Treat yourself to a piece of luxury
Louis Vuitton and Gucci will add sparkle to your portfolio
This has been a year for developing a taste for luxury. The affluent, who amassed savings in lockdown, treated themselves to handbags and watches, in a trend dubbed ‘revenge spending’.
Even investors immune to the allure of the highly-priced products of hermes, Kering, LVMh, Moncler, Richemont and the rest have found their shares irresistible.
These businesses – considered by some to be Europe’s equivalent to the Us tech giants – rebounded more swiftly than expected.
Consumers have been seeking ‘to return to the lives they knew, but also to shun fast fashion in favour of something more considered, less disposable’, says swetha Ramachandran, manager at asset manager GAM’s Luxury Brands fund.
As a result, the global luxury goods market is worth €283bn (£237bn) and is forecast to grow to €360-€380bn by 2025 when younger customers should make up 70pc of the clientele, according to the consultancy Bain & Company.
As Ramachandran explains, Gen Y and Gen Z view luxury goods as an ‘asset class’, checking the resale values of watches on sites like Chrono 24.
Even if you can live without a £2,250 Tag heuer Carrera watch from LVMh, or a £1,500 Jackie bag from Gucci, one of the Kering houses, it seems like a good moment to take an objective look at these companies’ shares, especially as 2022 is predicted to be a period of ‘revenge conviviality’ when, Covid-variants permitting, the enjoyment of all sybaritic experiences, such as five-star hotels, returns in force.
Like me, you may already have a stake in the sector if you hold Fundsmith Equity which owns holds LVMh, or scottish Mortgage where Kering is part of the portfolio.
stephen Yiu, manager of Blue Whale Equity has also opted for Kering, which encompasses Bottega Veneta, Balenciaga and Gucci. The latter is in the spotlight as the brand at the centre of Ridley scott’s latest film, house Of Gucci.
since January, shares in hermes are up by 80pc, while Richemont, owner of Montblanc and Van Cleef & Arpels, has leapt by 75pc. The mighty LVMh, whose brands include Dior, Louis Vuitton and Moet hennessy, has risen by 40pc.
LVMh’s revival highlights the sector’s pivot to appeal to a new generation of shoppers. The new faces of Tiffany, the legendary jeweller acquired by LVMh in July, are Beyonce and Jay-Z, and Us Open champion Emma Raducanu, tennis’s new star.
Observers of such things will note that Jay-Z’s favourite watch is the Jaeger-LeCoultre – a Richemont brand available at Goldsmiths and the other stores of Watches of switzerland, a UK luxury goods company. its shares have jumped by 143pc this year, thanks to demand for costly timepieces which are in scarce supply.
Can this progress be sustained? Or could Beijing spoil the party?
ChinEsE shoppers, who love a label, may have stayed away from Bond street, but they are buying at home. The ranks of the Chinese middle class are forecast to double to 800m by 2030, boosting the clamour for high-end merchandise. But the ability of China’s nouveaux riche to flaunt their fancy stuff could be threatened by a newer policy, a wealth redistribution drive for ‘common prosperity’.
Yiu says this shift is a cause for concern, but that it is difficult to tell whether it will still be a focus in five years’ time. some believe that Burberry, with its understated aesthetic, could be a beneficiary of a clampdown on bling. This company is one of the largest holdings of the Lindsell Train UK Equity fund, which also holds shares in Daily Mail and General Trust.
Ramachandran argues that the ability of luxury goods businesses to adapt should help them cope with a changed climate in China.
The recent transformation of the sector’s online operations is proof of this flexibility.
in June 2020, this column reported on Moncler boss Remo Ruffini’s remarks that luxury brands ‘had to reframe the new normal’. Most have met these challenges, while cutting costs to boost their profit margins.
The aura that surrounds luxury goods, the result of skilled marketing, can alter the perception of the companies behind these beautiful things. Bain argues that luxury brands are transforming from makers of products to ‘purposedriven’ operators helping move towards ‘a more sustainable, diverse and equal society.’
This would seem to exaggerate their role, but luxury goods shares, held either individually or through a fund like the Amundi ETF (exchange traded fund) can play a part in a balanced portfolio. For me it’s worth betting on people wanting to indulge themselves after a tough time – and having the cash to give in to temptation.