in an interview on a trip to Singapore this month:

What is your current investment strategy?

• “We have identified three main longer-term trends: digital consumption, spending money on strong brands, and the rising emerging-market middle class. We tend to look for the structural winners, the best-positioned companies within their industries. Especially in consumer industries, you do see that normally the No. 1 and No. 2 players take the majority of the profits or the value creation.''
• The ways to approach these trends differ over time, Speetjens said. “In digital consumption, the best way to benefit from that trend five years ago was buying the hardware companies. As this market has become fully mature and commoditized, most of the money, incrementally, is now being made by the software or internet providers.”
• Around 20 to 25 percent of Robeco's consumer fund is invested in emerging markets, with almost all of that in Asia, Speetjens said. The fund has further exposure to the region as some of its U.S. holdings have significant sales there. It has no investments in Southeast Asia because of a lack of liquidity in that area's consumer stocks.

What types of companies do you like in Asia at the moment?

• In China, Robeco likes branded companies within the local market that have good differentiated products. “You can see this in businesses like kitchen appliances, where people are really starting with a basic oven and are trading up to a more premium brand. Five to 10 years ago, people just bought what was necessary -- now they want to have a good brand as well.”
• In South Korea, one of the sectors Robeco has always liked is cosmetics. “You do see that there are a couple of companies that have strong brand appeal, which have been doing really well in the travel market, but the recent tension between China and Korea has hurt sentiment around these stocks, and also sales as well. These are companies with strong brands, high returns and high free cash flows.”
• In India, “one of the things we really like a lot is the motorcycle market. You do see the motorcycle market is much bigger than the car market because of infrastructure. And also there you see there's a strong move toward premiumization.”
• Other Asian holdings in Robeco's consumer fund at the end of March included: Ctrip.com International Ltd., a Chinese travel company listed in the U.S., casino operator Sands China Ltd., Yunnan Baiyao Group Co., which makes traditional Chinese medicines, and Hangzhou Robam Appliances Co.

What's different about the Asian consumer landscape?

• “Where Asia, and especially China, is really leading, is in the whole online adoption. If you look at e-commerce penetration in China, that's ahead of many western markets. The same holds true for Korea because of the high-speed internet being available. That has a major impact on the distribution of products.''
• “There's a lot of talk about what's the next big thing after social media and internet. And of course we're all looking at augmented reality, virtual reality. What really strikes me is the Chinese are leading the world here. If you look at artificial intelligence patents being filed, Beijing is really leading Silicon Valley at this point.''
• “What's really different, but it's more political or structural, especially in the internet space, you have very dominant players. In the past, the western players had the best brands, and now the locals are fighting back.”

To contact the reporter on this story: Andrew Janes in Singapore at ajanes@bloomberg.net.

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Jeff Sutherland