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Investments in a Life of Luxury

“It's not a luxury if you can't do without it!”

-Elizabeth Jane Howard

If you were angling for the job of feature reporter for the “Mansions” section of the Wall Street Journal, you blew through your deadline; applications closed on October 15th. It’s a pretty good beat, reporting on the rich and famous, and where they live and play.  Since it only required three years of journalism experience, one would suppose the successful applicant would have already spent a great deal of time going in and out of these over-the-top luxury homes.

Our guilty fascination with the rich and their lifestyle of luxury is perfectly understandable. Not the reality show divas and nouveau riche sports stars; they’re just ordinary people, regular folks like us, but with a lot more money... No, the real rich, who are not at all “just like us”. You can’t be friends with them, no matter how nice and down to earth they may seem.  It’s hard to pick up your share of the tab when your new best friend wants to jet away for a spur of the moment weekend dinner to London, Paris or Dubai.

However, as an investment theme, luxury can have some staying power for the rest of us. Even through the recession, businesses catering to this market weathered the storm and came back strongly. Mercedes Benz, for example, just had its best month in history, as it made meaningful gains in both the Chinese and U.S. luxury auto markets. According to consultants Bain & Co., the luxury goods and services segment, estimated at a worldwide market value of $287 billion, is expected to post sales growth increases in 2013 of between 4-5%,  driven primarily by a recovering Eurozone and demand from the new wealthy in China and greater Asia.  

One metric for this segment of the world’s markets is the Standard & Poor’s Global Luxury Index, which includes eighty of the largest publicly traded companies producing or distributing luxury goods or services (subject to some specific investment related criteria.)   The top ten components are:  Daimler AG, Richemont, Diageo, Nike, LMVH Moet Vuitton, MC Bayer Motors BMW, Adidas, Las Vegas Sands, Pernod Ricard, and VF Corp.  As of the beginning of October 2013, the index has returned 25.25% year to date, 34.69% for the trailing12 months, and an annualized 3 year rate of return of 17.97%.

S&P Global Luxury Index

Investing in luxury, of course, is not limited to stocks in public companies, and for many, luxury is associated with those things they can see, hear, and touch, and admire. The Economist has collated indices for several classes of “real” assets to create a “valuables index.” Asset weighting in the index is tied to representative affluent individuals’ holdings, as reported by the wealth-management arm of Barclays: currently the breakdown is 36 percent in fine art, 25 percent in classic cars, 17 percent in collectors coins, 10 percent in rare wines, 6 percent collectors stamps, with the final 6 percent equally weighted between classic guitars and rare violins. According to The Economist, this index has climbed over 200% in nominal terms since 2003 and by 54% since the first quarter of 2009.

Still, you can’t invest in an index. If tangible luxury seems just a bit beyond your reach don’t despair, there are still avenues for you to profit from this market. Here are some companies that give the average Joe or Jill access to this rarified world.

Considering the very narrow, hard to reach, competitive market, it is efficient for those firms that provide goods and services to luxury seekers to offer an array of brands and products, a kind of conglomerate for the affluent.   LVMH Moet Vuitton, (LVMH.PA )  is probably the world’s largest luxury firm. The current organization took shape through a 1987 merger between Louis Vuitton and Moet Hennessy, although its oldest brand, wine producer Chateau d’Yquem, dates back to 1593. LVMH has 2,400 stores world-wide; its flagship brands, marketed through over 60 subsidiaries, include Moet & Chandon and Dom Perignon champagnes, Guerlain perfumes, Louis Vuitton, Tag Heuer, Fendi and Christian Dior. LVMH shares are listed on the Euronet Paris exchange, and currently sell for 144.1 Euros per share, with a dividend yield of 2.05%.

LVMH October 2008 to present (in Euros)

Compagnie Financiere Richemont SA (CFR.VX) was founded in 1988, and currently trades on the Swiss Market Index. Richemont is organized into four operating divisions, or Maisons; its specialty watchmakers include Piaget, Baume & Mercier, Vacheron Constantin, and Jaeger-LeCoultre, while the jewelry Maisons include Van Cleef & Arpels and Cartier. Other well known Richemont luxury brands are Montblanc writing instruments and accessories, Alfred Dunhill, Net-a-Porter, and James Purdey & Sons gunsmiths.   Richmont reported 14% sales growth and 15% gains in operating profit for the fiscal year ending March 2013, although these numbers represented a slowdown from 2012, when Asian travelers to Europe shifted this market for luxury into overdrive. CFR pays a dividend of one Swiss franc, subject to Swiss withholding tax of 35%.  Compagnie Financiere Richemont October 2008 to present (Swiss Francs)

Note that both LVMH and Richemont are traded on foreign stock exchanges.  While they are easily purchased through your broker or advisor and can be held in your investment accounts, you should be aware that there are often additional fees, charges, (and risks) associated with purchasing, selling and holding non-US shares. In addition, dividends and distributions may be subject to special withholding provisions.

Steven Weber and Gigi Harris are investment advisors for The Bedminster Group, a Registered Investment Advisor providing portfolio management, estate, and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. Mention of companies and funds does not constitute recommendation, and the opinions expressed are solely those of the authors and do not necessarily reflect those from any other source.

TAGGED: Investments, Art
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