1. Select region

3. Select role

Institutional Intermediary

This website is not suitable for retail investors. If you are a retail investor, please contact your financial advisor.

x

Change country

IMPORTANT INFORMATION

You are about to enter a website for professional/institutional investors and the information contained herein is not suitable for retail investors. Private/retail investors should not proceed any further.

By clicking “Accept” you expressly acknowledge and confirm that you are accessing this site for the purposes of acquiring information as a professional/institutional investor and accept the Terms of Use.

  • TERMS OF USE

    Your access to and use of the web sites (“Services”) of Wellington Management are conditioned on your acceptance of and compliance with these Terms of Use (“Terms”). By accessing or using the Services, you agree to be bound by these Terms. If you are accepting these Terms and using the Services on behalf of a company, organization, government, or other legal entity, you represent and warrant that you are authorized to do so. You may use the Services only in compliance with these Terms and all applicable local, state, national, and international laws, rules, and regulations.

    Ownership
    All materials on this web site are owned or licensed by Wellington Management and/or its third-party providers and are protected by US and international intellectual property laws.  Unless otherwise indicated, all service marks, trademarks, and logos appearing on this web site are the exclusive property of Wellington Management. The information, materials, and other content of this web site may not be copied, displayed, distributed, downloaded, licensed, modified, published, reposted, reproduced, reused, sold, transmitted, used to create a derivative work, or otherwise used for public or commercial purposes without the express written consent of Wellington Management.

    Products and services
    The information, materials, products, and services on this web site are current at the time of writing and are subject to change. Not all products and services are available in all geographic areas. Your eligibility for particular products or services is subject to determination by and the approval of Wellington Management. No solicitation is made by Wellington Management to any person to use any information, materials, products, or services in any jurisdiction where the provision of such information, materials, products, and services is prohibited by law.

    The information on this web site or in any communication containing a link to this web site is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.

    Investment products and services are available through Wellington Management. Investment products and services are not FDIC-insured, are not deposits or obligations of, or guaranteed by, any bank, and involve investment risks, including the possible loss of the principal amount invested. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or invest in a fund.

    International use
    Wellington Management makes no warranties that materials on this web site are appropriate for use in countries other than the US. Because the web site may be accessed internationally, you agree to comply with all local laws, rules, and regulations including, without limitation, all laws, rules and regulations in effect in the country in which you reside and the country from which you access the web site. The information on this web site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Wellington Management or its affiliates to any registration requirement within such jurisdiction or country.

    No warranty
    Wellington Management does not warrant the accuracy, adequacy, completeness, or timeliness of the information, materials, products, and services on this web site or the error-free use of this web site. All information, materials, products, and services are “as is” and “as available.” No warranty of any kind, express or implied, including but not limited to the warranties of non-infringement of third-party rights, title, merchantability, fitness for a particular purpose, and freedom from computer virus is given in conjunction with the information, materials, products, and services. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. Wellington Management does not warrant that the web site will meet your needs. You agree to assume the entire risk as to your use of the web site.

    Limitation of liability
    In no event shall Wellington Management be liable for any damages, losses, or liabilities including without limitation, direct or indirect, special incidental, consequential damages, losses, or liabilities, in connection with your use of this web site or your reliance on or use or inability to use the information, materials, products, and services on this web site, or in connection with any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus, or line or system failure, even if Wellington Management is advised of the possibility of such damages, losses, or expenses.

    YOU UNDERSTAND AND AGREE THAT YOUR USE OF THIS WEB SITE IS PREDICATED UPON YOUR WAIVER OF ANY RIGHT TO SUE WELLINGTON MANAGEMENT OR ITS AFFILIATES DIRECTLY OR TO PARTICIPATE IN A SUIT FOR ANY LOSSES OR DAMAGES RESULTING FROM YOUR USE OF THIS WEB SITE.

    Indemnification
    As a condition of your use of the Services, you agree to indemnify and hold Wellington Management, its affiliates, and its and their respective partners, directors, employees, and agents harmless from and against any and all claims, losses, liability, costs, and expenses (including but not limited to attorneys’ fees) arising from your use of the web site or from your violation of these Terms.

    Hyperlinks
    Your use of the hyperlinks on this web site to other Internet web sites is at your own risk. Wellington Management is not responsible for the content or accuracy of third-party web sites hyperlinked from this web site, nor does it guarantee the products or services offered on third-party web sites. You should review the privacy statements of a web site before you provide any personal or confidential information.

    Web site security and restrictions on use
    As a condition to your use of Services, you agree that you will not, and you will not take any action intended to:  (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this web site; (iii) probe, scan, or test the vulnerability of this web site or Wellington Management’s network or breach security or authentication measures without proper authorization; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorized use of the web site or Services, including but not limited to unauthorized entry into Wellington Management’s systems, misuse of passwords, or misuse of any information posted to a web site, is strictly prohibited. Portions of the web site are designated for password access only as indicated by a lock icon. In these instances, if you do not have an authorized password, no access is permitted.

