Author Archives: Chris Broussard

About Chris Broussard

I'm the Co-Founder and President of Tematica Research and editor of Thematic Signals, which aims to uncover confirming data points and items to watch for our list of investing themes. Whether its a news item, video clip, or company commentary, we've included this full list of items literally "ripped from the headlines." I have been involved in financial services marketing and publishing for over 20 years – having held senior level positions with financial publishers, financial services corporations and providing marketing support and consulting services to financial institutions and independent financial advisors. My background in digital marketing, financial services and consumer research provides me with a unique perspective on how to uncover the underlying proof points that are driving the themes our Chief Investment Officer Chris Versace utilizes in our various Tematica publications.

Thematic Reads: Week of August 12, 2019

Each week Team Tematica consumes a voracious amount of content as we look to stay on top of the latest data and mine it for tailwind and headwind signals for our 10 investment themes.

Aging of the Population
The global demographic shift towards a more senior population


Cleaner Living
Growing demand for items that claim to be better for you and the planet:


Digital Infrastructure
The Buildout and upgrading of our Networks, Data Storage Facilities and Equipment


Disruptive Innovators
Business models designed to transform an entire industry and leap-frog over incumbents.


Digital Lifestyle
The increasingly digital landscape that now underpins the entire consumer experience.


Guilty Pleasures

The products and services people will consume no matter the economic environment.


Living the Life

Those things that bridge the gap between want and ability at every socioeconomic level.


MiddleClass Squeeze

Consumers trading down when and where possible or looking to stretch the disposable dollars they do have.


New Global Middle Class

Areas around the world where rising disposable incomes are driving demand for a host of products and services.


Safety & Security

Reflecting the evolving needs across individual, cyber, corporate and homeland security.

“Follow the Money” is always a good Thematic Investing Strategy

“Follow the Money” is always a good Thematic Investing Strategy

In the 1976 motion picture, All the President’s Men, the catchphrase “Follow the Money” was coined. It was the advice given by the Deep Throat character as reporters Woodward and Bernstein looked to uncover the scandal that came out of the Watergate break-in. When it comes to thematic investing, the same advice should be heeded.

Very recently an interesting stat came across my desk in an article on MarketingLand.com that sheds light directly on our Safety & Security investment theme. The article covers a survey of over 4,000 adults in the U.S. and the United Kingdom with regards to their sharing behavior online:

Asked whether Cambridge Analytica and other data and privacy scandals had impacted their online behavior, 78% of respondents said yes. Among that group, 74% said they are sharing less information online. For those whose behavior has not changed, the survey found that “they were already highly protective of their information, or that they had accepted a lack of privacy when engaging online.”

Source: Most consumers believe online privacy is impossible, survey finds – Marketing Land

Further into the article, an even more concerning stat reveals that consumers have no hope of achieving a level of privacy anymore:

Compared with the 2018 survey, consumers in the U.S. and U.K. now overwhelmingly believe [online privacy is not achievable]. The “online privacy is possible” respondents have declined from 61% in 2018 to 32% in 2019.

Impact of the Change in Online Behavior

One would think that with all of the cyber scams, data hacks and “fake news” pervading social media, and even the internet as a whole, we would see most of the internet darlings taking it on the chin.

Nope.

Such negative effects from consumers’ evaporation in confidence of online privacy are not readily apparent — at least in the near term — when we look at the likes of social media giants Facebook (FB) and Twitter (TWTR). By all accounts, Facebook knocked it out of the park in its latest earnings report, which was released back in April 2019 and summarized the company’s first quarter of 2019. Mark Zuckerberg’s empire produced revenue for the quarter that soared 26% and net income per share that came in at $1.89 versus expectations of $1.62.  Twitter (TWTR) too killed it in the first quarter with $787 million in revenue and first-quarter earnings per share of 37 cents, compared with analyst estimates of $776.1 million and 15 cents per share.

The longer-term impact, however, of consumers sharing less and less, and lacking trust in online sites with their data is that the level of user engagement begins to wain.

Why log into Facebook five . . . six . . . ok 24 times per day, if none of your friends are sharing anything worth looking at?

