Smart Homes Diminish Cost of Living Crisis

Times of high inflation drive change, and today’s rampant price rises are pushing people to spend more leisure time in the smart home.

It’s well known that a rising cost of living has historically been a powerful driver of change. Political upheavals from the French Revolution to the Arab Spring have been rooted in times of high inflation. And in today’s Europe, almost a third (32%) of voters cast their ballots for anti-establishment parties last year, according to research from the Guardian¹.

On a more personal level, people are delaying life choices such as buying a home or raising a family. In a recent survey in the United Kingdom, for example, nearly 60% of respondents cited the high cost of living as the key reason to delay or not have children at all.

Change is certainly afoot, as people cut spending. They are changing their habits partly through smart home solutions, as we reported in our December 2022 blog.

Spending More Time at Home

Instead of eating out or ordering in, for instance, people are preparing more restaurant-style meals at home to save money. Smart home options like meal kit delivery service HelloFresh (a current portfolio company), recipe apps or streamed cooking content make it easier.

Moreover, meal kits can actually beat grocery shopping in terms of pricing and waste – you only get what you need for a recipe. And they take the hassle out of meal planning and grocery shopping, helping to explain why HelloFresh’s order value continues to grow.

People are also going out less often, preferring to watch films at home, play games or listen to music. VanEck Smart Home UCITS ETF (CAVE) tracks this trend with investments in gaming stocks like Electronic Arts, Sony and Nintendo. With an implied cost per hour of $0.49, video games are less expensive than movie theaters ($5 per hour), theme parks ($12.50 per hour), sports events ($16.67 per hour) or concerts ($33.33 per hour)².

CAVE also invests in other forms of entertainment. Meticulous in its investment selection, the CAVE team prefers music publishers like Universal Music Group to streaming services, because the publishers capture more upside than the streaming platforms.

With video, yet another dynamic is at work. Whereas gaming and music both provide hours of (repeated) entertainment, people typically watch video content only once. This raises the risk of churn as subscribers binge their favorite shows and then unsubscribe. To tackle this problem, streaming services are tailoring pricing to different customer segments (e.g. adding an ad-based tier) or use bundles (for instance with distributors) to lock-in consumers (see also this blog).

CAVE does invest in streaming video, but here we prefer the pure-play company Netflix. As its recent earnings report showed³, the company grew subscribers in every region as its efforts to limit password sharing took shape. Moreover, it has neither a declining legacy TV business nor challenging debt levels to manage. In addition, it launched a lower-cost, ad-supported plan, attracting more cost-conscious consumers and opening a new potential revenue stream.

A Smart Home ETF may be subject to the risk that economic, political or other conditions that have a negative effect on the relevant sectors or industries will negatively impact the Fund's performance to a greater extent than if its assets were invested in a wider variety of sectors or industries.

New Habits That Last

Some of the emerging habits and cost cuts described in this blog are likely to stick. By doing more at home, and making full use of the technology inside it, we can become more resilient to deal with the cost of living.