    Confidentiality and password security
    Certain parts of this web site may be protected by passwords or require a login. You are responsible for maintaining the confidentiality of any user names, passwords, security questions, and answers. All information available through the privileged area of the site is confidential and proprietary to us. This includes all investment information and results, offering materials, financial statements, and other information provided through this part of the site.

    You will use your best efforts to keep all this information strictly confidential. You will not disclose any of this information to any person or use it for any purpose other than those strictly permitted by us, in writing.

    Severability
    If any provision of these Terms is deemed unlawful, void, or for any reason unenforceable, then that provision will be reformed only to the extent necessary to make it enforceable, and it will be deemed severable from these Terms and will not affect the validity and enforceability of the remaining provisions.

    Applicable law
    These Terms and any action related thereto are governed by Massachusetts law and applicable US federal law. Any dispute relating to the above shall be resolved solely in the state or federal courts located in Massachusetts.

    Privacy statement
    Wellington Management respects the privacy of its clients and the confidentiality of information pertaining to its clients.

    Information we collect
    We may collect non-public personal information about you on RFPs, questionnaires, and other forms we receive from you, as well as from personal contacts such as correspondence, e-mail, telephone calls, or meetings. We may also receive information about you from third parties, such as your accountants, lawyers, financial consultants, and/or other service providers.

    It also is possible to receive information from web browsers and apps regarding certain of your online activities using cookies, or other common tracking technologies.  Some web browsers and other applications may provide a Do Not Track (DNT) preference setting.  When a user turns on a tracking preference, the browser or application may send a message to web sites requesting that they do or do not track the user. At this time, we take no actions in response to any DNT settings or messages.

    Information sharing
    Wellington Management seeks to provide seamless service to all clients. To facilitate that process, information regarding client accounts is shared broadly between affiliates within the Wellington Management group of companies. For example, an affiliate may share information with other affiliates in order to facilitate portfolio management or provide client liaison services to a particular client. Client information may be used by Wellington Management in order to identify potential client needs for additional investment management services.

    Wellington Management generally does not share non-public client information with unaffiliated third parties, except as necessary to perform the investment management services it has been hired to provide. For example, Wellington Management may share non-public client information with brokers and custodian banks in order to buy and sell securities and record those purchases and sales accurately. As a general rule, Wellington Management does not engage in joint marketing arrangements with unaffiliated third parties that involve the sharing of non-public information regarding Wellington Management’s clients. Wellington Management does not provide client information to unaffiliated third parties for their own marketing purposes.

    Wellington Management does not disclose your information except as required or permitted by law. In the event that Wellington Management is involved in a merger, acquisition, reorganization or sale of assets, or bankruptcy, your information may be transferred or sold as part of that transaction.

    Security policies
    We use technical, administrative, and procedural measures in an attempt to safeguard your personal and other information from unauthorized access or use. No such measure is ever 100% effective though, so we do not guarantee that your personal and other information will be secure from theft, loss, or unauthorized access or use, and we make no representation as to the reasonableness, efficacy, or appropriateness of the measures we use to safeguard such information. Users are responsible for maintaining the secrecy of their own passwords. If you have reason to believe that your interaction with us is no longer secure (for example, if you feel that the security of any account you might have with us has been compromised), please immediately notify us by contacting your relationship team member.

    Transfer of data to other countries
    Any information you provide to Wellington Management through use of the Site may be stored and processed, transferred between, and accessed from the US and other countries which may not guarantee the same level of protection of personal information as the one in which you reside. However, Wellington Management will handle your personal information in accordance with this Privacy Statement regardless of where your personal information is stored/accessed.

    Changes to Terms of use

    We may revise these Terms from time to time; the most current version will always be at http://www.wellington.com/terms-use. By continuing to access or use the Services after those revisions become effective, you agree to be bound by the revised Terms.

    Effective as of  17 January 2014

I ACCEPT I DO NOT ACCEPT
This web site uses cookies; by continuing to browse you consent to our cookies usage.
See our policy for more details.

June 2017 | Evan Hornbuckle, Global Industry Analyst, Consumer Retail

GIA Spotlight Series — Consumer

As a global industry analyst (GIA), Evan specializes in the consumer discretionary sector, with primary research responsibility for US-based apparel and footwear manufacturers and retailers, department stores and off-price retailers, as well as restaurants. He is also responsible for managing consumer subportfolios in our analyst-managed research products, which combine the expertise of our GIAs across industries.

Key points

  • The consumer sector is a fundamentally diverse set of companies with a typically wide dispersion of stock performance, providing a fertile environment for active management.
  • The sector faces several disruptive forces, most notably the rise of e-commerce business models, which could amplify the fundamental gaps between winners and losers.
  • Macro factors periodically drive consumer stocks down in lockstep, providing opportunities to build long-term positions in fundamentally sound stocks at reasonable valuations.

We believe our GIAs — specialist stock pickers for whom industry research is a career path — are one of Wellington’s key differentiators. Their role is to use fundamental analysis to identify investment opportunities for clients’ portfolios. We believe that stock selection based on in-depth knowledge of an industry has the potential to generate strong investment performance over the long term.