That “Fear of Missing Out” (FOMO) quickly goes away when all you are missing out on is your friend’s latest cat photos or the toddler video you’ve seen 17 times. If the content isn’t fresh and refreshed, at some point, you and your  attention span will move to where it is, which will be something to watch for Netflix (NFLX) as Apple (AAPL), Disney (DIS), AT&T (T) push into the video streaming market tapping our Digital Lifestyle investing theme.

So we’ll be on the look out for any confirming data points on this when Facebook (FB) announces its Q2 earnings on July 24, 2019 and Twitter’s on July 26, 2019.

Regulation and Fines Also Keeping CEO’s Up at Night

Losing the engagement of a customer base for privacy concerns can be terrible, but actual missteps in the handling of customer data and privacy can come along with some hefty costs as well.

We already have the European Union’s GDPR regulation, which British Airways (BA) has run afoul of and hit with a $230 million fine and Marriott (MAR) as well with a $123 million fine. Additionally, the State of California’s California Consumer Privacy Act (CCPA) is to take effect in January of 2020 and we also have rumblings of Congress taking steps to impose GDPR-like regulations on a federal level.

So is Silicon Valley and the rest of Corporate America and beyond  concerned about this?

While we can’t peak into the sleeping patterns of CEO’s and CIO’s of these  companies, these kinds of concerns are being revealed when we . . . you guessed it . . . follow the money.

Yesterday, OneTrust, a privately held company focused providing tools and services to help companies comply with GDPR and assess their risk levels announced a $200 million Series A investment, which equals a not-to0-shabby $1.3 billion valuation for a company that is just three years old.

The OneTrust series A round came on the heels of a $70 million D round closed by San Francisco-based TrustArc. That latest round brings the total amount raised by TrustArc to over $100 million.  In an article on VentureBeat.com covering the TrustArc news, the size of the privacy and compliance market as described as:

TrustArc competes to an extent with StandardFusion, LogicGate, Iubenda, and Netwrix Auditor, all of which are vying for a slice of enterprise governance, risk, and compliance market that’s estimated to be worth $64.62 billion by 2025. Bregal Sagemont partner Daniel Kim isn’t terribly concerned about rivals, though — he points out that TrustArc has engaged with over 10,000 customers to date across its client base of more than 1,000 clients.

Getting back to following the money, these are developments we monitor as we develop our themes where we look to identify those companies riding the tailwinds of a theme as reflected in operating profit or sales. In the case of privacy and compliance, it’s a key component of our Safety & Security investment theme and the planned release of a new index to go along with our Cleaner Living Index that was launched in June of 2019.

A signal that a theme is taking hold — imposters and posers

A signal that a theme is taking hold — imposters and posers

 

This story about a new line of Huggies disposable diapers came across our desk because of the headline: Huggies Launches Partially Plant-Based Diaper. 

On the surface, it appears that this type of product could fall into the Tematica Cleaner Living theme, with the potential for Huggies owner Kimberly-Clark (KMB) to start making its way towards inclusion into the Tematica Research Cleaner Living Index:

Huggies is introducing Huggies Special Delivery, what it calls its “most perfect diaper ever,” with a liner and waistband made from plant-based materials, including sugarcane, that provide better absorption and fit . . . The diapers are free of parabens, fragrance and “elemental chlorine,” and “dermatologically tested and clinically proven hypoallergenic,” according to the company.

Source: Huggies Launches Partially Plant-Based Diaper With Black Packaging 07/08/2019

Of course, like we always like to say, the truth often lies beneath the headlines, and in this case, way beneath the headlines.  More like paragraph number ten in this case, where we find a company trying to pose as a Clean Living contender:

While Kimberly-Clark, like others, seeks out sustainable practices, Special Delivery is not biodegradable, and Rhode says, no other U.S. disposable diaper is, either (though several make the claim).

So, it’s certaly a move in the right direction for Kimbery-Clark, but not Cleaner Living territory by any means. However, it is a confirming data-point for the Cleaner Living Theme. Here’s why. In this case we have a case of a company going out of its way to create the appearence of a product being more sustainable in order to appeal to those seeking to purchase products that have a lower impact on the planet. And while one couldn’t argue that these Huggies might be “more sustainble”, they are certainly not Cleaner Index worthy.

