The best tonic for your portfolio? Invest in the brands you know and love

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Consumers could more than cover the cost of goods they buy from favourite brands by investing in the owners of the businesses.

A traditional and often successful method of investing is to buy what you know, mirroring consumer behaviour. But some experts say this message has become muted in recent years. 

Picking companies that consumers favour through good times and bad is a decent investment strategy – even if there are bumps in the road.

A £1,000 investment when Fever Tree floated on the AIM stock market of smaller companies in 2014 would now be worth £13,000

Encouraging more people to invest modest sums in their own consumer experiences is an ambition of Iqbal Gandham, managing director of social investing platform eToro. He wants more people to use dinner-party conversations as a guide for stock-picking.

He says: ‘Investments have become increasingly opaque. People buy a lot of investment funds and exchange traded funds but they don’t really know what these vehicles are invested in.

‘Individuals spend a lot of money on consumer goods – but they could also be benefiting from the businesses that make them by becoming shareholders too.’

He adds: ‘There are no guarantees with stock-picking but if you love a brand, and your friends or colleagues do too, then the business behind it is probably a successful company – or will be.’

Had long-standing fans of Fever Tree’s range of drink mixers invested as much as they were willing to spend on the brand a few years ago, they would be just as refreshed by the profits as by the tonic.

A £1,000 investment when the company floated on the AIM stock market of smaller companies in 2014 would now be worth £13,000 after a meteoric rise in its share price.

TV streaming service Netflix is another success story, with 150million subscribers worldwide and share price growth of more than 300 per cent over the past five years. A £1,000 investment five years ago would have generated a profit to cover a standard Netflix subscription for five years with more than £3,671 left over.

But with a raft of new TV streaming services gearing up for launch, including Apple TV+ coming to the UK from next month, some investors may now have nagging doubts about whether a rival could steal Netflix’s thunder. Others may feel its high-quality content is still too hard to beat.

Quality clothing and footwear is another consumer sector exuding resilience in the current difficult economic climate.

Someone can easily spend £100 on a decent pair of trainers. But a consumer-turned-investor could have turned £1,000 into more than £8,000 by buying shares in JD Sports five years ago.

Richard Hunter, head of markets at investment platform Interactive Investor, says: ‘Apart from its own brands, such as Footpatrol and Blacks, JD Sports sells global brands such as Nike, Puma, Adidas and Tommy Hilfiger. The current popularity of trainers as fashion accessories has helped propel JD Sports’ share price upwards.’

Success story: A £1,000 investment in Netflix five years ago would have generated a profit to cover a standard Netflix subscription for five years with more than £3,671 left over.

Other consumer-liked companies include Amazon and Starbucks – from which one latte each working day would cost around £531 a year. A £1,000 investment in these companies five years ago would have returned enough to pay for five years of Amazon Prime membership (£79 a year), with a remaining profit of £4,000, or 586 lattes with Starbucks.

It is also worth noting what other generations are excited about – to see if investment returns can be made based on the buying behaviour of younger family members. If sons or daughters are hooked on particular computer games and consoles, for example, there might be a share buying opportunity to be found in the maker of the game.

Despite most consumers missing out on stock market gains made from the brands they spend their money on, it is not a sure-fire way to make money. A stark reminder of this is now bust Thomas Cook – a company once loved by millions of holidaymakers.

Ian Forrest, of stockbroker The Share Centre, says: ‘It’s good to see people engaging with companies and the economy around them and some investors do pick up on new trends and make money from them – as with teen fashion retailer Boohoo, for example.

‘But it is important to do thorough research by looking at company results, getting a grasp of any debt the business may have and the quality of their cash flow.’ For example, Restaurant Group owns popular brands such as Wagamama and Frankie & Benny’s that customers may like and visit regularly. But the company also has an overhang of debt to pay interest on.

Ben Hobson, of investment analytics platform, says: ‘Brilliant brands can be a signpost to stocks with the potential to be profitable over long periods.

‘The tricky part is telling the difference between genuinely profitable brands and those that could lull you into a trap.’

Hobson says a case in point is US carmaker Tesla – run by the notorious Elon Musk. He says: ‘In surveys, Tesla owners are regularly found to be happier with their cars than almost anyone else. Yet Tesla shares have been more like a rollercoaster for investors in recent years. Care with brands is needed.’

Unilever has a sea of brands, from Hellmann’s Mayonnaise and Persil to Marmite and PG Tips

Forrest agrees. He says: ‘There is more to investing than a familiarity with a company’s products or services – you need to make a detailed, sober assessment of a company. Some people will be better off relying on a fund manager to do this.’

Jason Hollands, of wealth manager Tilney, points to three investment funds that focus on businesses with reliable and predictable income streams – often flowing from strong consumer brands.

Lindsell Train Global Equity has more than 45 per cent of its fund invested in ‘consumer staples’.

Its top holding is Unilever that boasts a vast sea of brands – from Hellmann’s Mayonnaise and Persil to Marmite and PG Tips. Drinks-maker Diageo, Heineken, PepsiCo, Walt Disney and Nintendo also feature prominently in the fund’s portfolio.

Evenlode Income and FundSmith Equity both invest 30 per cent of funds in consumer goods orientated companies – including Unilever and PepsiCo.

Hollands says: ‘Brand recognition provides the financial equivalent of a moat. Popular consumer companies command a loyal customer following, provide products many people use on a day-to-day basis and will do well irrespective of where we are in the economic cycle.’