INTRODUCING OUR ANALYST

How did you come to be a consumer analyst?

I began my investing career as a research associate covering utilities and media from 1999 – 2001. Then I spent two years working as a line cook at highly rated restaurants in Boston and New York to explore my interest in cooking and the restaurant business. So restaurants, which are part of the consumer sector, were a natural area of focus when I went back to investing after business school.

I first started covering retail stocks in 2005. Over the past 12 years, I’ve covered many sectors across the US consumer discretionary space. I find the sector fascinating, given its global scale, ever-changing trends and major structural evolutions, which provide ample opportunities for creative primary research.

What made you decide to join Wellington?

The firm has many differentiating strengths that make it an ideal place to build an investing career. These include its strong client-focused culture, the long tenure of its investors and their deep relationships with the management teams of the companies they cover. It also provides the unique opportunity to manage portfolios across various mandates, including long-only and long-short strategies.

INDUSTRY OF FOCUS: CONSUMER

Is the consumer sector fertile ground for active management?

It is ideal for picking stocks. There is a wide and broadening spectrum of business quality, management teams, competitive positions, growth rates, margins and so on. Every year, the spread between the best- and worst-performing companies is over 100% for large caps and even higher for small and mid-caps, creating strong opportunities for active managers to generate outperformance.

How do you seek to generate strong returns for clients in this sector?

I believe the potential to generate alpha arises when the market over- or under-estimates business quality/growth and risk, which often happens within my coverage universe. My process for seeking to harvest this alpha centres around evaluating the risk/reward for each stock — its upside versus its downside potential. I measure it by assessing business quality and growth, fundamental momentum, the catalyst roadmap (our expectations compared with the consensus) and valuation. Ideally, I look for great businesses with temporary challenges and discounted stock prices that I think can soon return to beating expectations.

The consumer sector is well suited to this process because it typically offers frequent periods of low stock dispersion — for example, when falling gasoline prices cause the whole sector to rally together because cheaper gas is supposed to be good for the consumer. These are generally followed by periods of greater dispersion stemming from the natural differentiation of fundamentals inherent in this diverse group of businesses. During these temporary periods of low dispersion, we seek to identify the potential fundamental winners and build positions at favourable risk/rewards.

The sector is undergoing massive disruption through e-commerce. Which companies are able to thrive in this environment?

The main way for a retailer to win is to solidify a clear, strong customer value proposition. This may be through quality, value, convenience or assortment (product range). Online retailers are redefining how consumers measure all of those factors, so the competitive bar is rising for most companies, as is the cost of doing business. As e-commerce continues to take the majority of incremental retail sales growth, we have constructed a framework that helps us to identify the companies with the greatest risk or opportunity.

Figure 1

Experiences have outpaced things

How can companies escape the loser category?

Focusing on improving the offering for customers and sound capital allocation are crucial for the success of a business. Most retailers — even those in long-term decline — generate hefty cash flow, which gives them ample options for reinvesting. I like to see management teams directing that cash to create more compelling customer value propositions or to build better e-commerce engines. For companies with little or no organic growth, I view share buybacks — a common use of retail cash flow — as misguided and likely to produce low returns over time.

What broader themes are at play within the sector?

Consumers are increasingly valuing experiences over possessions. This is especially true among millennials. Many suppliers of traditional retail goods have failed to keep their brands relevant and are now forced to reduce prices as new lower-cost, lower-priced players take market share. This theme is spreading across much of the traditional apparel landscape. Another clear theme we expect to impact the sector for the foreseeable future is excessive industry square footage. The US retail industry has vastly more square footage per capita than any other developed economy, but a retrenchment is finally under way. More stores were closed in the first quarter of 2017 than the worst quarter of the global financial crisis. This could have major repercussions for retailers and mall real estate investment trusts unless they can find a way to repurpose these large spaces.

Do you tend to find more interesting opportunities among smaller-cap stocks?

It’s different for the various sub-sectors. For example, retail is a capital-intensive industry. The largest companies have the most capital and so are able to invest the most in innovation. Smaller companies with innovative products or technology often become takeover targets.

In restaurants, it’s the polar opposite: smaller companies have found ways to deliver interesting food at the same prices as the big chains, despite not having their economies of scale. Compared with their retail counterparts, these small restaurant companies face far less risk of disruption from factors such as technological innovation among their competitors. We currently prefer the restaurant and global brands sub-sectors versus retail.

Are the trends you’ve talked about global or specific to the US?

Most are global phenomena, because they’re rooted in universal customer value propositions. Everyone wants more convenience, assortment and value (that is, higher quality at lower prices).

But there are some variations from region to region. For example, China and South Korea have avoided accumulating excess store growth, because e-commerce has developed so rapidly before the physical infrastructure was built. By contrast, some other parts of South East Asia, Latin America and Western Europe share the US’s overcapacity problem. Clearly, the market is not fully efficient: department stores in South East Asia are trading at far higher multiples than their US counterparts, even though they will be under the same pressures from e-commerce players.

Figure 2

US retail footprint has remained massive overbuilt and under-demolished

Insights

Explore Insights