Inside Our Portfolio Backpack—Back-to-School Edition

September 15, 2017 Craig Maddock

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You don’t have to be a med school student or, like me, a parent of school-aged children (three of ’em, actually!) to know this is prime season to dole out dollars.

Given the time I’ve spent in shops lately, I thought we could compare our back-to-school shopping habits, plus look at some of the companies in our portfolios that stock the shelves.

A shopping barometer for back to school sales

Back-to-school sales are a big event for North American retailers, and hype is always predictably high.

Retail sales in general are an important indicator of what’s going on in the economy. Canadians have been on a shopping spree lately: household consumption rose an annualized 4.6% in the second quarter of 2017, a rate not seen since before the global recession of 2008—2009.

While figures reflecting the peak of back-to-school shopping have yet to be reported, a few forecasts expected Canadians to spend generously on school supplies—as much as double as last year, according to an Angus Reid poll commissioned by RetailMeNot Inc., an online promotion site.

It surveyed more than 1,500 adults and found that households planned to spend an average of just over $880 getting kids ready for school this year, compared to $450 last year.

That sounds about right to me: I figure my family spent an average of $300 per kid, between our daughter in grade four, son in grade twelve, and oldest son who just started his first year of university (not including tuition fees, of course).

Oh, where did all that money go?

In my household, the bigger ticket items this season, outside of tuition, included apparel and shoes. As much as we love online retailers, my kids still preferred the in-store experience to compare styles and try on clothes. And, sorry Staples, but actual school supplies were almost incidental—$25 goes a long way on pens and paper.

It turns out my family is pretty close to “on trend,” judging from a few observations in the 2017 Deloitte Back to School Survey of the U.S. retail scene. It reported that:

  • Brick and mortar still prevails, with in-store spending more than twice that of online spending.
  • Market share is shifting away considerably from department stores, towards mass market and off-price venues.
  • Shoppers were expected to allocate 55% of their budget to clothing and accessories—a 10% greater share than last year—and less on supplies, computers and electronics.

In the MD backpack: portfolio holdings that are not too cool for school

Many of our portfolios hold stocks of retail and IT firms well positioned to benefit from parental pocketbooks, but the most opportunity may be in the U.S., where back-to-school sales were expected to reach US$27 billion this year, according to Deloitte.

Our MD American Growth Fund is especially attuned to this retail marketplace, with about 18% of the portfolio invested in companies that depend on consumer discretionary spending—those nice-to-haves when there’s cash available—and consumer staples.

Some familiar names in this Fund—also held in our MDPIM US Equity Pool—include Amazon.com, Nike Inc., TJX Companies (you may know them as Winners and Marshall), Target Corp., Ross Stores, Walmart and Costco, to name a few.

Key holdings in Apple and Microsoft may also benefit from increased spending as kids head back to campus, although technology purchases are more likely to be linked to product launches year-round—the timing of Apple’s recently unveiled iPhone X and 8 can’t be seen as coincidence.  

My number one, most valued investment

It’s nice to imagine that, as an investor, perhaps a few of the dollars I’ve spent getting my kids ready for the classroom may flutter back to me through my portfolio.

But ultimately, as professional and a parent, I know that my investment in a good education will always outperform any stock I’ll ever own.

 

Craig Maddock

CRAIG MADDOCK, CFP, CFA, CIM, MBA, is Vice President with the Investment Management team at MD Financial Management. He leads the team of portfolio managers and investment analysts responsible for managing the firm’s mutual funds and investment pools.

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