Hermes warns on ‘bond proxy’ ‘stocks

Fund manager Hermes has warned investors that share prices of some consumer stocks, such as supermarkets, could be hit in 2015 by price competition.

Tim Crockford, portfolio manager at Hermes Sourcecap, said that weak aggregate demand was making price competition more important as a way of winning growth for supermarkets and others. In addition, the food retail sector has been affected by price deflation partly due to lower commodity prices. Crockford commented that the mega cap stocks, such as Unilever and Nestle, have so far avoided pain, but this may well change. Both companies have seen negative pricing in Europe in recent quarters, prompting Crockford to say: “One of the tricks food-producing companies have been using to hide inflation is the old game of reducing the amount of product sold in each package, while keeping the same price. However, there is a natural limit to how far this tactic can be pushed.”

Crockford concluded: “Liked by many investors for ‘bond proxy’ qualities – stable growth and a reasonable dividend yield – we worry these safe-haven stocks could present shareholders with nasty surprises during 2015.”