New Thematic Index Identifies Companies Driving the Clean Living Movement

New Thematic Index Identifies Companies Driving the Clean Living Movement

FOR IMMEDIATE RELEASE: June 25, 2019

CONTACT:
Chris Broussard
(571) 293-1977
cbroussard@tematicarsearch.com


Tematica Research®, LLC, a thematic investment research firm based in the Washington, DC Metro area today announced the launch of the Tematica Research Cleaner Living Index (CLNR). The index is a thematic approach to ESG investing that looks to capture those companies that are riding the tailwinds of Tematica Research’s Cleaner Living investment theme, which focuses on the shifting consumer preference for food, beverages, personal care and beauty items, home cleaning and lifestyle products and services that are deemed to be better for you, your body, your home, workplace and the environment. 
 

What is Cleaner Living

Cleaner Living has moved more and more into the mainstream in recent years as consumers become more conscious of the ingredients and materials used in the foods they eat and the products they surround themselves with on a daily basis. Cleaner Living seeks to eliminate, wherever possible, artificial chemicals, additives and ingredients that are deemed to have potentially harmful effects, as well as avoid the materials or technologies that can damage the planet through pollution or depletion of natural resources. This includes:

  • Cleaner Groceries: Natural, organic, non- GMO and even gluten-free foods, as well as products that specifically avoid using preservatives, artificial sweeteners, saturated fats and artificial chemicals. 
  • Cleaner Dining: Healthier fare restaurants that have adopted a more natural, less processed menu with the elimination of GMO’s, trans-fats, and artificial ingredients.
  • Cleaner Health & Beauty: Natural skincare & makeup, toxin-free toothpastes, shampoos, soaps, feminine hygiene and baby products with more natural ingredients and fewer or no preservatives.
  • Cleaner Homes & Buildings: Cleaning products with more naturally derived active ingredients, free from irritating chemicals, artificial colors and fragrances; low VOC paints, rugs, furniture, and mattresses; products and technology focused on the purification of water and air in your home.
  • Cleaner Planet: Products that have high recycling content or are made through environmentally friendly processes such as sustainable materials. This includes products and technologies designed to use less material and energy to reduce their environmental impact compared to fossil fuels and other petrochemical-based solutions. Examples include biofuels, wind and solar power, electric vehicles, solid-state lighting and other renewables.

Compared to a decade ago, the range of Cleaner Living solutions has expanded significantly. It was not that long ago that in order to find these type of foods and products, consumers had to shop at places such as Whole Foods or your local health food store. Now, shoppers not only find them on the shelv
es of nearly every local grocery store, but Cleaner Living products are now among grocer branded private label products.

As consumers increasingly flock to these cleaner options, many companies have repositioned their offerings to capture this preference evolution in consumer spending.  Christopher Versace, Chief Investment Officer of Tematica Research states, “We are still in the relatively early innings for this thematic shift when it comes to Cleaner Living. Some companies are further along in their transformation than others. But as more consumers seek healthier and environmentally friendly options, we’re seeing an increase in the number of companies looking to accelerate their transformation within the Cleaner Living theme on either a ‘build it’ or ‘buy it’ basis.”  
 

About the Tematica Research Cleaner Living Index

The initial constituent list for the Tematica Research Cleaner Living Index (CLNR) comprises more than 50 companies whose businesses each derive at least 50% of their sales or profits from one or more aspect of Tematica’s Cleaner Living investing theme. In keeping with that theme, the constituents are comprised of companies across several sectors and include food, beverage, and snack, companies; restaurants; health and beauty as well as home care products; and utilities, recycling and auto companies among others.  As more companies shift their businesses to capture the benefits associated with the Cleaner Living tailwind, it means over time there will be new entrants to the index. Given the degree of M&A activity we are witnessing as companies look to hasten that transformation, we are likely to see constituents removed as well. 

