LONDON/NEW YORK- Top US and European investors are flagging their concerns about high prices to consumer goods companies, with Janus Henderson going so far as to cut some stakes it holds and shorting food makers it believes are at risk of losing customers.
The industry, which is due to report second quarter earnings in the coming weeks, has sharply hiked prices for over two years to make up for soaring cost inflation that started with the COVID pandemic and worsened due to shortages triggered by Russia’s invasion of Ukraine and extreme weather.
In the US , consumer prices rose 3 percent in the 12 months ending in June, the smallest year-over-year increase since March 2021, while food inflation in the euro zone stood at 12.5 percent in May.
Consumer goods makers say the price hikes are necessary, and that they have taken a hit to margins over the past two years. Some companies such as Clorox have even begun to ease off the hikes to protect sales volumes as input costs fall.
Janus Henderson, one of the world’s top investors with over 250 billion pounds ($322.45 billion) in assets under management, said it had already cut stakes in some food companies because continued high prices could prompt a sharp fall in volumes they sell.
“In the US in particular, these pressures are more acute than in Europe,” Janus Henderson portfolio manager Luke Newman told Reuters. “There’s a very real risk of volume falls, which could be very dramatic in terms of revenue for these companies.”
In particular, the asset manager is scrutinizing food manufacturers, including cereal makers, Newman said.
“We’ve reduced our holdings to those categories and actually initiated some short positions as well,” he said.
Other investors, including Richard Marwood, a senior fund manager at Royal London Asset Management, also said they were talking to consumer goods firms about the impact of high prices on volumes.
San Francisco-based Parnassus Investments has been discussing trimming its stakes in companies making household staples because the asset management firm expects revenues to “decelerate,” said Robert Klaber, a portfolio manager.
Parnassus holds shares of P&G and Triscuit maker Mondelez, among other consumer products makers and retailers.
In the US , some investors are worried that cuts to the food stamps program for low-income earners and the reversal of the Biden administration’s student loan forgiveness plan will bite into consumers’ spending power.
US consumer strength has begun weakening, “and that’s bad news for the consumer companies,” Barclays analyst Iain Simpson said.
