Invest Where The 1% Spends Their Money - AXIAM Capital Management

Part of our investment philosophy is to buy shares in companies that sell products where the world’s wealthiest, classified as “the 1%”, are likely to spend their disposable income. Credit Suisse research indicates that the 1% of the world’s population owned 50.8% of global wealth in 2016.

The 1% seek products that have strong brands that are known and trusted to provide quality, premium experiences. As Keynes wrote in a 1930’s essay

[Human] needs of the second class, those which satisfy the desire for superiority may indeed be insatiable; for the higher the general level, the higher still are they.

Premium brands are designed to satisfy humanity’s insatiable desires for more premium experiences. As the 1% enjoy those products they also create an aspiration amongst the rest of the population to have that product; giving those premium brands what Charlie Munger calls “strong universal appeal”.

Who are the 1%?

The wealthiest 1% of the world’s population have traditionally come from developed nations, but this trend is changing as the developing economies of countries like China, India and Brazil continue to expand.

The Forbes’s World Billionaire list contained no Chinese billionaires in 1996. A decade later the same list included 251 Chinese billionaires or 14% of the world’s 1,810 billionaires. The same research shows that 35% of the world’s billionaires came from developing economies in 2016.

The global rich, unlike the global ‘middle class’ or the global poor, are likely to meet and share experiences through international travel and communication. While the rich in developed countries have long enjoyed international tourism and mobility, it is a more recent phenomenon that significant numbers of rich people from developing countries spend substantial time in developed countries.

Sudhir Anand (Department of Economics, University of Oxford) & Paul Segal (King’s International Development Institute, King’s College London)

Through business, holidays and education in developed countries, wealthy people can experience top brands and share those experiences when they return to their home nations.

The 1% is growing

As population figures grow the number of people who make up the 1% will continue to grow. In the USA, the population has grown 59% from 191.8 million in 1964 to 323.1 million in 2016, according to the US Census Bureau. Similarly, according to the World Bank, over the same period US Gross Domestic Product (GDP) grew from $685.8 billion to $17.9 trillion. The impact of this is that there are continually more wealthy people (as population grows) with more disposable income (as GDP grows) and they will want to spend this income on premium brand products.

The 1% impact on investment

As Charlie Munger put it when describing how Coca-Cola grew from a $2 million investment to a $2 billion investment:

… real purchasing power of the average beverage consumer in the world will go way up. His proclivity to inexpensively improve his experience while ingesting water will go up considerably faster. Meanwhile, as technology improves, the cost of our simple product, in units of constant purchasing power, will go down. … This is an easy-to-exceed target as we start out if our new product has universal appeal.

As the 1% use premium brands, those brands become an aspirational purchase, giving them strong universal appeal. As GDP goes up the purchasing power of the average consumer goes up and with it their desire to improve their experience. Finally, technology has an impact allowing those products to be produced at a lower cost; thus, providing the manufacturer of that product (and its shareholders) with an ongoing income and growth on their investment.

At AXIAM, we buy shares in companies, regardless of their geography, that have great brands that are known, loved and used by the 1% wealthiest people around the world. Sign up to our newsletter or follow us on Twitter to learn more about investment in the best global brands or contact our fund management team to invest.