Luxury goods (a $1.2 trillion market, led by luxury cars and personal luxury goods at 850 trillion) have grown 6% annually over the past 20 years, however, with the pandemic their revenue has decreased by 20%, reaching 2015. returned to level.
Luxury Brands, a megatrend making its way into portfolios
It is expected that the markets of Asia and especially China will grow at an accelerated rate of 8.5% per annum by the year 2025, this is due to the increase in the middle class, which adds only 2 citizens per second. China and India. The middle class is the main consumer and will go from 50% to 80% of the total population by 2030 in India, for example.
Luxury Brands, a megatrend making its way into portfolios
By 2025, half of luxury consumers will be young Chinese, led by generations Z and Y, who will account for more than 50% of the market share. They will redefine the purpose of operations and actors, which should emphasize diversity, inclusion and sustainability. This also Online channel will triple its sales (up to 30% of total luxury sales) and where local business will be strengthened.
Following a -19.5% decline in the MSCI Europe Textile Apparel & Luxury Goods Index (MSCI Lux) index in 2022 (-11.7% for EuroStoxx 50 or -15.06% for MSCI Europe), the sector offers an attractive investment opportunity. , However, one should be careful with the values chosen as the same index is up 31.82% so far this year and is trading at a PER of 30.03x (versus MSCI Europe’s 15.18%). , however over 12 months it is up 25.5% due to earnings growth expectations.
But, now that Asian tourists are traveling again, it is worth taking advantage of the potential to return to pre-pandemic levels. Also, the recovery of tourism, which was 40% of the market at the end of December, was only 18% because of Covid-19 fears. But there are expectations that it will gradually recover to 33% in the next 5 years.
So you still have a way to go! Is your portfolio ready?
If we want to invest in companies in the luxury sector, we can buy shares of any leading company in the stock market. But we can invest in these companies in a more diversified and efficient way indirectly, by investing in funds and ETFs that track an index, whether it’s the MSCI or the S&P Global Luxury Index, which is the largest Composed of 80 listed companies. Listed on the stock exchange and which are involved in the production or distribution of luxury goods or the provision of luxury services that meet specific marketing needs.
As we’ll see below, there are some options that stand out not only for their profitability, but also for their expenses and volatility:
Luxury Brands, a megatrend making its way into portfolios
There are two ETFs ranked first for profitability in 2023, one from Invesco and the other from BlackRock, with very similar volatility between them, though one from Invesco stands out over the long term, which also has lower current expenses. On the other hand, Amundi ETF ranks last on the basis of year to year return, though it shows some consistency in returns over both 3 year annualized and 5 year, with much lower volatility and higher Sharpe (return on investment) than the previous ones. synonymous with better returns relative to the amount of risk being taken), and slightly higher expenses than the Invesco ETF.
On the other hand, among the actively managed funds that deserve our attention are the Pictet Premium Brands and the Franck Muller Luxury Fund, the two strategies with one of the highest Sharpe ratios by risk level. Furthermore, Pictet is a house that is characterized by the age of its thematic funds, in this case, this fund was launched in 2005 and has assets of approximately €2,400 million. For its part, Frank Müller’s fund is much smaller -82 million euros- and is 8 years old. Both funds have a clear growth style, although the second invests in companies with smaller market capitalizations.
The key differences in the portfolios of both the funds are evident:
- Pictet’s fund has exposure to the financial sector, while Frank Muller does not.
- Franck Muller has a high risk towards Defensive Consumption.
- While Pictet’s 10 largest positions represent 44% of assets, Mueller’s 10 largest positions represent 52%. In a first, it featured 3 hotels in its top 10, as well as two financial companies (Visa and American Express).
- Among the 10 largest that repeated in both funds: Compagnie Financier Richemont, L’Oréal, LVMH and Ferrari.
Luxury Brands, a megatrend making its way into portfolios