In addition to that thematic exposure, the constituents must have a minimum stock price of $10 at the time the index is reconstituted as well as a minimum market cap of $250 million and a minimum average daily trading volume of 100,000 shares over the trailing 30-day period. A company’s thematic exposure to the Cleaner Living theme is captured in Tematica Research’s proprietary Thematic Scorecard. This database of roughly 2,400 stocks has been scored across each of Tematica Research’s 10 investment themes based on each company’s exposure to the theme as reported in publicly available information. 

The Tematica Research Cleaner Living Index (CLNR) is available through Bloomberg, Reuters, FactSet, and other data aggregators, as well as the Tematica Research website and is available for licensing for the use in a variety of exchange traded products or as a data overlay in portfolio screening and management. The Tematica Research Cleaner Living Index is being calculated by Indxx.


Clean Living Doesn’t Have to Mean Being Eaten Alive by Bugs

Clean Living Doesn’t Have to Mean Being Eaten Alive by Bugs

The main ingredient in many insect killers is a chemical called “Bifenthrin”.  Does Bifenthrin work at killing the creepy crawlers around your house?  Oh yeah. Ortho Home Defense list of bug it is effective for use on is a mile long.   Bifenthrin is also a “Class C” carcinogen according to the U.S. EPA and listed as “a restricted use chemical in the United States”. Bifenthrin is banned from use in the European Union, just like lots of other pesticides and chemicals. But of course, Bifenthrin is permitted to be sold in the United States in consumer products such as Brigade, Maxxthor, Scotts Lawn Pro, Ortho Home Defense and others, just as long as the proper labeling and warnings are on the packaging. Not sure how those labels and warnings will protect a child crawling on the floor or a pet licking something off the floor.

The awakening of the American consumer to the dangers of these type of chemicals and the carcinogenic prospects prolonged exposure to them can have is one of the key tailwinds behind the Cleaner Living investment theme, and we are seeing more and more companies shift their product strategies accordingly. The latest example, Procter & Gamble’s (PG) new natural bug spray Zevo, which the consumer packaged goods company recently announced:

Got bugs? Introducing Procter & Gamble’s Zevo, a brand of smart insect control products that kill bugs in your home without harsh chemicals, providing an effective solution that people can count on this summer and all year long. Most traditional bug control options force people to choose between tolerating pests in their homes or accepting the anxiety associated with the use of traditional chemical insecticides, but Zevo Instant Action Sprays use nature-inspired ingredients to target nerve receptors only active in bugs, not people or pets. These bio-selective active ingredients, powered by essential oils, use plants’ natural defenses to effectively outsmart a wide range of bugs.

Source: Zevo Arrives At P&G – HAPPI

The launch of Zevo by P&G joins several other steps captured by our Cleaner Living investment theme analysis. This includes examples such as natural alternatives of Pampers Pure Protection diapers, Tide PurClean laundry detergent, Burt’s Bees toothpaste and Native deodorants. In February 2019, the company announces the acquisition of This is L, a feminine hygiene brand that offers organic cotton tampons and chlorine-free ultra-thin pads. We can’t give P&G a Thematic Leader title yet for the Cleaner Living theme; however, these are all confirming data points that this change is having a massive impact on the largest of companies.

Glass: Packaging that’s clearly worth a second look | Grocery Dive

Glass: Packaging that’s clearly worth a second look | Grocery Dive

Glass containers are seeing a resurgence on grocery store shelves, as more and more food manufacturers return to the packaging material that used to be the mainstay until plastics took the pole position in the 1970s. The catalyst behind this movement back towards glass bottles and jars ties into our Cleaner Living Investment theme as food manufacturers look to position their products to appeal to consumer’s demand for products that are not only good for their own health, but good for the health of the planet as well:

 

The perception of glass as a receptacle for high-quality products also stems from its transparency — both literally and figuratively. “From an aesthetic perspective, we think it gives you a really nice perspective on what the product is,” Bingham said. “You’re able to see the product, you’re able to experience the product in a way that you can’t otherwise.” On a more figurative level, glass — a natural product made from silica sand, soda ash, limestone and often recycled material — is transparent about its environmental impacts.As the only packaging material that doesn’t require a plastic or chemical liner, glass is easily recyclable. Recycling programs for glass bottles and jars are available to 81% of the U.S. population, according to the Glass Packaging Institute. With 2.4 million tons of glass being recycled annually into new containers, according to the Glass Recycling Coalition, that translates to about a third of all glass jars in the U.S. containing recycled material, explained Cattaneo.

