The toy and leisure-time sectors have outperformed the S&P 500 over the year to 16 July, returning 3...
The toy and leisure-time sectors have outperformed the S&P 500 over the year to 16 July, returning 30.58% and 36.15% respectively in dollar terms. The two sectors are very small, however, and both comprise just two stocks.
The toy sector's constituent members, Mattel and Hasbro, have returned 28.53% and 35.06% respectively over the year to 16 July, while the members of the leisure-time sector, Brunswick Corporation and Harley Davidson, have returned 41.99% and 35.77% over the same period.
Rupert Della-Porta, US fund manager at Aberdeen Asset Management, says although toy companies have had a good run this year, they have grown from a very low base and it is not an area of the market he favours.
He says: 'Typically, these stocks have suffered from a number of problems. There are a lot of pricing pressures in the industry. When discount stores like Walmart began to stock many of these toys, it put pressure on stores like Toys 'R' Us and the toy-makers.
'They have also been unable to maintain a strong pipeline of exciting products. Kids are more interested in computers and software than toys.'
Alison Sinclair, investment manager at Britannic Asset Management, says these two small sectors have benefited over the year from strong consumer spending, inspired partly by government policy. She says: 'There are two reasons the sectors have done so well. One is cyclical recovery and hope that the consumer keeps spending. The other is the tax cuts and rebates people are getting.'
Sinclair says tax cuts are just starting to reach the US consumer and, because the sums involved are not huge, many parents seem to be spending at least some of the cash on toys for their children to keep them occupied over the summer holiday.
'The money is just beginning to come out this month,' she says. 'It's not enough at this stage for people to buy new cars, and toys sales could benefit from this.'
Britannic has a zero weighting in toys. Sinclair believes toy companies can be a gamble and there are better opportunities elsewhere. She says: 'A lot of it is trying to work out what toys are going to be big at Christmas. Mattel have got the rights to make Harry Potter toys to accompany the movie and Barbie is also a stable product and old favourite.
'We do not have these names at the moment. There is potential for these companies but they are quite a small part of the overall index. There are better recovery opportunities in retail and it is a better longer-term bet.'
Della-Porta prefers the leisure sector and believes the demographics driving it are a long-term play. He says: 'We like leisure, conceptually. The baby-boom generation are getting older and having smaller families, so have more disposable income.'
Of the two companies in the leisure-time sector, Della-Porta is bullish about Harley Davidson over the long term.
He says: 'The stock has been volatile of late and, at 34 times forward earnings, it is not cheap. But long-term it is going to be a good demographic.'
Toys and leisure time outperforming.
Tax cuts and rebates will boost spending.
Harley Davidson's still in strong demand.
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