10/14/15   Mega Beer

Editor’s Corner

Ron Rowland

I’m not much of a beer drinker these days, but if I was, I would be upset. The reason? It’s the thought of higher prices from AB InBev’s announced takeover of SABMiller. If you are not familiar with these names, AB InBev’s more formal name is Anheuser-Busch InBev NV, the brewer of Budwesier, Michelob, Corona, Stella Artois, Beck’s, and many other well-known brands. In the US, Miller beer has historically been Budweiser’s largest competitor. In addition to Miller, brands from SABMiller PLC include Coors, Hamm’s, Milwaukee’s Best, Molson, Gambrinus, Foster’s, and, of course, many others.

Neither Anheuser-Busch nor Miller are US companies any more. Anheuser-Busch was absorbed by AmBev and Interbrew to form AB InBev, a Belgium company. South African Brewers purchased Miller Brewing in 2002 to become SABMiller, headquartered in London. Yes, the two most widely known brands of beer in the US are now foreign owned.

Once upon a time, such a merger would not have even been contemplated for fear of antitrust pushback from regulators. AB InBev has a 45% share of the US market, and SABMiller controls 25%, for a combined 70% US market share. Global antitrust rules are perhaps more lenient than those of North America, but AB InBev and SABMiller are already looking at what divestitures will be required for regulatory approval. Even after the anticipated divestitures, the combined entity is expected to control 46% of the beer market in the US, 57% in Mexico, and 63% in Brazil.

So yes, I expect higher beer prices are in our future. Both of the current companies are the result of rollups and mergers of many breweries, and their names currently try to reflect five of the previous entities. Hopefully, we will be spared an attempt to merge the names once again, but I’m sad to report that the “Big Beer Company” has already been taken.

Investor Heat Map:10/14/15


The sector rankings are the healthiest they have looked in the past eight weeks. Today, seven of the eleven categories are in the green, which is an increase of four from the last update. Two weeks ago, all sectors were in the red. The three highest-ranked categories have been the same for three weeks now. They are the defensive sectors of Utilities, Real Estate, and Consumer Staples, which implies that investors remain cautious about the recent rally. However, more aggressive sectors are climbing higher and could soon challenge the others for the leadership role. Technology is a prime example, having climbed a notch as it moved from red to green this week. Consumer Discretionary, Industrials, and Energy are the other three making the transition to a positive momentum score. Telecom, Materials, and Financials posted momentum improvements the past week, but they all remain in the red. Health Care sticks out like a sore thumb in this week’s chart. The magnitude of its negative score is more than four times greater than Financials, the sector ranked one notch higher than Health Care.


Mega-Cap is on top for a third week, and it has now edged over into positive territory. The next five categories have also moved into the green, plus there has been some significant changes in their order. Small-Cap Value has been noted the past few weeks as an anomaly because its ranking has tended to separate it from the other Small-Cap categories. This week, the reason for this behavior became clearer, and it is because its Value characteristics are now more important than its capitalization. Indeed, the three Value categories now occupy the second, third, and fourth spots in the style rankings. This is a big change from the predominate pattern that existed for most of the year, and just five weeks ago, where the three Growth categories were in the upper half and Value was relegated to the bottom portion. That has now changed, and Growth is clearly lagging and remains in the red. While the upper half of the rankings are fairly flat, there is a noticeable falloff in the lower portion with Micro-Cap and Small-Cap Growth now trailing far behind.


While various sectors and styles in the US markets have moved into the green, the US and all other major global categories remain in the red. Emerging Markets made a spectacular leap in the rankings as it moved from seventh a week ago all the way to the top today. Gains in China, Latin America, and the emerging nations of Europe all contributed to the rise of Emerging Markets. However, both China and Latin America were so deep in the red and far behind the other categories that their last-place rankings did not change this week. Emerging Europe does not have its own “major” global category at this time, but if you use SPDR S&P Emerging Europe ETF (GUR) as a proxy, it would be ranked higher than the existing categories and solidly in the green, primarily on the recent strength of Russia. Canada was another global category with a huge improvement in the rankings as it jumped from eighth to third. The US slid from first to second, and World Equity was pushed two places lower to fourth. Although there was some shuffling of positions in the middle of the rankings, the scores are now very compressed. That means that relatively small differences in momentum can create dramatic changes in the rankings over the upcoming week. Latin America is the exception, as it lags far behind the rest of the world.

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.


“That’s like a merger of Ford, General Motors, and Chrysler.”

– Ankur Kapoor, antitrust lawyer at Constantine Cannon LLP


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