Source: Glass: Packaging that’s clearly worth a second look | Grocery Dive

A Look Below the Headlines Reveals a Rebuilding America Thematic Signal

A Look Below the Headlines Reveals a Rebuilding America Thematic Signal

Earlier this week the Commerce Department released its April construction data, which the Associated Press reported with the headline, “US construction spending was flat in April as housing fell.” Of course, being the thematic investors that we are, we immediately looked beneath the headlines to dig into the data, mostly because of the obvious point — if the overall construction spending was flat, yet housing construction fell for the month, something else must have increased, right?

Well, what we find beneath the headline figures is a significant thematic signal for our Rebuilding America theme:

Those declines [in housing construction] were offset by a 4.8% surge in government construction spending to a record high of $299.4 billion, led by big gains in state and local government spending, which also rose to a record high.Spending on highways and streets jumped 6.8%, while school construction rose 2.1%. Federal spending rose to $24.5 billion, the highest since July 2013.

Source: US construction spending was flat in April as housing fell

We’ve long written that when it comes to the need for Rebuilding America’s infrastructure, a Federal spending bill passed by Congress would go long way to jump-starting projects and provide a clear catalyst from an investment perspective. No one can argue against that. However, given the current partisan bickering on all fronts, that catalyst doesn’t appear to be coming around the bend anytime soon.

The reality, however, is that the bridges, roads, tunnels and schools are in dire need for upgrades and repairs. They’re not getting any younger as the folks in Washington D.C. fight over who hurt whose feelings. As such, we are increasingly seeing states, counties and local municipalities moving forward on their own accord, securing the financing through bond referendums or simply using the extra tax revenues coming in from economic expansion or imposing revenue generating policies such as new tolls or gas taxes.

What our approach is from an investment standpoint when it comes to the infrastructure sector — and the central point of the Rebuilding America Index we have constructed — is to focus on the US companies participating in the rebuilding and restoration of US infrastructure. Specifically, we look at the companies that provide the products and services that stand to benefit from the focus on upgrading infrastructure to satisfactory levels by 2025. It’s the engineering firms planning the projects, the cement and asphalt companies supplying the materials for building the roads, bridges and tunnels, the equipment companies who supply the tools and vehicles for putting it all into place, and finally, the construction companies that are winning the bids and contracts for the projects. It’s the folks focused on putting the shovel in the ground and making things happen.

Latin American Broadband Penetration to Cross Over 50% by 2020

Latin American Broadband Penetration to Cross Over 50% by 2020

In the United States over 80% of households enjoy broadband internet access, a fact that many of us take for granted and as we stream media to our TV’s and other devices and install IoT devices in an attempt to achieve the perfectly “connected home”.  Of course, no country has reached the heights of South Korea when it comes to broadband penetration — crossing over 100% as of the end of 2017.

When it comes to Latin America, the penetration of broadband has lagged the rest of the world; however that is changing:

Latin America’s broadband penetration reached 45 per cent of households in 2018 from a previous 43 per cent in 2017. Going forward, 10 million new accesses are expected within two years and internet household penetration will reach 50 per cent of households in 2020, according to GlobalData, a data and analytics company.Ivan Maldonado, Technology Analyst at GlobalData commented, “The total number of fixed broadband household penetration will rise 2 per cent or 5 million broadband connections in 2019, driven by telecommunication operators, reaching a household penetration of 47 per cent for the same period.”

Source: Analyst: LatAm broadband penetration at 50% by 2020 |

The expansion of broadband access across Latin America is a strong tailwind not only for our Digital Infrastructure theme, for also for our New Global Middle Class investment theme, which focuses on areas around the world where rising disposable incomes are driving demand for a host of products and services. And of course, with more disposable income and an improved digital infrastructure, this development also provides a tailwind for companies such as Netflix (NFLX), Disney (DIS) and Amazon (AMZN) that are riding the Digital Lifestyle tailwinds.

