Investing in Luxury

So, if you are comfortable with this list of top 10 holdings, this ETF might be suitable for you. If you are not comfortable with this list, another approach could be to create your own selection of stocks that can be considered luxury stocks. Why? Because diversifying within the luxury theme will reduce your risk. Below you will find some stocks (and some of the sub-brands part of them) for inspiration.

• Hermes Hermes
• LVMH Louis Vuitton, Moët & Chandon and Givenchy
• Tapestry Jimmy Choo, Versace, and Michael Kors
• Burberry Burberry sub-brands
• Compagnie Financiere de Richemont Cartier, Montblanc and Piaget
• Moncler Stone Island and Moncler
• Ferrari Ferrari
• Prada Prada, Miu Miu and Church’s
• Porsche Porsche

Performance

In spite of the air around luxury products of wealth, success and high end quality, this is not the case for all the investments made in this theme. If you would look to the five year performance of the names mentioned above it is not all glitter and glamor.

To get some context of how prices have developed over the last 5 years (prices 14^th November 2023):

1. Nasdaq 100 (QQQ)+ 127%
2. Amundi S&P Global Luxury UCITS ETF+ 69%
3. S&P 500 index(SPY)+ 61%

The clear winners within the luxury theme over the last 5 years were:

1. Hermes+ 282%
2. Ferrari+ 231%
3. LVMH+ 161%

On the downside the five year performance was negative for:

1. Tapestry- 30%
2. Porsche - 22%
3. Burberry- 5%

In short, the luxury theme (ETF) has outperformed the S&P 500 index over the last 5 years but fell short in comparison to the Technology-index Nasdaq 100. The performance in individual luxury shares ranged from -30% to + 277% and this emphasis the importance of selecting the right stock.

Current valuation

In the table below you find some ratios about the current valuation. Remarkable is that the winners of the last 5 years have – if we believe the consensus among analysts – have the smallest upside potential (last column). Also from a P/E perspective they seem to be expensive (P/E close to 50). This raises the one million dollar question if these companies will be able to maintain their performance of the last five years. Looking at the essence of luxury goods – scarce und ultra-high quality – they seem to be in the right place but valuations appear to be stretched for these two brands.

In practice

If you are considering to invest in the theme “Luxury Goods” there are some guidelines to take into account:

• Make sure that you diversify enough; either through the ETF or via several luxury companies
• Invest in established luxury brands with heritage and history;
• Look for luxury brands that invest in innovation to stay relevant while maintaining their aura of exclusivity;
• Luxury brands are able to command premium pricing, which can lead to higher profit margins. However, be wary of brands that expand too quickly or dilute their exclusivity;
• Consider luxury brand companies that influence culture and have loyal customer bases, as this can indicate pricing power and resilient demand;
• Factor in that the luxury market tends to be more resilient in economic downturns, as their affluent customer base is less impacted;
  

Conclusion