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Behold the Lipstick Effect

In difficult times, people indulge in discretionary purchases that provide an emotional uplift without breaking the bank. This is known as ‘The Lipstick Effect’ and it has a run-on effect on stocks.

Insync Funds Management (Insync) CIO, Monik Kotecha, says while current focus on the macroeconomic landscape means most stocks are being tarred with the one brush, and are therefore taking a hit regardless of their results, a few are benefiting from The Lipstick Effect.

“Two examples of highly profitable companies in our portfolio benefitting from the Lipstick Effect are Lululemon and Ulta Beauty,” he said. “In their recent quarterly earnings updates, Lululemon reported a 29% revenue increase and a 30% increase in EPS - earnings per share. Ulta Beauty reported a 17% increase in revenues and a 25% increase in EPS.”

Mr Kotecha said long-term growth rates are what it’s all about.

“Whilst an economic slowdown may temporarily reduce the growth trajectories of high-quality companies, their long-term growth rates tend to be more assured,” he said.

We invest in highly profitable companies with long runways of growth that are backed up by megatrends. With this, comes the higher confidence around longer-term earnings growth rates, irrespective of macro-economic conditions.

Equity Trustees Limited (“EQT”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.
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