Portfolio Manager Perspectives

Jeff Benjamin

The new frugality will boost consumer staple stocks, says Wasatch's Shive

Keen to reduce debt, many consumers will steer clear of luxury items

Mar 8, 2010 @ 3:21 pm

By Jeff Benjamin

The upside of nearly two decades of mounting levels of government and consumer debt is a solid foundation for a secular run by consumer staple companies, according to Ralph Shive, manager of the $1.5 billion Wasatch-1st Source Income Equity Fund Ticker:(FMIEX).

“When people are dealing with flat- to negative-disposable income, they buy fewer frivolous things and they start taking care of the necessities,” said Mr. Shive, who has managed the fund for 20 years for Wasatch Advisors Inc.

“I expect consumer spending to be muted for some time, due to high unemployment, increasing taxes, retiring boomers, and [the] consumer psyche,” he said.

Thus, he believes companies that are dependent on discretionary consumer spending will be “swimming upstream, while consumer staples will remain the primary focus of consumer expenditures.”

The consumer staples theme is followed and supported by opportunities he sees in both technology and select financial sector stocks.

But much of Mr. Shive's current economic outlook with regard to consumer staples can be traced to the 17-year stretch from 1991 through 2008 that saw virtually no pull-back in consumer debt and consumption levels.

“That was a consumer cycle like we've never seen, because there was never a retrenchment in terms of consumer debt,” he said. “Historically, we usually have some kind of recession every four or five years, and during those recessions the U.S. consumer debt would retrench, and then you can start the next bull market with pent-up demand.”

Traditionally, consumer spending represents 70% of the economy. Thus, a pullback in leads to slower growth.

But through three dramatic economic slowdowns in 1994, 1998, and 2001-2002, Mr. Shive said government policies and “financial liberalization” combined to “make things more affordable to consumers.”

While he doesn't let consumers off the hook for playing their part by not having the discipline to stop borrowing, he said consumers have recently started changing their spending habits.

“That retrenchment is happening now,” he said. “I think the U.S. consumer got the message.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.


What do you think?

View comments

Most watched


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print