Louis Vuitton and Gucci will sparkle your portfolio

This was a year in which we developed a love for luxury. The wealthy, 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 high-priced products from Hermes, Kering, LVMH, Moncler, Richemont and the rest have found their stocks to be irresistible.

These companies – considered by some to be Europe’s equivalents to the US tech giants – recovered faster than expected.

Blockbuster: Lady Gaga stars in House of Gucci, which chronicles the rise (and fall) of the fashion family

Blockbuster: Lady Gaga stars in House of Gucci, which chronicles the rise (and fall) of the fashion family

Consumers have been trying “to return to the life they knew, but also to eschew fast fashion in favor of something more thoughtful, less disposable,” said Swetha Ramachandran, manager at GAM’s Luxury Brands fund.

As a result, the global luxury goods market is worth €283 billion (£237 billion) and is expected to grow to €360-€380 billion by 2025, when younger customers should make up 70 percent of the clientele, according to consultancy Bain & Company .

As Ramachandran explains, Generation Y and Generation Z consider luxury goods an “asset class” and monitor the trade-in value of watches on sites like Chrono24.

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, now seems like a good time to take an objective look at the stocks of these companies , especially since 2022 is expected to be a period of ‘vengeance geniality’ when, if the Covid variants allow it, the enjoyment of all sybaritic experiences, such as five-star hotels, will come into force again.

Like me, you may already have an interest in the sector if you own Fundsmith Equity which owns LVMH, or Scottish Mortgage, which has Kering in the portfolio.

Stephen Yiu, manager of Blue Whale Equity, has also chosen Kering, which includes Bottega Veneta, Balenciaga and Gucci. The latter is in the spotlight as the brand at the center of Ridley Scott’s latest film, House Of Gucci.

Since January, Hermes shares are up 80 percent, while Richemont, owner of Montblanc and Van Cleef & Arpels, is up 75 percent. The mighty LVMH, which includes Dior, Louis Vuitton and Moët Hennessy, is up 40 percent.

LVMH’s resurgence highlights the industry’s linchpin to appeal to a new generation of shoppers. The new faces of Tiffany, the legendary jeweler 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 favorite watch is the Jaeger-LeCoultre – a Richemont brand available at Goldsmiths and the other stores of Watches of Switzerland, a British luxury goods company. Shares are up 143 percent this year, thanks to demand for precious timepieces that are in short supply.

Can this progress be sustained? Or could Beijing spoil the party?

Label-loving Chinese shoppers may have stayed away from Bond Street, but shop at home.

The ranks of China’s middle class are expected to double to 800 million by 2030, fueling calls for high-end merchandise. But the ability of China’s nouveaux riche to show off their finery could be threatened by newer policies, a drive to redistribute wealth for “common prosperity.”

Yiu says this shift is worrisome, but it’s hard to say whether it will still be a focus five years from now. Some believe that Burberry, with its understated aesthetic, could benefit from a fight against bling. This company is one of the largest holdings of the Lindsell Train UK Equity fund, which also has shares in Daily Mail and General Trust.

Ramachandran argues that the adaptability of luxury goods companies should help them cope with a changed climate in China.

The recent transformation of the industry’s online business is proof of this flexibility.

In June 2020, this column reported on Moncler boss Remo Ruffini’s comments that luxury brands had to ‘reframe the new normal’. Most have taken on these challenges while cutting costs to increase their profit margins.

The aura that surrounds luxury goods, the result of skilled marketing, can change the perception of the companies behind these beautiful things. Bain argues that luxury brands are transforming from makers of products to ‘targeted’ operators who help towards ‘a more sustainable, diverse and equal society’.

This seems to exaggerate their role, but luxury goods stocks, individually or through a fund like the Amundi ETF (exchange traded fund) can play a role in a balanced portfolio. For me, it’s worth betting on people who want to spoil themselves after a hard time – and have the money to give in to temptation.

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