As a result of the Covid pandemic, trends and themes that previously seemed to be the preserve of millennials have now found their way into older generations. Even if we are gradually getting back to normal life, it is a movement that will not be easily reversed.
Luke Barrs, head of Fundamental Equity Client Portfolio Management at Goldman Sachs Asset Management, said this in an interview with Investment Officer’s Dutch-language sister site Fondsnieuws.nl. Barrs oversees 22 billion euros of assets under management, out of a total AuM of 75 billion euros. The €2.5bn Millennial Fund is one of the strategies under his belt.
Not just millennials
“Digitisation of retail, comfort with technology, the turn to online: that remains at the heart of what’s happening among millennials,” Barrs said. “What was interesting with Covid-19 was that we found that older generations were being forced to embrace that same technology. So it’s not just millennials who are causing the additional increase in the use of technologies; the theme was further profiled by older generations.”
Although there was ‘forced’ adoption during Covid-19, withdrawal from the movement is not likely, according to Barrs. “Of course we are going back to the real world, picking up normal life again,” he explained. “But many older generations also see the value and efficiency of using online platforms.”
Barrs’ talk was largely about trends and themes around millennials and recent changes and preferences of the managers of GSAM’s millennial fund. The fund was built five years ago around the generation that is now roughly 20 to 40 years old. In the United States, some 30 per cent of the population are millennials, according to United Nations figures. And according to the UN, there were an estimated 2.3 billion millennials worldwide by 2020. A generation that, according to Barrs, weaves technology into their lives, and places great value on sustainability, experiencing things and health.
Generation Z?
The question arises whether this is still the generation of the future, now that Generation Z is increasingly making itself heard. Is a millennial fund, or a demographic fund as a whole, finite? “I get your question, and of course you have a point,” Barrs responds. “But if you look at Generation Z, or ‘post-millennials’ as we also call them, they currently have an aggregate impact, as retail spending is still quite limited.”
“And look at the commonality between millennials and Generation Z,” he continues. “It’s very strong. They share the same principles around digitalisation, technology, sustainability and quality of life. All these topics are just as high on the agenda of Generation Z as they are for Millennials. So even though we have to think carefully about how the trends develop and adapt, I think we can still stick to our core principles.”
On recent adjustments to the portfolio, he says the change in buying behaviour during Covid-19 did cause some changes. “But minimal”, he concluded. “Philosophically, the investment opportunities have remained the same, with a little tweaking here and there as new issues have arisen. The main topics we focus on are e-commerce, digitisation of retail, e-payments, the sharing economy - think online music streaming - and gaming. And when it comes to experiencing, experiencing: travel, tourism, leisure.”
Investing in travel
At the beginning of 2020, the fund was overweight in that experience side, mainly in names around travel. Barrs explained how this happened: “When the negative connotations of Covid-19 started to seep through, we immediately reduced those positions quite considerably. Only to buy back some in March and April, because some names were valued in a very pessimistic way. Of course, fundamentally it is still a challenging environment for companies in the travel and leisure sector, with a third of the world still in a lock-down situation. But where the world is reopening, the appetite for concert visits and holidays is as strong as ever.”
Thanks to the buy-back of those names, the fund has also been able to take some profits in companies in the travel and leisure sector. There, valuations were ahead of fundamentals,” said Barrs. “There has already been quite a strong recovery in those kinds of companies. We expect fundamentals to improve later.”
Food and sustainability
In total, the fund usually has forty to fifty names in its portfolio. Besides the standard sectors mentioned above, such as e-commerce, digital payment and social media, the managers are currently very interested in companies that focus on events, for example in sports. “And for companies that combine sustainability with food,” Barrs explained. “Millennials are very concerned with their diet, especially with a turn to plant-based proteins and dairy substitutes. As an investor, you can opt for producers of meat substitutes, but also for companies that make the food chain sustainable in a different way. Think of a producer of supplements for cows, to reduce their emissions, to name but a few. There are a lot of interesting innovations going on in that area.”
On the returns year-to-date, he says the fund had to work its way from growth to value through the rotation, but that he is not dissatisfied with the 6 per cent return since January. “That is broadly in line with the performance of growth stocks.”
Zooming out more, many of the millennial fund’s themes appear to have similarities to those GSAM identifies as current across the equity division. Barrs mentions trends such as a focus on the environment, health and sustainability. And stressed that the asset manager is still constructive when it comes to equities. “The fundamentals are good, the growth outlook looks good,” he stated. “Equities are not cheap at the moment, but they are not necessarily expensive either. There are enough opportunities, provided you can focus on the long-term winners.