On this episode of the Thematic Signals podcast, Tematica’s Chris Versace breaks down the latest trade developments (including why he doesn’t think a two-step deal is likely) and discusses the European Central Bank rate cut before shares his thoughts on the continued plight of brick & mortar retail as Forever 21 is slated to file bankruptcy this weekend. We see no slowdown in the Digital Lifestyle tailwind that is a headwind for those like Forever 21. Chris then moves to why he was nonplused by Apple’s 2019 iPhone event even though it announcements made during the event mean problems for Netflix and GameStop. Also, hotels in Japan get a makeover, and Volkswagen comes out of the German Auto Show swinging at Tesla. To hear how those two items tie into our Living the Life and Cleaner Living investing themes, as well as why Chris is a little concerned about the Federal Reserve meeting next week, you’ll need to hit the play button and listen.
On this episode of the Thematic Signals podcast, host Chris Versace digs more into Tematica’s Cleaner Living investing theme with Andrew Pace of Degree of Green. Degree of Green was started back in 2007 as a rating system to educate consumers and retailers about the different facets of green. But today, Degree of Green is an educational portal to teach people how to build healthy AND green.
On this week’s podcast, you’ll learn how many chemicals dwell inside your home and where there they tend to be most prevalent. You’ll also learn about the varying degrees of what is considered green, with some surprises along the way as we talk about Degree of Green’s proprietary green rating system. If you’re looking to Clean up your existing home or a new one, this is a podcast you won’t want to miss.
We also breakdown a recent article in The Wall Street Journalthat discusses how one aspect of our Cleaner Living investing theme — electric vehicles — could threaten the German economy. It’s the same structural shift that should have folks more than a little concerned about Tesla, both its business as well as its shares. All that and much more on this episode of the podcast.
At the heart of our investment themes here at Tematica we tend to find a structural change underway. There are several embodied by our Cleaner Living investing theme with one of the more recognizable happening in the auto market as consumers look for non-gas powered solutions. This began with hybrid models, which in hindsight were a baby step or two away from all-gas powered engines that allowed them to meet regulatory mandates. We are, however, seeing an acceleration in the shift toward electric vehicles (EVs) as both General Motors and Volkswagen close out their hybrid efforts to focus their formidable resources on the EV market.
As we can see below, GM in particular is looking to move in the EV market in a meaningful way over the next four years. As we’ve seen in our Digital Lifestyle investing theme with Netflix, a company can enjoy an early mover advantage for a period of time but as the market opportunity presents itself others, like Disney, Apple, Comcast and others, will look to tap into that growing market.
The same holds for Tesla, and the question investors will need to ponder is how it will fare in a far more competitive EV market? Legacy auto makers like GM, Volkswagen, Ford and others are well versed in the competitive auto market. This will be new ground and an new battle ground for Tesla and Elon Musk, and it doesn’t have a legacy car business to help it out.
Auto makers for two decades have leaned on hybrid vehicles to help them comply with regulations on fuel consumption and give customers greener options in the showroom. Now, two of the world’s largest car manufacturers say they see no future for hybrids in their U.S. lineups.
General Motors Co. and Volkswagen AG are concentrating their investment on fully electric cars, viewing hybrids—which save fuel by combining a gasoline engine with an electric motor—as only a bridge to meeting tougher tailpipe-emissions requirements, particularly in China and Europe.
GM plans to launch 20 fully electric vehicles world-wide in the next four years, including plug-in models in the U.S. for the Chevy and Cadillac brands. Volkswagen has committed billions to producing more battery-powered models, including introducing a small plug-in SUV in the U.S. next year and an electric version of its minibus around 2022.
Last week, Continental AG, one of the world’s biggest car-parts makers, said it would cut investment in conventional engine parts because of a faster-than-expected fall in demand—yet another sign the industry is accelerating the shift to electric vehicles.
July was a bit of a roller coaster ride for the domestic stock market, as it grappled with the ongoing U.S.-China trade war, economic data that points to a slowing global economy and the expected interest-rate cut by the Federal Reserve at the end of the month. For the month in full, each of the major stock market indexes finished higher month-over-month, adding to their gains for the year, but exited the month below their July highs. The same was true for the Tematica Research Cleaner Living Index, which rose 1.2% in July, continuing its sharp June rebound.
Driving the July performance for the Cleaner Living Index were shares of Beyond Meat (BYND) and Primo Water Corp. (PRMW), both of which climbed more than 20% during the month. Those moves reflect the continued expansion of Beyond Meat’s meatless protein products, a growing number of partnerships and expanding consumer awareness of water quality. That last topic was a key conversation point in our recent Thematic Signals podcast conversation with Dr. Roy Speiser. The index’s July performance also benefitted from double-digit gains at Simply Good Foods (SMPL), the company that leverages the Atkins brand in the healthy snack market, Trex (TREX) and Fresh del Monte Produce (FDP).
