Beyond the plate - Why we favour personal care over food companies
![[Management Team] [Author] Denham Mark](https://carmignac.imgix.net/uploads/NextImage/0001/18/%5BManagement-Team%5D-Denham-Mark.png?auto=format%2Ccompress&fit=fill&w=3840)
Mark Denham, fund manager of the Carmignac Portfolio Grande Europe Fund, explains the fund’s allocation to Consumer Staples and where his focus is.
As a quality manager, consistency of revenue is one of the most sought-after characteristics of a winning compounding stock. And nothing is more consistent than high quality consumer stocks.
The Carmignac Portfolio Grande Europe Fund has around 17% exposure to consumer stocks split relatively evenly between staples and luxury. We have written previously about luxury names like Hermes, which continues to demonstrate its incredibly resilient business model.
While staples are generally considered bullet proof defensive stocks, it is important to understand that not all staples are the same. As a bottom-up stock picker, we are looking to identify the highest quality companies across this complex that demonstrate the twin traits of long-term profitability and commitment to reinvesting for the future.
Within this space, there are areas where we will not invest given our focus on ESG and then we home in on the areas we like and separate those that we don’t like – primarily on valuation and fundamental grounds. An easy area to rule out is tobacco. At Carmignac we have a strict exclusion policy to tobacco within our funds since our creation in 1989.
A harder area is food products. Traditional staples should be “staples” in a high-quality compounding strategy, right? Not necessarily, when you scratch beneath the surface and link together the trends in healthcare right now. We prefer personal products and currently see the opportunity for strong, organic earnings accretion together with good entry points.
The change of appetite for food
Food habits may be set to change across the globe as humanity becomes more aware of their health, given the focus in the media and the widespread use of gyms and health tracking devices. However ultra-processed food still accounts for 60% of the average American's daily calorie intake. This rate is 30 to 50% lower in Europe, but it is still increasing1. And ultra-processed foods2 tend to be associated with an increase in obesity, type 2 diabetes, cardiovascular disease, and risk of cancer.
The World Health Organisation (WHO) identified that ultra processed foods, together with tobacco, fossil fuels and alcohol are responsible for 2.7 million deaths per year in Europe3.
Could we see potential headwinds for the food sector? There are low expectations for growth in the long-term – estimates are for sales in the agri-food sector to grow at an average of +2.5% per annum - the advent of new-generation appetite-suppressant medical treatments (also known as GLP-1) have led to concerns over the evolution of consumer behaviour as they lean towards healthier options. Some studies indicate up to 30% reduced spending at grocery stores for GLP-1 users4 and a staggering 70% decrease in fast food, confectionery, or soda.
Some well-known food producers have already made greater efforts to address the fat, salt and sugar content of their products and will continue to engage with investors on this topic. Danone and Unilever notably tend to rank better at addressing malnutrition in all its forms. But even though this is positive, the reality is that the bulk of revenues for the big food producers come from a handful of product lines.
For example, a company like Nestle, 80% of total sales are generated from around 10% of product lines and there is a long product tail that doesn’t significantly impact the bottom line. Therefore, while efforts are being made, much more needs to be done to adapt product lines and develop new ones.
Also, while demand is unlikely to change in the short term, the evolving and tougher regulatory environment and cultural shift towards health-consciousness is likely to be a negative factor for companies in the sector over the long-term, and this will affect the discount rate and we don’t think this is reflected in valuations.
The historic winners in the food and drink sector now face multiple headwinds and we prefer to stay away from food and distribution stocks in favour of consumer staples companies with exposure to household and personal care products.
Beauty and health are the opportunity for wealth
We believe that personal care offers a more compelling investment case. We see strong organic growth rates which will drive operating margin improvements and lead to valuation re-ratings. In Europe specifically, we have global leaders in the pure play personal care sector that have been around since the late 19th century and have continually adapted to customer needs by developing new products.
Our analysis, supported by a sell-side consensus5 on the MSCI World Staples sub industries, sees personal products having a 5.4% organic sales growth estimate for 2025 – significantly higher than food & products, beverages, or household products. We can also see this trend in operating margin where YoY growth is estimated at 1.8% for household and Personal products versus -0.3% for Food, beverages & tobacco. This results in an attractive EPS growth estimate of 10.3% for household & personal products versus 2.8% for food, beverage & tobacco, a significant gap against history.
