Jul 12, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

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Situational awareness:

  • Budweiser Brewing APAC, the Asia-Pacific business of Anheuser-Busch InBev, will not price its Hong Kong IPO of up to $9.8 billion by Friday as planned. (Reuters)
  • Shares of Daimler fell 4.5% after it issued its 4th profit warning in just over a year, blaming higher costs to deal with an expanded recall for faulty airbags and additional funds set aside to address emissions-tampering in diesel cars. (Bloomberg)
1 big thing: Iconic brands lose their luster

Illustration: Aida Amer

Axios' Courtenay Brown writes: From Oscar Mayer and Campbell's to Clairol and CoverGirl, some of America's most famous supermarket and drug store brands are losing market share as consumers' tastes and shopping habits change.

Why it matters: The challenges facing well-loved brands reflect shifts that aren't likely to swing back in their favor. As older companies scramble to keep up with upstart competitors, they are introducing more modern product lines, like ones with plant-based ingredients.

Driving the news: Legacy brands are concentrated within a handful of huge corporations that are losing money on various business lines as their products fade in relevance and popularity.

  • Kraft Heinz said this year that the value of its Oscar Mayer and Kraft brands — with products like Oscar Mayer hot dogs, Jell-O and Kraft Mac & Cheese — were worth $15 billion less than it had previously stated.
  • Coty, which purchased the Clairol and CoverGirl brands from Procter & Gamble 3 years ago, recently wrote down the value of those brands by $3 billion, following a previous writedown of $965 million.
  • Sales of Campbell's namesake soups have fallen in 8 out of the past 10 fiscal years, per the Wall Street Journal.

These companies' "standard prescriptions for defending" their brands "no longer seem to be yielding results," Carol Phillips, founder the Brand Amplitude consulting firm — which counted Campbell's Soup as a client — tells Axios.

  • "The tough thing about these products is they are really hard to improve on," she says.
  • "About the only thing you can do to it is change the package."

What's happening: Consumers are piling into nouveau and generic brands — like Kylie Jenner's Kylie Cosmetics and Brandless — some of which aren't even sold in physical stores.

  • Newer brands captured 31% of revenue share growth within the last four years — an increase from 27% in prior years, according to a recent Bain & Co. report.

Between the lines: The companies that once used to set the trends are now the followers. Desperate to remain relevant, old-line companies — already late — often jump into the fad of the moment.

  • Coty is reportedly in talks to take a stake in Kylie Cosmetics.
  • General Mills, struggling to lift sales of its cereals, yogurts and snacks, purchased Blue Buffalo, buying into the high-end organic pet food craze.

These strategies are "a total crapshoot," says Robert Passikoff, founder of the consultancy Brand Keys.

2. Retail investors panicked even as stocks hit all-time highs
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Data: Investment Company Institute; Chart: Andrew Witherspoon/Axios

Investors pulled more than $25 billion out of U.S. equity funds in the week ending July 2, right as the stocks were hitting all-time highs, data shows.

It was the second highest level of fund redemptions for domestic stocks since the Investment Company Institute began tracking data in January 2013. ICI's data mainly tracks retail investors who have close to $10 trillion invested in domestic mutual funds and ETFs.

Why it matters: Last week's selloff shows that even when the stock market is rising — the S&P is up nearly 19% so far in 2019 — retail investors are moving out of stocks, showing the opposite behavior of what they've demonstrated during market booms of the past.

  • ICI's data shows that the largest outflows on record were seen during the first week of February 2018, when the market tanked.
  • Investors have been selling stocks in aggregate all year, as concerns grow about the longest U.S. recovery on record and an increasingly uncertain geopolitical and market environment.

Yes, but: "While this outflow may seem [sizable] in simple dollar terms, it's important to realize it represents only .01 percent of the $9.6 trillion invested in domestic equity mutual funds and ETFs as of May 2019," Shelly Antoniewicz, ICI's senior director of industry and financial analysis tells Axios by email.

  • "When viewed in this context, it reinforces the long-term investment mindset of fund shareholders."
3. Hedge funds have their best first half since 2009
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Data: eVestment; Table: Axios Visuals

Hedge funds delivered their first-half best performance in a decade, rising more than 7% overall, according to data from eVestment. The industry also saw gains in June after a downturn in May when investors sold losing funds and bought winners.

Between the lines: Hedge fund divergence continued with long/short, equity, and event-driven funds delivering the best returns so far this year, while FX, commodity and fixed-income funds barely had positive returns.

  • "Ken Griffin, who runs the $30 billion hedge-fund firm Citadel, is beating his largest rivals, gaining 13.6% in the first six months of the year in his flagship funds," Bloomberg's Katia Porzecanski reports.

Yes, but: The strong year-to-date performance still lagged the S&P 500 by more than 10%, and hedge funds were outgained by 4% by what eVestment described as a "global balanced benchmark" of 50% global stocks and 50% global bonds.

4. Cigna, UnitedHealth, CVS soar
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Source: FactSet; Chart: Axios Visuals

Shares of Cigna, UnitedHealth Group and CVS jumped on Thursday after the Trump administration said it would drop a plan to eliminate the rebates that drugmakers pay to benefit managers working with Medicare and Medicaid, Axios' Bob Herman writes.

Where it stands:

  • Shares of Cigna, which recently bought pharmacy benefit manager Express Scripts, rose more than 9%.
  • UnitedHealth Group, which owns its own benefits manager, gained 5.5%.
  • CVS also has its own benefits manager, and rose almost 5%.

Between the lines: The rebate rule raised fears that drugmakers would engage in "tacit collusion," as Northwestern University health economist Craig Garthwaite recently wrote.

  • That plus the imminent threat health insurers and PBMs would raise drug premiums allowed the industry to escape any changes to a system that many believe is flawed.

Yes, but: PBMs have already faced new state regulations and still could run up against seismic changes at the federal level.

  • A new Senate bill would eliminate the practice of "spread pricing" and would require every rebate dollar to flow back to employers.

Go deeper: White House kills major drug pricing proposal

5. Mainstream retail's move into CBD could create $24B industry
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Data: Brightfield Group; Chart: Axios Visuals

Thanks to passage of the most recent U.S. farm bill legalizing hemp, cannabidiol — or CBD — is being sold widely throughout the country.

Why it matters: Mainstream acceptance is expected to bring explosive growth, with analysts from Brightfield Group estimating the U.S. CBD market will grow 706% from its 2018 levels by the end of the year, and reach nearly $24 billion by 2023.

  • Initially, sales of CBD products were generally limited to cannabis-specific companies, including vaping and hemp shops, but in Q2 retailers like CVS and Walgreens moved into the space.
  • Large pharmacy, retail and grocery chains are expected to take 57% of CBD retail market revenue by year-end.

Why you'll hear about this again: "Over the short-to medium-term, we expect expansion across both pharma and grocery as well as the emergence of supercenters, gyms, pet stores, natural food chains, and other big box retailers," Brightfield said in a recent publication.

Dion Rabouin