In a chaotic period for the markets, one firm has a surprisingly simple piece of advice: Invest in companies that make people happy.
Companies like Netflix (NFLX) - Get Report, Apple (AAPL) - Get Report, L’Oreal, Nestle and World Wrestling Entertainment (WWE) - Get Report may not seem to have much in common at first glance, but according to asset management firm Infusive, they generate superior returns in the long run because of basic human psychology: Their products bring joy.
“The strategy has a multi-decade history, and originated in the portfolio of a big European family,” said Infusive CEO Andrea Ruggeri. “They saw their portfolio compound over decades at a very high rate, a rate higher than the global market. After two decades of studying, reading, and analysis...the conclusion was that consumer companies compound in a superior manner because the driving force of consumption is the subconscious force towards pleasure and happiness and wellbeing.”
At its outset, the original portfolio consisted largely of holdings in coffee, chocolate and beer, he said. In its current form, Infusive has spread investments across tech, entertainment, apparel, food and beverages, cosmetics, and other goods.
But the underlying strategy has not changed. “We continue to look for companies that are delighting the consumer,” added Matthew Schopfer, Head of Research at Infusive.
So how do investors quantify happiness? Schopfer said that Infusive looks at a number of indicators to determine whether a company’s products elicit joy. One is frequency of use: If a consumer returns to Starbucks every day to buy their latte, that’s a pretty good sign he or she is happy, he explained. Another is an innate desire to project beauty, luxury and health. Time is also a good indicator of consumer satisfaction, added Schopfer.
“Take entertainment,” he said. “Netflix, and the streaming world, is ultimately satisfying the consumer’s need to be entertained. At their core, they’re delivering happiness to the consumer.”
Netflix reported a massive spike in new sign-ups last quarter, and is up roughly 30% year-to-date as consumers hunker down with movies and TV shows. Pandemic aside, however, Infusive views Netflix as delivering quality entertainment at a great value, and that in itself brings happiness.
Similar analyses could be applied to Infusive’s other holdings, which include Lululemon (LULU) - Get Report, Facebook (FB) - Get Report, Microsoft (MSFT) - Get Report, Nestle, Starbucks (SBUX) - Get Report, Match Group (MTCH) - Get Report and others.
It’s an eclectic mix of companies, and that comes with advantages over the long term, added Ruggeri.
“We look at what people buy -- a mix of entertainment, technology, sports, beauty products, food and drink -- an end up [with] an unusual mix of very successful companies,” he said. “That means better diversification and quasi-risk management, a counterbalance effect with some segments.”
In one of the most anxiety-ridden periods in recent history, Infusive's thesis appears to have held up so far.