The Rapid Growth in Global Wealth

Global wealth creation has been a burgeoning trend over the past two decades. Enormous amounts of wealth have been created, with emerging economies such as China and India not only participating but driving the bulk of global wealth creation. While this secular trend is deep in its evolution, the COVID-19 pandemic shed some particularly fascinating light on household wealth. In fact, over $29 trillion was added to global wealth in the calendar year 2020–that is roughly 7% growth in a year when the global economy was in tatters. What’s even more fascinating is that wealth grew the most in countries that were hardest hit by the pandemic.

In hindsight, the reasons are quite clear. Governments globally took preemptive action–they pumped money into economies, both directly to people and businesses and indirectly through quantitative easing. Individuals had far fewer ways to spend money during lockdowns and as a result drove household savings higher. At the same time, asset prices boomed. Real estate prices climbed sharply while stock markets advanced 20% in the US, nearly 9% in non-US markets and more than 17% in emerging markets in 2020. For the first time ever, 1% of the world’s population reached millionaire status coming out of one of the worst pandemics we’ve seen in nearly a century.

The implications of continued global wealth creation are significant for consumer spending. Trends that have been on the rise such as premiumization continue to gain momentum. While premiumization sounds like a fancy word, it simply means consumers are trading up on the consumption ladder for higher-quality, more luxurious items. For instance, consumers today might favor fancy cocktails or a high-end single malt Scotch–something that looks more impressive on an Instagram feed–over a six-pack of inexpensive beer.

Nearly every company we own in the consumer space is benefiting from this trend. Of course, the premium luxury players such as LVMH and Richemont can capitalize on consumer preferences for higher-end brands. LVMH owns 75 luxury brands across multiple markets including wine and spirits, fashion and leather goods, watches and jewelry, and perfumes and cosmetics. Richemont, which owns Cartier and other high-end jewelry brands, recently reported strong earnings, with sales up over 20% from even pre-pandemic levels.

We’re also seeing a shift toward high-quality in the basic consumer goods space. Household and food products companies like Nestlé are experiencing strong growth in their premium brands, such as Nespresso coffee and Purina pet foods. Unilever, another global consumer products company, is seeing robust growth in its high-end beauty products.

Diageo, the British spirits and beer company, is another good example. Diageo has been investing aggressively in higher-end spirits over the past few years and has seen those investments pay off. In fact, 54% of the company’s net sales are generated from premium-plus products. Take tequila for example–a drink that has evolved as individuals have upgraded their lifestyles. Back in my day, tequila was cheap rocket fuel that young adults consumed during spring break. Today, tequila has become a high-end sipping drink, much like a well-aged scotch or bourbon. In 2017, Diageo paid roughly $1 billion dollars to acquire Casamigos, the tequila brand founded by George Clooney. Casamigos experienced organic net sales growth of 80% in FY2020 and 125% in FY2021. With the addition of Don Julio tequila in 2015 and Casamigos in 2017, Diageo has become one of the biggest players in the premium tequila market.

While global economies continue to face ongoing pandemic headwinds, global wealth creation is still on the rise as consumers’ demand for higher quality and luxury products persist. As investors in good companies that are selling at a discount to our estimate of intrinsic value, we believe we have identified several strong businesses that stand to benefit from wealth creation across the globe.