Luxury Brands That Bring Bling To Your Portfolio

Blame it on globalisation, Instagram culture or the rise of the super-wealthy, but the draw of luxury brands remains powerful, even in supposedly austere times.

Last week LVMH, the owner of labels such as Louis Vuitton, Christian Dior and Hennessy cognac, surprised investors with a bumper set of financial results. “This was simply the strongest first-half performance in recent memory,” says Rogerio Fujimori, the equity research analyst at Royal Bank of Canada. “These numbers confirm that LVMH and flagship brand Louis Vuitton in particular are a market-share winner.”

The share prices of luxury companies have been outstripping other sectors. Shares in Europe’s luxury goods companies — the MSCI Europe Textiles, Apparel and Luxury Goods index — have made a total return of 72 per cent in the past two years. That’s 45 per cent ahead of the total return from the FTSE 100 and 25 per cent ahead of the S&P 500 over the same period.

Classic, iconic brands such as Gucci have invested a lot in rejuvenating themselves
Classic, iconic brands such as Gucci have invested a lot in rejuvenating themselves
“People think luxu

 

ry is a ‘girly’ thing, but it is not,” says Scilla Huang Sun, the manager of the GAM Luxury Brands fund. “If you look at how men are dressing today compared with 30 years ago, they are a lot more conscious of their looks. Men spend a lot on luxury, particularly cars and watches, which are one of the few pieces of jewellery they can wear. They may spend less on formal wear than women, but they can spend a lot on weekend wear.”

 

Companies such as BMW or Kering, the owner of Gucci, offer investors the chance to capitalise on this trend for male status symbols. Included in the luxury sector are premium brands such as Nike, Adidas and L’Oréal, makers of products that command a higher price because of their name. These brands are particularly coveted by younger people whose budgets don’t stretch to a £2,000 handbag. “These are affordable luxuries. Look at the selfie generation, they spend a lot on cosmetics,” Ms Huang says.

Ben Yearsley, the director of Shore Financial Planning, an adviser, says there are up to 150 brands that fall into this category, including Disney and Apple. The best brands command loyalty and are loved as much for their quality as the status they bring.

Moncler is one name that has been very popular recently, says Ann Steele, the senior portfolio manager at Columbia Threadneedle Investments. The Milan-based company makes luxury quilted jackets that are said to be lighter and warmer than other brands, and listed on the stock market in 2013. Shares were 27 times oversubscribed and Moncler was valued at more than $3 billion. Since then the share price has risen by 70 per cent.

 

Given the performance, why would someone want to own these shares now? “Moncler is the fastest-growing luxury company that Europe has right now,” Ms Steele says. “Since the initial public offering, the company has broadened into knitwear and shoes.” It has also expanded with a branch in Australia.

The luxury industry is prone to cycles, in which some companies come into favour and others struggle. This can often be down to business issues

 

 and management problems as much as the vagaries of fashion. “What we are seeing is a nice comeback of classic, iconic brands that have invested a lot in rejuvenating themselves and launching new products,” says Ms Huang, highlighting Gucci.

Ms Steele believes that high-end labels Tod’s, Salvatore Ferragamo and Prada are brands in need of new ideas.

Richemont, which owns the watchmaker Piaget, is thriving
Richemont, which owns the watchmaker Piaget, is thriving
“They have been losers in this financial year. The mid-range Italian designers have suffered from not refreshing their ranges and not having active company management,” she says, adding that Tod’s, which is known for luxury leather goods and shoes, has lost its way. “Tod’s products are not what people require today. The products are good quality, but they have not really brought out anything new.”

One way of mitigating the risk of investing in a brand that becomes unfashionable is to buy shares in parent companies that own several brands. Richemont, for example, owns Cartier, Piaget, Montblanc and Panerai, while L’Oréal owns a range of mid-price and more expensive cosmetic names including Kiehl’s, Lancôme and Shu Uemura.

“Estée Lauder owns Jo Malone, a brand which has been around a long time in the UK, but has finally become big overseas and is doing well globally,” Ms Huang says.

There is a smattering of dedicated luxury and premium brands funds available. Mr Yearsley highlights Pictet Premium Brands and the GAM Luxury Brands funds.

Economic downturns affect higher-end luxury goods more than mid-range — people are less likely to splash out on a Mulberry bag, but do tend to indulge in little luxuries, such as perfumes and cosmetics, during recessions.

Premium brands also have the power to raise prices, something that low-cost brands find hard to do. This makes luxury companies more resistant to inflation and cost increases.

Among the biggest buyers of designer brands are the growing wealthy classes in Asia, Africa and Latin America, where status symbols are particularly sought-after, so shares in luxury companies can be affected by events in these regions. In 2013 for example, the Chinese government cracked down on the culture of lavish gift giving among the business community and political elite. Slumps in the Russian rouble and Brazilian real in recent years have also hindered sales, because these countries are important markets.

“Buying into luxury and premium brands is a way of tapping into the burgeoning middle class in developing countries. This is a long-term buy-and-hold investment,” Mr Yearsley says.

The jewels in your crown

Jewellery companies have been through a rosy phase as economies in the US and Europe have been doing well, and shoppers have been more willing to spend on high-value items.

Pandora has been one of the most popular investments. The Danish company is known for its silver charm bracelets and collaborates with Disney for special ranges. It has expanded internationally and the shares have grown rapidly, up over 500 per cent in the last five years. They have fallen this year.

Feature Editor

Dolce Vita Diamond, Editorial Team

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