There are some companies in personal products that we really like and rightly carry the label of a quality staple that is reinvesting for future growth. These companies should have products with strong brand positioning and consumer awareness; products that are used frequently and loyally, maybe even described as weekly or daily subscription models; and a portfolio of products that are diversified and distributed to the mass market. We favour those companies who are embracing the demand trends - dermatology focused, premium lines and innovating across the spectrum of products and lines to adapt to client needs. Indeed, innovation is essential in these companies to differentiate versus peers, to create more brand loyalty and enable “premiumisation.” As consumers get wealthier, they trade up to more premium products and demand becomes more price inelastic… which is a similar play to luxury goods. Thus, as we look for opportunities, we believe that within this segment of consumer staples, their traits are very much in line with companies we like to invest in, strong competitive advantage and market position, an evolving industry and breadth for future evolution driven by research and development (R&D) and corporate strategy.
How we play it
Within our Carmignac Portfolio Grande Europe Fund, we see personal care as a core theme and focus on defensive growth through two names in particular:
Beiersdorf
With strong brands like Nivea, Eucerin and La Prairie, we see Beiersdorf as a company with continued growth that can deliver steady margin expansion. Management has successfully turned around their historical Nivea brand, their largest chunk of revenues, which had lost its appeal over the years, and which has been reinvigorated since 2021. Growth in their Dermatology segment with clinically proven ingredients is an area of longterm structural growth in line with current consumer trends and where most of the innovation is coming from. Each year they conduct 800 studies through external quality-controlled institutes, for their product development teams to bridge the gap between their skin researchers and the consumer.L'Oréal
The global leader in beauty has a large product mix to effectively serve the many different segments of beauty. The luxury segment has been disappointing over the past couple of years, but L’Oreal has significant growth potential going forward, coupled with higher margins, driven by the portfolio with brands such as CeraVe, a successful dermatology specialist. Innovation is at the forefront of their strategy, unveiling their personalized skin analysis tech device at the CES tech showcase in Las Vegas and demonstrating how they aim to innovate in skin care solutions, and leverage their R&D strength. Furthermore, their low net debt to EBITDA points towards potential acquisitions and more spending in artificial intelligence (AI).While performance in both names has been muted due to the China pullback, we maintain these two companies as core long-term holdings in the portfolio. We see little variation in the growth outlook versus other staple sectors and there has been a noticeable normalization of the global beauty market growth over the past year. Besides L’Oreal, for instance, with a 2025 PE of 25x, is trading at the low end of its past 5-year valuation band.
In conclusion, food may give investors indigestion given the headwinds in consumer trends and regulation whereas personal products continue to offer attractive and resilient earnings in the future. We look to staples to stabilize and defend our equity returns, and coupled with our investment in luxury, are comfortable that our 20% position in the consumer sector will underpin investment returns through the market cycle.
Carmignac Portfolio Grande Europe
A high conviction, sustainable European equity strategyDiscover the fund pageCarmignac Portfolio Grande Europe A EUR Acc
- Recommended minimum investment horizon
- 5 years
- Risk indicator*
- 4/7
- SFDR - Fund Classification**
- Article 9
*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **The Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 is a European regulation that requires asset managers to classify their funds as either 'Article 8' funds, which promote environmental and social characteristics, 'Article 9' funds, which make sustainable investments with measurable objectives, or 'Article 6' funds, which do not necessarily have a sustainability objective. For more information please refer to https://eur-lex.europa.eu/eli/reg/2019/2088/oj.
Main risks of the fund
Fees
- Entry costs
- 4,00% of the amount you pay in when entering this investment. This is the most you will be charged. Carmignac Gestion doesn't charge any entry fee. The person selling you the product will inform you of the actual charge.
- Exit costs
- We do not charge an exit fee for this product.
- Management fees and other administrative or operating costs
- 1,80% of the value of your investment per year. This estimate is based on actual costs over the past year.
- Performance fees
- 20,00% when the share class overperforms the Reference indicator during the performance period. It will be payable also in case the share class has overperformed the reference indicator but had a negative performance. Underperformance is clawed back for 5 years. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
- Transaction Cost
- 0,64% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.
