FidelityConnects: Luxury meets opportunity: Today's consumer story

[00:00:00] Pamela Ritchie Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie. AI is reshaping consumer behaviour, changing how people earn, spend, and discover products even as its full impact is still unfolding. At the same time our next guest notes a shift in consumer preferences away from goods, towards experience, wellness, and premium brands, as consumers become more selective with their spending. How could these trends redefine, or continue to define, the overall consumer landscape, and how should advisors and investors think about positioning portfolios in response? Joining us here today to break it all down is Aneta Wynimko. She is portfolio manager of the Fidelity Global Consumer Brands Fund. A warm welcome to you, Aneta, from London, nice to see you.

[00:00:51] Aneta Wynimko: Thank you, nice to see you as well.

[00:00:53] Pamela Ritchie Delighted to have a chance to speak with you. Let's begin by opening up the discussion a little bit about consumers, the preferences that they have had. We'll talk about how that's going to change, probably, or how you think it might change. The consumer's been balancing a number of different things even before we were talking about oil shocks. What's sort of the state of the consumer, would you say, on a global basis?

[00:01:19] Aneta Wynimko: The consumer has had a lot of things thrown at her, at him, over the last few years. As we entered the beginning of the year there were some green shoots emerging. Obviously, our consumer confidence has been depressed for a long time and I think coming into 2026 people were starting to feel a bit better. There were some indicators of a bit more optimistic approach. Then we get another crisis, another global geopolitical situation that is difficult to forecast and difficult to deal with. I think the mighty consumer is still there but is dealing with quite a lot.

[00:02:08] Pamela Ritchie The sector itself, when you take a look at the shares, the stocks within it, what makes up the portfolio, I mean, there's some argument that it's looking like because there were green shoots it's a bit of a bargain. I mean, is that fair? This might be an interesting time to look at it because it has had so much thrown at it in the form of bad news and therefore repricing.

[00:02:32] Aneta Wynimko: Yes, the consumer sectors, the traditional, whether it's staples or discretionary, those sectors are probably the most out of favour sectors when it comes to investor sentiment. Obviously, when you have a situation with lots of uncertainty, with energy prices going the wrong way, consumer is in the middle of the squeeze. The investors are very quick to react and they are very quick to sell those companies because it's, obviously, quite easy to figure out that there is going to be pressure. Those stocks react really fast and they become quite cheap fast with what has happened.

[00:03:17] Pamela Ritchie Yes, that is what happened. In terms of recovery you're looking at global brands, you're looking at a global consumer. There's been discussion in the form of other types of asset classes, areas of the world that are more self-sufficient on an energy front versus others. Does the discussion for the brands and the companies that you look at become very regionalized, necessarily, or not.

[00:03:45] Aneta Wynimko: I think it's quite difficult because, again, the situation is very fluid and can change really quickly. Obviously, companies have strategies in place and I think those that execute well and they use technology and they have local teams in place, they know how to react to this environment, especially that they have dealt with a bit of a similar situation when the invasion of Ukraine started and that also had an impact on commodities and confidence. It's hard to pinpoint regions or segments of the investment universe that really stand out as beneficiaries of the current situation. It's more about how the companies manoeuvre through this environment and to what extent investors have overreacted because this is all about near term threats that, hopefully, will be resolved while their business opportunities are, hopefully, very much long term in nature. Then we need to think about long term earnings when trying to value those companies as opposed to the current quarter estimates which obviously are quite fluid.

[00:05:04] Pamela Ritchie When you go through areas like leisure, where people want to spend in terms of apparel, experiential I think is what we mentioned when we were introducing you. Where is the consumer leaning? If they were less pressured and they were in a position to just go with what they're interested in, what a layer of better technology allows them to buy or sell or get themselves organized for in terms trips and experiences and so on, where is the consumer leaning? Where are these trends taking you?

[00:05:38] Aneta Wynimko: I think the trend towards spending on travel, entertainment, experiential consumption, is quite well established. I think the preference for experiences, maybe this is one of the things that we got out of COVID that really is quite a change in peoples' attitudes to how they live their lives. So maybe less spent on physical products of which I think everyone has plenty, and much more preference for this kind of special time with family, with friends, travel, going out, but also exercising and doing things for yourself, for your body, for your health. I don't really see this changing anytime soon. Obviously, depending on consumer confidence and what they can afford they might slightly adjust their behaviour but I think the preference for spending on leisure is quite well established.

