While the consumer defensive space is far from trading at a bargain-basement valuation, we contend that pockets of value remain. Overall, the sector appears slightly overvalued, at a median price/fair value of 1.04, but we note that the fundamentals for this group tend to outperform during cyclical downturns because of the competitive edge these firms have amassed (as evidenced by the fact that approximately two thirds of them maintain a narrow or wide economic moat). As such, we recommend that investors looking to gain exposure to the space consider companies with established economic moats, or sustainable competitive advantage—those operating with structural supply chain and distribution advantages, economies of scale, sufficient resources to extend brand reach, and pricing power to withstand softness in volume growth.
Growth prospects remain bleak in mature, developed markets, highlighting the appeal of emerging regions for consumer product firms. We believe consumer staples companies with established economic moats can leverage their existing supply chain and distribution assets (to an extent) relative to smaller emerging-markets peers, have easier access to cheaper capital, can foster brand awareness and loyalty across multiple pricing tiers, and typically utilise sensible go-to-market strategies.
For investors looking for consumer staples names less reliant on a single economy that can withstand the economic shock from any particular region, 
Coca-Cola (KO), Diageo (DGE), Unilever (ULVR) and Philip Morris International (PM) may be attractive. With geographic diversification, there is a trade-off in reduced exposure to regions with faster-growing populations and higher disposable income potential that names like Marico, Wuliangye Yibin and ITC offer. But Yum Brands (YUM), SABMiller (SAB) and United Breweries (CCU) offer both growth and diversification, as they've sufficiently broadened their geographic exposure while also establishing more concentrated positions in markets like China, Africa and Latin America, respectively.
Consumer product firms and retailers have long maintained an interdependent relationship, as retailers need brands to drive store traffic and brands need avenues for distribution. But retail industry consolidation has shifted some power away from consumer product firms over the past several years, and consolidation appears likely to persist.
Rivalry remains very high in the UK supermarket sector, as the resurgence of discounters Aldi and Lidl, as well as the emergence of high-end Waitrose stores, has left Tesco (TSCO) (and other traditional supermarket firms) stuck in the middle battling for share. We still think Tesco will remain a dominant player in the UK market and believe the shares are undervalued. However, Tesco shares are only suitable to investors who have long investment horizons and high risk tolerance.