Performance
| Carmignac Portfolio Grande Europe | -1.4 | 5.1 | 10.4 | -9.6 | 34.8 | 14.5 | 21.7 | -21.1 | 14.8 | 11.3 |
| Reference Indicator | 9.6 | 1.7 | 10.6 | -10.8 | 26.8 | -2.0 | 24.9 | -10.6 | 15.8 | 8.8 |
| Carmignac Portfolio Grande Europe | + 7.5 % | + 8.6 % | + 7.5 % |
| Reference Indicator | + 7.6 % | + 8.2 % | + 6.7 % |
Source: Carmignac at 31 Jan 2025.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Reference Indicator: MSCI Europe NR index
MARKETING COMMUNICATION
Please refer to the KID/prospectus of the fund before making any final investment decisions. This document is intended for professional clients.
The decision to invest in the promoted fund should take into account all its characteristics or objectives as described in its prospectus.
This communication is published by Carmignac Gestion S.A., a portfolio management company approved by the Autorité des Marchés Financiers (AMF) in France, and its Luxembourg subsidiary Carmignac Gestion Luxembourg, S.A., an investment fund management company approved by the Commission de Surveillance du Secteur Financier (CSSF). “Carmignac” is a registered trademark. “Investing in your Interest” is a slogan associated with the Carmignac trademark.
This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not
constitute a subscription offer, nor does it constitute investment advice. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice. They are expressed as of the date of writing and are derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Access to the Funds may be subject to restrictions regarding certain persons or countries. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the material or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not access this material. Taxation depends on the situation of the individual. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA. Company. The risks, fees and ongoing charges are described in the KIID/KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds’ prospectus, KIDs, KIIDs, NAV and annual reports are available at www.carmignac.com, or upon request to the Management Company. Investors have access to a summary of their rights in French, English, German, Dutch, Spanish, Italian at section 6 of "regulatory information page" on the following link: https://www.carmignac.com/en_US.
Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. The French investment funds (fonds communs de placement or FCP) are common funds in contractual form conforming to the UCITS or AIFM Directive under French law. The Management Company can cease promotion in your country anytime.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged. Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The reference to a ranking or prize, is no guarantee of the future results of the UCIS or the manager. Morningstar Rating™ : ©2023 Morningstar, Inc. All Rights Reserved. The information contained herein: is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content 7providers are responsible for any damages or losses arising from any use of this information. Citywire Fund Manager Ratings and Citywire Rankings are proprietary to Citywire Financial Publishers Ltd (“Citywire”) and © Citywire 2022. All rights reserved. Citywire information is proprietary and confidential to Citywire Financial Publishers Ltd (“Citywire”), may not be copied and Citywire excludes any liability arising out its use. Copyright: The data published in this presentation are the exclusive property of their owners, as mentioned on each page.
UK: This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd and is being distributed in the UK by Carmignac Gestion Luxembourg.
Switzerland: the prospectus, KIIDs and annual report are available at www.carmignac.ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Paris, succursale de Nyon/Suisse, Route de Signy 35, 1260 Nyon.
Belgium: These materials may also be obtained from Caceis Belgium S.A., the financial service provider, at the following address: avenue du port, 86c b320, B-1000 Brussels. In case of subscription in a French investment fund (fonds commun de placement or FCP), you must declare on tax form, each year, the share of the dividends (and interest, if applicable) received by the Fund. A detailed calculation can be performed at www.carmignac.be. This tool does not constitute tax advice and is intended to serve solely as a calculation aid. This does not exempt from having to perform the procedures and verifications incumbent upon a taxpayer. The results indicated are obtained using data that the taxpayer provide, and under no circumstances shall Carmignac be held responsible in the event of error or omission on your part. Pursuant to Article 19bis of the Belgian Income Tax Code (CIR92), in the case of subscription to a Fund that is subject to the Savings Taxation Directive, the investor will have to pay, upon redemption of his or her shares, a withholding tax of 30% on the income (in the form of interest, or capital gains or losses) derived from the return on assets invested in debt claims. Distributions are subject to withholding tax of 30% without income distinction. The net asset-values are available on the website www.fundinfo.com. Any complaint may be referred to complaints@carmignac.com or CARMIGNAC GESTION - Compliance and Internal Controls - 24 place Vendôme Paris France or on the website www.ombudsfin.be.
Carmignac Gestion, 24, place Vendôme - 75001 Paris. Investment management company approved by the AMF. Public limited company with share capital of € 13,500,000 - RCS Paris B 349 501 676.
Carmignac Gestion Luxembourg, City Link - 7, rue de la Chapelle - L-1325 Luxembourg. Subsidiary of Carmignac Gestion - Investment fund management company approved by the CSSF. Public limited company with share capital of € 23,000,000 - RCS Luxembourg B 67 54.