With Tax Breaks Set to Expire, Wind Projects Open Their Sails

With Tax Breaks Set to Expire, Wind Projects Open Their Sails

A record 13.3 gigawatts of new capacity from wind producers came online in 2012, which no so coincidentally coincided with an expiring tax credit program for that year. This year, 2019, the projection is for 12.7 gigawatts of new capacity to come online. Obviously, consumer demand for alternative energy, part of our Cleaner Living investment theme, is a big driver behind this increase in construction, not to mention the efficiency improvements in the production and storage of wind energy that comes with our Disruptive Innovators theme. But regulation, the third leg of the thematic investing stool, is also providing a significant tailwind behind this construction boom:

Wind producers are eligible for a production tax credit that provides up to 2.3 cents per kilowatt hour of power for 10 years. The tax credit was scheduled to expire in 2012 but was renewed. Wind facilities that begin construction after Dec. 31 are not eligible for receive the credit.

Wind developers who want the full value of the tax credit must launch their wind-generating operations by the end of 2020, according to the Energy Department. Based on industry status reports, wind developers are rushing to finish by the end of this year with many new facilities – 5.7 gigawatts or 45 percent of the annual total – expected to come online in December.

Source: Wind developers rush to finish projects to get tax breaks – HoustonChronicle.com

Getting Out into the Wilderness Doesn’t Have to Mean Destroying It Just to Get There

Getting Out into the Wilderness Doesn’t Have to Mean Destroying It Just to Get There

 

The prototypical image most folks have when it comes to recreational vehicles (RVs) is that of the massive, bus-like, gas-guzzling vehicle motoring down the highway — oftentimes, it seems, to be riding in the left-hand line doing 10 miles under the speed limit. That last part might be an exaggeration, but you get the picture

But like many aspects of life these days, a new crop of RV’s are catering to the consumer preference that is the essence of our Cleaner Living investment theme. This theme focuses on the shifting consumer preference for food, beverages, personal, home care and lifestyle products and services that are better for you, your body, your home, workplace and the environment. 

A modern crop of RVs push efficiency and weight savings as a prime directive. These trailers or camper vans are typically made of composite materials, featuring solar power, high-efficiency appliances, and smart water use.Saving what you can has always been a tenet of living away from the conveniences of civilization: grey water systems and refrigerators without electricity-draining inverters have been around for a while. But what’s new is the use of sustainable materials. Some RVs now feature birch wood and bamboo construction bonded with non-toxic sealants, and are designed with recyclability in mind for when the adventure ends.This might seem like a fleeting consumer trend, but sustainability and environmental friendliness go hand-in-hand at the core of RV life. In an RV, keeping the power and the lights running can mean the difference between a nice weeklong trip and a catastrophe. Build a lighter trailer, and it can be towed by the car that’s already in your driveway—thereby piquing the interest of a new group of suburban-dwelling adventure seekers.

Source: RVs Are More Efficient Than Ever, Thanks to Eco-Friendly Manufacturing

Of course, being out in the wilderness doesn’t mean completely unplugging from society anymore, thanks to solar technologies. And the use of solar isn’t just for recharging iPhones and running coffee makers in the middle of nowhere, it’s also being incorporated to charge electric-powered RV’s as well:

Solar power is another big part of Forest River’s range of environmental leanings, and the company includes a 1,000-watt converter mounted on the roof, which is both eco-friendly and crucial for driving off the grid.

Finally, we’re catching a glimpse of the future of motorized living. Winnebago, one of the most storied names in RVs, is working on a fully-electric platform to underpin commercial RVs and trailers. In conjunction with Motiv Power Systems and its EPIC platform, Winnebago aims for a single-phase J1772 220-volt charging system, capable of returning 85 to 125 miles on one single 6-8-hour charge from its eight sodium-nickel batteries.

Winnebago has not yet introduced this concept, which it is aptly calling the All-Electric/Zero Emissions project. And yet it has already garnered its fair share of attention: at RVX, it won the Sustainability Award.

Source: RVs Are More Efficient Than Ever, Thanks to Eco-Friendly Manufacturing

After all, what’s the point in getting out into nature while burning through 300 gallons of gas to get there and back?