A surge in global demand for luxury products has helped to boost the performances of those funds investing in luxury brands over a one year period.
LVMH, the luxury goods company, says sales of TAG Heuer and Hublot watches increased by over a third in the first quarter of 2010. Champagne sales also rebounded strongly, with total wine and spirit sales increasing by 20 per cent over the first quarter.
So what does investing in luxury brand funds entail and how can retail investors in the UK gain access to the growing asset class?
There are a limited amount of funds invested in the asset class. Data from Financial Express Analytics suggests there are only six funds investing in the luxury brand and luxury lifestyle area.
All six funds have performed well across a one year period to 14 April 2010; as seen in the table below:
| Name | 1-mth | 3-mth | 6-mth |
1-yr | 3-yr |
| BNP Paribas EasyETF Dow Jones Luxury TR in EU |
7.47 | 15.36 |
19.49 | 60.66 | - |
| Clariden Leu Luxury Goods Equity TR in EU |
7.04 | 14.26 | 24.73 | - | - |
| Jul Baer MStock Luxury Brands TR in EU |
5.99 | 13.50 | 24.23 | 66.03 | - |
| KBC Equity Luxury Goods TR in EU |
6.85 | 14.07 | 23.58 | 65.97 | -12.31 |
| SGAM Equities Luxury and Lifestyle TR in US |
5.24 | 6.10 | 11.98 | 66.34 | -9.04 |
| SGAM Global Luxury & Lifestyle TR in SG |
1.41 | 2.73 | 8.14 | 48.97 | -19.63 |
Source: Financial Express Analytics
The data shows that the top performing fund returned 66.34 per cent; this is compared to the FTSE All Share Index, which over the same period returned 51.10 per cent. However the fund underperformed against the MSCI World Textiles, Apparel and Luxury Index, used by a number of the funds as a benchmark, which returned 66.73.
Volatility among the six funds ranged from 18.07 per cent to 21.89 per cent, while Sharpe ratios varied between 2.43 per cent and 3.46 per cent showing that investors were earning more per unit of risk taken on over the one year period.
However, of the six funds only two are defined as being FSA Offshore Regulated funds or UK Mutual funds, making them suitable for UK investors. These are the Julius Baer Luxury Brands fund, which is managed by Swiss & Global Asset Management, and the Societe Generale Asset Management (SGAM) Equities Luxury and Lifestyle fund.
Swiss & Global manager Scilla Huang Sun says in the first quarter of 2010 the fund rose 14 per cent compared with the 9 per cent gain in the MSCI World index. She believes there will be sales growth of at least 5 per cent for the luxury industry in 2010.
"Luxury is growing again; in the first quarter of 2010 we have had very easy comparisons, so I expect the numbers coming out in the first half of the year to be very positive showing high absolute growth rate," she says.
Sun says almost half luxury growth, 49 per cent, is accountef for by China, followed by the US on 18 per cent.
"Last year due to uncertainty people spent much less, now there is something of demand, people are much more relaxed and think the crisis is over, there are still a lot of people in work and this has increased confidence."
The fund invests heavily in the consumer products sector with particular focus on food, Jewellery and cosmetics.
"I think it's important to have a broad diversified portfolio, moved more aggressively into cyclical areas that will see more recovery potential like jewellery and watches, we have a large weighting to this sector. We also like companies that have a high exposure to emerging markets in particular China because they will show above average growth in the mid-long run."
Looking forward, Sun is expecting more of a cyclical recovery: "In the mid-long run the luxury industry will grow faster than world GDP due to the high growing consumer wealth in emerging markets, like China, India and Russia," she says.