Published by Harvest ETFs
(Managed by Harvest Portfolios Group Inc.)
At the end of April 2020, when McDonald’s Corp. reopened a restaurant for take-out in a Paris suburb, lineups started early and snaked down the street until closing. Patrons waited three hours or more to be served.
When Walt Disney Co. reopened its theme park in Shanghai in May 2020, tickets were sold out online within minutes of being made available.
Some of this was pent-up demand after the first pandemic wave. But it also shows how much we crave the comfort of normal routines and familiar products, which is one of the powerful attractions of multinational brands. They are a reassuring purchase, whether it’s a Big Mac and fries, or a photo with Mickey Mouse.
Both Disney and McDonald’s are components of the Harvest Brand Leaders Plus Income ETF (TSX: HBF). They are examples of why global brands are a solid value proposition for investors. They appeal in any language and culture with a name that is easily recognizable and is their brand. They have large cash reserves and strong balance sheets which enable them to withstand shocks and give them time to adapt to changing conditions.
McDonald is the world’s largest fast-food company with 337,000 restaurants in 120 countries. A quarter of all its stores were forced to close in the spring. As lockdowns eased, McDonald’s looked at ways to leverage its strengths. It slimmed down its menu, added a meatless option and also ramped up online ordering and pick-up. It speeded up the drive-through experience reinforcing its image as a fast, reliable, and satisfying choice.
Disney also took the full force of the pandemic. The entertainment conglomerate was founded in 1923 and is a top 20 global brand. Its programming is synonymous with family-friendly animated and live action fare, with theme parks accounting for about a third of revenues. The pandemic shut the parks this spring, idled its cruise ships and left its hotels mostly empty. Disney’s film studios have been unable to screen many movies.
Like McDonald’s, Disney has played to its strengths. It redefined the way it interacts with customers and has used the stay-at-home trends as a springboard to showcase its unrivalled film and TV library. Disney has expanded its streaming services which now have 137 million subscribers, including Disney+, Hulu, and ESPN+. Disney+ which was launched a year ago accounts for an impressive 57.5 million subscribers.
Disney’s shares have hit new highs as investors look beyond the pandemic to the reopening of theatres and theme parks. Barron’s magazine recently called Disney’s pandemic shift a case study in leadership and strategic thinking. Despite eliminating its dividend to save cash, Disney’s shares ended 2020 with a 25.3% gain.
McDonald’s also rebounded in the third and fourth quarters and increased its dividend 3.2%, keeping a 44-year streak of increases intact. The shares closed the year 8.9 % higher.
There are other examples of brand power among the companies in the Harvest Brand Leaders Plus Income ETF. JP Morgan acquired cxLoyalty Group in December. It bought the credit card rewards company on the expectation that travel will rebound in 2021. Nike Inc. moved quickly in the spring to expand e-commerce sales as the pandemic closed bricks and mortar retail outlets. This helped the sneaker giant raise digital revenue 84% in its latest quarter. It also helped fuel overall sales gains and higher profits than the same year-ago period.
The Harvest Brand Leaders Plus Income ETF is an equally weighted portfolio of 20 companies selected from the world’s Top Brands. It is designed to provide a consistent monthly income with an opportunity for growth.
Those 20 brands must generate a five-year return on equity growth that is higher than the average in the initial ~65-name cut, have a price-earnings multiple that is lower than the average, and a dividend yield that is higher than the average.
Harvest applies its covered call strategy in order to generate enhanced income.
For more on Harvest ETF products click here.