Goldman Sachs is one of the few firms to launch a thematic fund in recent years focused on tapping into millennial consumer trends. This demographic, also known as Generation Y, includes the population born between the early 1980s and late 1990s, the first generation of digital natives.
Laura Destribats is one of the three people who manage the GS Global Millenials Equity , and explains in detail how they try to take advantage of the pull of millennials and their consumption habits, different from those of previous generations. At the moment, it is being a very profitable investment idea: whoever invested 5 years ago, when the fund was launched, has tripled their money.
Why did you decide to launch this fund?
The idea at the time was that we thought millennials were going to become the largest consumer force in the world. There are 2.3 billion millennials in the world, and 86% live in emerging markets. As they entered the job market, they began to have more income.
We thought that they have different consumption habits and that they were going to create a great disruption. We wanted to create a product to invest in the companies that would benefit the most from that, with the idea that they would behave better than the markets, something that has been confirmed.
What is your investment process?
We identify a list of topics related to their consumption habits, such as e-commerce, social networks, fintechs … and we look for companies that are well aligned with these topics. The first step is to find a universe of more than 400 companies.
We want to invest long-term in these trends and understand how sustainable the growth trajectory of the companies on the list is. Together with the fundamental analysis team, we choose between 40 and 50 firms that end up in the portfolio, also taking into account the valuation aspect, in which we are very careful, since we do not want to buy expensive. We have a long-term approach, with a fund turnover of 25%, keeping companies on average for about 4 years.
Are you concerned about the assessments that have been achieved?
No. You have to be disciplined, that’s clear, but at the same time, valuations have gone up in many of these companies because the fundamentals have accelerated so much. The Covid pandemic has greatly impacted these companies that are oriented to the digital world. With the confinements, digital habits have grown a lot. There has been a huge improvement for many of these businesses, and the fact that valuations have gone up is a logical thing, in our opinion.
“Valuations of digital companies have risen a lot because fundamentals have improved so much”
How important is your ESG analysis?
It is one of the themes of the fund. Millennials are more focused on sustainability than other demographics. In this sense, we want the companies in which we invest to be aligned with the values of millennials.
Do you think that at some point millennials will distance themselves from new digital trends so that your fund can invest in them? I am and I no longer understand the new social networks …
We invest in millennials because, due to the vital stage they are in, in terms of income they are growing more and more. When the next generation has an income we will decide if the fund should expand to include younger people, but at the moment we are in now, it is still far away. But it’s something we spend a lot of time thinking about. The day will also come when the wealth of baby boomers will be transferred to their millennial children, and that will have an impact.
“The day will come when the wealth of baby boomers will be transferred to their millennial children; that will have an impact.”
Do you have an estimate of when it will occur?
It is very difficult to know. On the one hand, people are living longer and longer, but at the same time there has been more desire to start that process while the parents are alive and well, since they want to be able to guide their children.
Covid has accelerated many digital trends. Is there a ‘millenization’ of other demographic groups taking place?
Yes. Of course. That has been the great impact of the pandemic. Older generations have adopted similar behaviors. When you are young, if you have been familiar with technology, you feel more comfortable with it. If you are older you are not so comfortable and there is friction. What the Covid has done is not give an alternative. You couldn’t go to supermarkets, they had to learn to use e-commerce.
To communicate with videoconference … that kind of thing. This has been massively accelerated. We have realized that these behaviors are going to be maintained, because people have realized how useful they are. They may not use it all the time, but more so than before the pandemic.
Europe seems to be a bit behind in certain technological advances. Are you having trouble finding opportunities here?
We have found some. The perception in Europe is that technological advances occur in America and not so much in Europe. I think that may have been the case in the past, but there are interesting developments in Europe, in the fintech world, for example, and also if you think about green technology innovation, Europe is one step ahead.