Offsetting those gains were continued declines at Tenneco Inc. (TEN). The company’s clean air solutions have been impacted by the combination of a slowing global economy, a weakening of the auto market and on-going US-China trade concerns. Other notable decliners with the index for the month of July included Sprouts Farmers Markets (SAFM) and Renewable Energy Group (REGI). Sprouts continues to confront the traditional grocery chains expanding their natural, organic and healthier for you product offerings. Cleaner fuel company Renewable Energy Group on the other hand is facing falling oil prices, making competing solutions increasingly affordable.
As we are starting to wind down the 2019 June-quarter earnings season, coming into this week more than three-quarters of the S&P 500 group of companies had reported those quarterly figures. Tallying those results, we’ve seen earnings-per-share expectations for the current quarter fall. The result is that full year 2019 earnings per share expectations for that cohort of 500 companies has risen just 2.7%, compared to 2018. Before too long, investors will begin to focus on 2020 growth prospects, and current expectations have the S&P 500 group of companies growing their collective earnings by 10.8% year over year in 2020.
By comparison, the Cleaner Living index constituent base is slated to grow its collective earnings by nearly 30% in 2020. That’s significantly faster than the expected year over year EPS growth of 6%-12% in 2020 for the consumer discretionary, consumer staple and utility segments tallied by FactSet. Arguably the difference in those EPS growth rates reflects the accelerating shift by consumers toward natural, organic and healthier for you solutions that speaks to the structural shift captured by Tematica’s Cleaner Living investment theme and index.
While we very much like the overall vector and velocity of the Cleaner Living constituent base and the collective earnings-per-share growth to be had in the coming quarters, we recognize at least in the near-term the overall market and subsequently the Cleaner Living index will likely be impacted by U.S.-China trade developments, the speed of the global economy and changes in monetary policy from the world’s major central banks.
Signals for Tematica’s Cleaner Living investment theme & the Cleaner Living Index
Performance for the Tematica Research Cleaner Living Index (CLNR) is available through Bloomberg, Reuters, FactSet, and other data aggregators, as well as the Tematica Research website. The index is currenty 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.
On this episode of the Thematic Signals podcast, we’re tackling an aspect of our Cleaner Living investing theme that most people tend to take for granted – clean water. To dig into the subject, we speak with Dr. Roy Speiser of water and air filtration company CWR Environmental Products, who for over 35 years has championed the cause to mitigate air and waterborne toxins. As you’ll hear, because of environmental abuse, industrial greed and governmental neglect, the harsh reality is out water supply is not as clean or as safe as we think it is. Dr. Speiser explains how you can find out the state of your own water supply, what common contaminants you’re likely to find, and offers some helpful suggestions on how to ensure you have a clean water supply. He also shares exactly what kind of portable drinking water bottle you should be using, and it’s not likely that metal one you might be carrying around.
We are just back from vacation and hitting the ground running during arguably one of the busiest weeks of the year. In addition to the usual end of the month, start of the month economic data, we’ve got more than 1,000 companies reporting quarterly earnings; the Fed’s next FOMC meeting; and the next Democratic presidential debate. And that’s what we know about. We dig into all and share where we think the market could be capped if the trend in earnings continues. We also share our thoughts on Cleaner Living company Beyond Meat, whose shares have been nothing short of a rocket ship ride, but is that rise likely to continue? We discuss just that and much more on this podcast episode.
A look at the thematic outlook we can piece together from the flow of earnings reports we’ve received thus far.
On this episode of the Thematic Signals podcast, we find ourselves in the thick of earnings season and Tematica’s Chris Versace not only provides an overview for how all of these reports are coming together to form a larger picture, he shares a thematic look at what’s moving several stocks, including Amazon (AMZN), Apple (AAPL), International Airlines Group (ICAGY), IBM (IBM), Netflix (NFLX), Skyworks Solutions (SWKS) and the impact of spending on cybersecurity. In thematic speak, it’s the Digital Lifestyle, Digital Infrastructure, Disruptive Innovators, and the Safety & Security themes, with an added dash of privacy. Of particular note, Chris is really excited about one of the latest signals for Tematica’s Cleaner Living investing theme as Nestle SA has found a way to dramatically reduce the sugar content of its KitKat bar. Why? Because it and other food and beverage companies are under pressure from consumers and governments alike to make healthier products amid rising obesity and diabetes rates. If Nestle keeps this up maybe one day it could land in the Tematica Research Cleaner Living Index.
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.
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.