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Roundhill Launches Global Luxury Goods ETF

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In order to capitalize on the growth in global luxury goods sales, Roundhill Investments, the thematic ETF issuer, has launched Roundhill S&P Global Luxury ETF (LUXX) today. It seeks to provide exposure to the worldwide luxury goods industry.

Luxury goods and services go beyond fulfilling basic needs. They are often considered discretionary rather than essential, commanding a premium price due to their brand reputation, craftsmanship, innovation and the exceptional experience they provide.

LUXX in Focus

The new ETF tracks the S&P Global Luxury Index, which comprises 80 of the world’s largest public luxury goods companies across Europe, Asia and North America. Currently, LUXX holds 63 stocks in its basket with key holdings in Hermes International (8.2% weight), LVMH Moet Hennessy Louis Vuitton SE (7.9%) and Cie Financiere Richemont SA (7.6%). Other firms hold less than 5.4% share.

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 (read: 5 ETFs to Ride On Solid Q2 Economic Growth).

The new ETF comes with an expense ratio of 0.45%.

How Will It Fit in a Portfolio?

The ETF could be an intriguing choice for investors seeking exposure to high-end products and services, which are gaining increased popularity in recent times. The luxury goods market has experienced significant growth over the years, driven by a combination of socio-economic, technological and cultural factors.

The growing middle and upper classes in emerging economies, especially in Asia-Pacific regions like China and India, as well as digital transformation are driving demand for luxury goods. Luxury goods are considered as a status symbol and a reflection of their newly acquired wealth.

The rise of online luxury shopping platforms, such as Farfetch, Net-a-Porter and others, has made luxury goods more accessible to a global audience. Social media platforms like Instagram, TikTok, and WeChat are also playing a pivotal role in brand promotion, influencing consumer choices and driving sales.

Further, duty-free shopping is also enticing customers toward luxury goods. In particular, airports have become hotspots for luxury shopping, with travelers taking advantage of duty-free prices. Cities like Paris, Milan and Dubai, known for luxury shopping, attract tourists who spend significantly on luxury goods (read: ETFs to Play the Uptick in International Travel).

Overall, the global luxury market size is expected to grow about 50% between 2022 and 2030 to more than $600 billion in market size. Roundhill believes that luxury stocks have historically proved resilient during recessionary periods due to superior pricing power, which contributed to high margins and strong free cash flow generation.

ETF Competition

There is an appetite for this fund as it has just one contender that provides direct exposure in the luxury goods market. Tema Luxury ETF (LUX - Free Report) is an actively managed fund investing in companies operating in the luxury industry. It has accumulated $7.8 million in AUM since its inception in May and charges 75 bps in annual fees.

Bottom Line

Given that LUXX invests in growing brand names, it won’t be very difficult for the product to see big inflows and solid investor interest as long as it generates decent total returns, net of expense ratio.  Investors, as it is, are looking for exposure to this underserved corner of the space.

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