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Should You Tap Luxury Goods ETFs Amid Economic Slowdown?
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Global luxury corporations typically possess robust pricing influence, impressive profitability metrics, and formidable entry barriers, thus presenting potential for sustained growth to investors. The luxury sector has demonstrated resilience during economic downturns and periods of inflation, thanks to its enduring brand prestige and steadfast customer bases.
Luxury brands normally have a loyal high-end customer base and hence can generate strong free cash flows. During economic slowdown and recession, this financial strength can be advantageous. It allows luxury companies to invest in marketing, innovation, and expansion when others may be cutting back. It also provides a buffer to navigate through challenging times.
The current global economic backdrop is stressful due to high inflation and higher interest rates. As a result, tapping such a category might turn out to be fruitful for investors.
Inside Industry Growth
According to Bain & Company, as cited by KraneShares, the global luxury market is anticipated to expand to a range of $570-615 billion by 2030, surpassing its 2020 size by more than double. McKinsey predicts that China's burgeoning upper/high-income middle class will increase by over 71 million individuals by 2025, which is a plus for the global luxury sector, as quoted on Kraneshares.com.
Global luxury brands have embraced E-Commerce and digital marketing, broadening their customer base from 400 million in 2022 to an expected 500 million by 2030, per Bain and Company, noted by KraneShares.
Following the pandemic, international travel saw a resurgence in 2022, with international tourist arrivals more than doubling compared to 2020. Duty-free shopping has become an attractive option for customers seeking luxury goods, particularly at airports, which have evolved into prime locations for luxury shopping.
Tourists flock to cities like Paris, Milan, and Dubai, renowned for their luxury shopping experiences, where they spend significantly on upscale items. The rising number of outbound tourists is expected to further boost luxury shopping in duty-free destinations.
Against this backdrop, below we highlight three pure-play luxury ETFs for investors. All these ETFs are newly-launched.
The underlying S&P Global Luxury Index comprises of 80 publicly-traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific invertibility requirements. The 80-stock fund charges 45 bps in fees (read: Roundhill Launches Global Luxury Goods ETF).
LUXX is largely concentrated on the apparel, accessories & luxury industry with a 38.4% share, while automobile manufacturers, and hotels, resorts & cruise lines make up for a double-digit share each. The fund gives exposure to companies across Europe, Asia and North America.
Key holdings in Hermes International (8.3% weight), Richemont (7.31%) and LVMH Moet Hennessy (7.18%). Other firms hold less than 5.3% share.
KraneShares Global Luxury Index ETF (KLXY)
KLXY provides exposure to leading developed markets (outside the United States) companies from global luxury-related sectors weighted by market capitalization. These companies operate across industries, including leather goods, jewelry, accessories, skincare, cosmetics, beverages, travel, and supercar businesses.
The fund holds 40.66% in the form of cash. LVMH MOET HENNE (9.02%), Diageo (8.7%) and L'oreal (8.21%) are the top three stocks of the fund. The fund charges 69 bps in fees.
It is an actively managed fund investing in companies operating in the luxury industry. The universe of luxury spans fashion items, accessories, automobiles, hospitality and beauty. Net expense ratio of the fund is 75 bps in fees.
France (30%), U.S. (13.1%) and Italy (13%) are the top three country breakdown of the fund. Cash (20.5%) has a considerable weight in the fund. LVMH Moet Hennessy (8.9%), L'Oreal (8.6%) and Hermes International (8.6%) are the top three stock holdings of the fund. Total number of holdings is 30.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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Should You Tap Luxury Goods ETFs Amid Economic Slowdown?
Global luxury corporations typically possess robust pricing influence, impressive profitability metrics, and formidable entry barriers, thus presenting potential for sustained growth to investors. The luxury sector has demonstrated resilience during economic downturns and periods of inflation, thanks to its enduring brand prestige and steadfast customer bases.
Luxury brands normally have a loyal high-end customer base and hence can generate strong free cash flows. During economic slowdown and recession, this financial strength can be advantageous. It allows luxury companies to invest in marketing, innovation, and expansion when others may be cutting back. It also provides a buffer to navigate through challenging times.
The current global economic backdrop is stressful due to high inflation and higher interest rates. As a result, tapping such a category might turn out to be fruitful for investors.
Inside Industry Growth
According to Bain & Company, as cited by KraneShares, the global luxury market is anticipated to expand to a range of $570-615 billion by 2030, surpassing its 2020 size by more than double. McKinsey predicts that China's burgeoning upper/high-income middle class will increase by over 71 million individuals by 2025, which is a plus for the global luxury sector, as quoted on Kraneshares.com.
Global luxury brands have embraced E-Commerce and digital marketing, broadening their customer base from 400 million in 2022 to an expected 500 million by 2030, per Bain and Company, noted by KraneShares.
Following the pandemic, international travel saw a resurgence in 2022, with international tourist arrivals more than doubling compared to 2020. Duty-free shopping has become an attractive option for customers seeking luxury goods, particularly at airports, which have evolved into prime locations for luxury shopping.
Tourists flock to cities like Paris, Milan, and Dubai, renowned for their luxury shopping experiences, where they spend significantly on upscale items. The rising number of outbound tourists is expected to further boost luxury shopping in duty-free destinations.
Against this backdrop, below we highlight three pure-play luxury ETFs for investors. All these ETFs are newly-launched.
ETFs in Focus
Roundhill S&P Global Luxury ETF (LUXX - Free Report)
The underlying S&P Global Luxury Index comprises of 80 publicly-traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific invertibility requirements. The 80-stock fund charges 45 bps in fees (read: Roundhill Launches Global Luxury Goods ETF).
LUXX is largely concentrated on the apparel, accessories & luxury industry with a 38.4% share, while automobile manufacturers, and hotels, resorts & cruise lines make up for a double-digit share each. The fund gives exposure to companies across Europe, Asia and North America.
Key holdings in Hermes International (8.3% weight), Richemont (7.31%) and LVMH Moet Hennessy (7.18%). Other firms hold less than 5.3% share.
KraneShares Global Luxury Index ETF (KLXY)
KLXY provides exposure to leading developed markets (outside the United States) companies from global luxury-related sectors weighted by market capitalization. These companies operate across industries, including leather goods, jewelry, accessories, skincare, cosmetics, beverages, travel, and supercar businesses.
The fund holds 40.66% in the form of cash. LVMH MOET HENNE (9.02%), Diageo (8.7%) and L'oreal (8.21%) are the top three stocks of the fund. The fund charges 69 bps in fees.
Tema Luxury ETF (LUX - Free Report)
It is an actively managed fund investing in companies operating in the luxury industry. The universe of luxury spans fashion items, accessories, automobiles, hospitality and beauty. Net expense ratio of the fund is 75 bps in fees.
France (30%), U.S. (13.1%) and Italy (13%) are the top three country breakdown of the fund. Cash (20.5%) has a considerable weight in the fund. LVMH Moet Hennessy (8.9%), L'Oreal (8.6%) and Hermes International (8.6%) are the top three stock holdings of the fund. Total number of holdings is 30.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)