[00:06:41] Pamela Ritchie It's interesting, are certain areas of what you're talking about within perhaps wellness, particularly, more inelastic? If people are investing on, I don't know, their look on some level, whether it's their hair or wherever, you know, those are things that you perhaps wouldn't give up even in sort of a recessionary moment. I mean, there are areas within what you do that would be more or less inelastic. You might cut restaurants but you might stick with others. Can you just talk a little bit within the coverage that you have which areas are quite inelastic.

[00:07:17] Aneta Wynimko: Consumers are very clever and with the tools, the digital devices, they can figure out what best value they can get, how and where, and they are doing that. There are situations where it is quite hard to substitute. For example, one of the companies or trends that has emerged in the recent years is aesthetic treatments where men and women move on from just using facial cream to injectables because those are much more efficient and effective. What we have seen is, obviously, you create patterns of behaviour where something that might be perceived as ... at the beginning it was very much niche, then it was seen as a luxury and only the wealthiest people were able to afford it, to now, for a lot of people, becoming something they have to do because, obviously, their looks will change if they don't keep doing it.

[00:08:30] You have these categories which are emerging, and they are emerging because on one hand the demographics of the society are changing, people are getting older, but then also people do create the images on social media and are very much aware of their looks, while on the other hand the progress in science kind of creates new products, new ways that are maybe safer or maybe much more fast acting. We see these kind of niches of consumption that are emerging, and it is happening pretty fast because people talk about it on social media and the solutions are adopted quite fast. On the other hand...

[00:09:18] Pamela Ritchie I was going to say how easy is it to invest? This is sort of a broad statement, we sort of spa treatments but you could be more niche than that. How easy is it to invest? It seems like a lot of those places would be private or is that wrong, sort of medically private or no?

[00:09:38] Aneta Wynimko: It's not easy to invest because, as I've said, it's a bit of a new kind of consumer behaviour pattern. A lot of spas or places that provide services are private, they are family-owned, or they are sometimes private equity-owned but there are companies which provide the products. It so happens that it is a duopoly. There are just two big providers. It's Galderma and AbbVie. It's a market which is not easy to enter because it is regulated. In my search for investment ideas I do look at consumer behaviour and then I try to identify companies that are quite well positioned to benefit from what's going on.

[00:10:31] Pamela Ritchie Just to sort of round out part of the wellness discussion, the other piece of that seems ... the obvious piece to me anyways is sort of exercise, everything to do with that sort of realm, that is easier to invest? There are big gyms that are public, for instance, but there are also probably trends in there that we don't know about. What other ones are there on sort of the exercise side of wellness, I guess?

[00:10:56] Aneta Wynimko: I was just today talking to a Chinese company and they talked about a marathon. I don't remember in which city.

[00:11:04] Pamela Ritchie You can invest in marathon?

[00:11:07] Aneta Wynimko: You can't. Sadly, you can't. What they've told me is that half a million people signed up but there were only 20,000 spots available. So even to run a marathon is not so easy but sadly, there isn't a way to invest in the public market in that. Obviously, a way to invest in fitness is to buy some of the companies that provide sporting goods. Unfortunately, that play, that space has become very crowded. Nike and Adidas used to dominate this space but they, a few years back, to an extent mis-executed and tried to limit that business to only direct-to-consumer which opened the door of wholesale to other brands. Today in that space we see a lot of companies.

[00:12:00] Contrary to this injectable aesthetics where you need the regulatory approvals and lots of R&D, in sportswear, if you have a good idea, if you come up with a strong product which can be made in China in the same factory where other companies, the big companies are making the product, the entry barrier is not that high. I think it's also very important to think about, okay, there could be an interesting niche and this is where consumers spend their time but how difficult it is to provide products and what's the level of competition.

[00:12:38] Pamela Ritchie Let's sort of bring in AI to introduce the discussion of leisure. AI, obviously, could be applied to, I suppose, any version of any company doing some of the things you mentioned on the wellness front, you know, booking gyms, classes, all that kind of things, and also probably booking appointments if you wanted to have them. The pharmaceuticals, as I understand it, are one of the hugest beneficiaries in terms of research from AI. I might ask you to comment on that in a sec but just to move to leisure, one of the earliest examples of the agentic AI was you can book your trip like that because you just say what you want to do and somehow the airline, the hotel, and everyone else all talk together and you come out with a trip within minutes. Just sort of apply that to what it's meant to the travel leisure industry so far. Is it accretive at this point? Is this something you look at carefully?

[00:13:34] Aneta Wynimko: Yes, of course. Obviously, here the big question that emerged is to what extent AI creates a threat for OTAs, the likes of Booking, Expedia. The way I am looking at AI is it is an intermediary. It's a very clever, very efficient intermediary and it's going to displace a lot of intermediaries that are maybe taking too big a rent in a space where things can be automated. Obviously, we have to look at the two sides of the coin. AI might create more ease and more access in terms of coming up with ideas where to go and what to do but at the same time AI can act as an intermediary and allow consumers to book directly, and maybe at more attractive prices because that rent that was paid to the more traditional intermediary will be lower. There will be still a rent  but it will be lower. This is happening in a lot of sectors and because companies take much longer to adopt new solutions because they need to be sure, there is cybersecurity, there is a lot. Consumer, it's from one click to another, they change their behaviour to what's best and most beneficial to them.

[00:15:02] Pamela Ritchie From a lot of different industries, speaking about AI, it still comes back to a quality company in a lot of ways. I think you and I spoke a little bit about not so much shipping but sort of the cruise industry. Although  you could use AI on a number of different levels to make all kinds of things logistically better you still have to own a cruise ship, you still have to dock it somewhere. There's still sort of a hard asset piece. Does that become quite attractive and have some moats around it to an extent when we're talking about, again, travel and leisure?

[00:15:35] Aneta Wynimko: Yes. Actually, I am trying to find businesses that have those physical moats, businesses that offer more than just being an intermediary, connecting to parties and cruises. Also, hotel companies, it's a good example because they are very close to the asset or they own the asset and they maximize the use of the asset and the yield on the asset. Obviously, here we have to think about the demand, the preference of consumers, as well as the ease of entry of competition. Cruises, very interesting business. I actually have a preference for a company called Viking which dominates the river cruise which is a bit different. It has a no casino, no kids policy so appeals to older--

[00:16:41] Pamela Ritchie Sounds great.

[00:16:42] Aneta Wynimko: --wealthier demographic. It's much more a cultural adventure than it is kind of kids in the swimming pool. There are, as always, different companies, different opportunities, but the aspect of having physical asset that is difficult to replicate is actually quite keen what I'm looking for.

[00:17:04] Pamela Ritchie When you look around the world, tell us a little bit about whether those trends that you've mentioned, you know, wellness, leisure, these are all experiential, as I might point out, are they somewhat the same globally? Is that what a consumer that has some equal amount of money that's disposable in Europe, South America, North America, Asia, would be looking for? Do the trends line up globally?

[00:17:32] Aneta Wynimko: They do. The American consumer is the wealthiest consumer so, obviously, they are the most relevant in terms of the business exposure for a lot of global companies. I see the same behaviour, I see it in Europe but here the consumer is a bit maybe less well off, more under pressure from the macro point of view. I see similar preference in China but, again, the macro situation has been quite challenging for quite a while now so maybe I see the willingness but maybe not enough confidence to actually spend ... the travel to Europe from China has declined quite dramatically. It's not because consumers can't afford, it's because they don't have the confidence to spend a big ticket, long haul journey. I think the preference is there, the ability is the question.

[00:18:28] Pamela Ritchie That's really interesting. Enter the discussion of how the shift from apparel, which you mentioned at the beginning, apparel but other types of goods and things that we wear and perhaps buy for our gardens, things we bought in the pandemic, for instance. It does seem like there is a very long hangover, essentially, from that because we just bought so much at that time. The inventory story was sort of out of whack, it took a while. Is it still that way?

[00:19:02] Aneta Wynimko: I think there's still probably an overhang in terms of what we have in our houses or our wardrobes, but it has been quite a long time. Fashion changes, things break, and there's the natural replacement cycle that is ongoing. Companies need to help, they need to come with more exciting products. I think coming out of COVID there was an element of maybe some people bought too much or they had too much kind of money that was available because the governments became quite generous. I think some of the companies, they got a bit lazy in terms of innovating because maybe business was too easy. Taking pricing became also acceptable because everyone has done it. Only more recently I see a very real and serious effort to speed up innovation, to speed up creativity, and actually get the consumer to open their purses and spend on things that maybe they don't need but maybe they would like.

[00:20:17] Pamela Ritchie Right. That's interesting. Well, I suppose everyone sort of has that inclination to an extent but what about the generations? We often talk to you about demographics and the ideas that stick with a younger generation that may not have the money to buy it but it certainly can be an influence ultimately. What is hot, new, interesting, that perhaps younger consumers want, can't yet afford, but you see coming up through the ranks?

[00:20:48] Aneta Wynimko: The young consumers, there's a bit of a paradox. I think people call that the Gen Z paradox. It's the generation 18 to 28 who, actually, when you look at the consumer confidence by cohort the Gen Z, they have the highest confidence in the situation improving. It is a bit surprising and I'm trying to understand why is that the case. I think it's a very interesting generation because they came kind of of age after COVID and they faced inflation and all sorts of things so it's a very kind of resilient generation. They are not used to Goldilocks. They know things are tough and they have this kind of approach they can make things happen. I think this is how they approach life. The volatility, uncertainty, which I think is more difficult, maybe especially for the millennials which had a good 10 years out of the financial crisis and then things started to go wrong, I think this generation has this approach of kind of finding solutions. They are probably going to be, even though the unemployment rate for the young people is quite high, close to 10% in the US, it's not easy to find jobs, but I think they are the generation that is really able to embrace AI and actually find ways of making money.

[00:22:27] I've been looking, for example, at Roblox, which is the gaming platform. Obviously, there's a lot of criticism because it does attract a lot of kids and the scrutiny of what happens on this platform. Just to show some numbers, last year 3 1/2 million people developed games on this platform, which was a million more than the year before. Something like 70% of those developers are solo developers. To be a developer you need to be more than 13 years old so there's a lot of young kids actually developing games and starting to earn thanks to AI because Roblox give you also the AI assistant and makes making games easy for those kids who are creative, they like doodling, they come up with things. I think maybe that's why the confidence among this generation, contrary to what we would expect, is high and they can see the opportunity, while maybe all the consumers, they see the negatives, they see AI destroying jobs [indecipherable] and all sorts of headlines that have been impacting sentiment.

[00:23:49] Pamela Ritchie That's so interesting just to hear that type of confidence with a new technology sort of at their back pushing them forward, there's a propulsion there. That's fascinating. Are we still going to watch movies? They're all AI-generated now, are we still going to watch? Is Netflix still an interesting ... do you still go to the streamers? Is that still part of our lives, what we want to spend money on in terms of subscriptions and so forth?

[00:24:15] Aneta Wynimko: I think there are some subscriptions that have become so entrenched in our life. Netflix is the long form, is the time on the couch in the evening when one wants to relax and lean back as opposed to leaning forward and looking for things. I think the space for Netflix ... but they need to innovate, they need to keep that position as the most kind of highest quality content that people want to watch when they want to relax. Their biggest competitor today is YouTube with user-generated content. I think there is space for both of them. I like both Netflix and Alphabet and I think they will dominate because they have the capacity, the budgets, and also the ability to use the tools to come up with the best, most interesting content that we have.

[00:25:15] Pamela Ritchie That's so interesting. And very global, I mean, or at least that's been the attempt, it looks like. It brings in people from all over the world, sort of a global experience watching a lot of the things on some of those platforms. I have to ask about food, beverage. There have been times when it's been very interesting to you, other times where it's been just hard to invest. Just a couple of thoughts on sort of food and beverage.

[00:25:41] Aneta Wynimko: I think the overall space of food and beverage is difficult. The inflation of food but also especially in the space of spirits has been very high. Consumer is resisting the price points. Consumer is also very clever because with Walmart, for example, providing fast delivery, now the consumer looks at the price of takeaway and price of food, the food that you can get from Walmart, the ready meals. The market here, the competition is obviously ... technology enables the established entrants to compete with a completely different segment of the market where they were not operating before. The food industry is also very fragmented and as ... especially companies like Nestlé which have very big R&D budgets and a history of coming up with innovation which for the last years maybe has been disappointing but there's new leadership and hopefully they go back to what they've been known for. I think there's need for innovation. We all know that even the fresh food, the organic food, the amount of nutrients that we need and vitamins, it's not there because maybe there isn't enough of nutrients in the soil. I think there's opportunity for innovation but it's not an easy space, especially if there is inflation again in commodities that makes things quite challenging.

[00:27:26] Food, there's like adjacent categories to food, whether it's coffee where I think the consumer very much looks for innovation and for new products. It works really well in the way we live our kind of on-the-go lives. Oh, pet food! I think that's quite an interesting category and, again, a category that has been impacted by COVID because through COVID we saw big adoption, especially of dogs. Unfortunately, many of those dogs have ended then in shelters. What continues, maybe not unsurprisingly, is the adoption of cats. Partially it is driven by TikTok. There is this new phenomenon of a cat dad, men adopting kittens and showing them on TikTok. Here Nestlé is actually the dominant player in that space. They have integrated R&D and manufacturing. The Purina brand is one of the top brands. So when you look at those global companies you really have to almost dismantle what exposure do they give you and what is happening in each of the end markets and is there anything interesting going on that actually might help them even in a challenging environment.

[00:28:55] Pamela Ritchie Netflix needs to come up with a remake of Must Love Dogs, I think. That's great. Just as a final thought, we sort of began talking a bit about the state of the consumer and the idea that this general area could be a bit of a bargain. Just kind of take us back to the investment case for taking a look at the global consumer and. ultimately. the fund.

[00:29:23] Aneta Wynimko: What I try to identify really is the best-in-class, well-managed companies with strong balance sheets, with strong brands, companies that adopt technology and use it both to innovate but also to manage the costs and procurement. This is an ongoing effort. The market today is looking for AI, of semiconductor supply chains. The focus of the market is very much somewhere else so those good businesses, compounders, have been almost put aside and no one is paying any attention. It really is space out of favour. It's a space where ... even looking at the dividend yields, there's a lot of companies that are paying good dividends, still growing, and they've been around for sometimes more than 100 years. AI is not going to displace them. AI will probably allow them to become even better businesses. As always, plenty of opportunities but, obviously, the market is a voting mechanism so there needs to be enough interest for the stocks to go up.

[00:30:40] Pamela Ritchie Very interesting in the sectors that you play and research and invest on behalf of investors. Aneta Wynimko, thank you so much for sharing your thoughts with us and joining us here today.

[00:30:52] Aneta Wynimko: As always, pleasure.

[00:30:54] Pamela Ritchie That's Aneta Wynimko joining us from London. Coming up on the show, we look to next week. Monday, you don't want to miss our conversation with Peter Bowen. He is Vice President of Tax and Retirement Research. The Canada Revenue Agency's announced major reversal of its long-standing position on the GST-HST treatment of mutual fund trailing commissions. To help you understand what is changing and what to do next Peter, on Monday, will break down the implications. This webcast will be presented in English and feature live French, Mandarin, and Cantonese audio interpretation so do join us for that.

[00:31:30] Then to Tuesday, Michael Foggin. He is portfolio manager of the Fidelity Global Bond Fund. He's looking at having sort of a timely look at the key trends shaping the global bond market. We'll insert all of the energy questions that go along with what is fueling, ultimately, that story. We'll be discussing themes influencing the performance factors to watch in the months ahead and where he is seeing opportunities for the fund.

[00:31:54] On Wednesday, Cameron Chamberlain, he's Director of Portfolio Solutions, and Paul Aulicino, Director of Portfolio Strategists. They share what they're hearing from advisors. They are speaking constantly to you and to others and we'll be discussing the trends that they're seeing in portfolios, ultimately where they could be augmented. Cam and Paul are going to share the services and tools that the team provides, including Fidelity Portfolios Intelligence. It's an analytics optimization tool to help advisors align investment portfolios for clients' goals. Portfolio manager, Benjamin Romulus, he'll be joining us first at 10:30 a.m. for a French language webcast on the same topic. Cam and Paul will join me at 11:30 in English. Thanks for joining us. We will see you soon. I'm Pamela Ritchie.