Don’t buy a luxury handbag, splurge on its shares instead

Stephen Yiu increased his stake in the high-end Italian skiing brand Moncler, so it is now among the top ten holdings of his £670 million Blue Whale Growth fund.

Moncler’s share price is up 21 per cent over a year, and almost 300 per cent over five.

Both Smith and Yiu are known for managing funds with a small number of investments that they tend to hold for the long term. It means any significant changes to their portfolios are pored over by analysts.

So why are these high-end brands doing so well?

One reason may be that while many of us may be reigning in our spending amid economic uncertainty, the wealthy have done pretty well out of the pandemic and are willing to spend.

Jason Hollands from the wealth manager Tilney said: “The damage to the economy caused by the pandemic has been enormous, but for those with wealth in financial assets [such as shares], their positions have been buoyed by the effects of the massive monetary stimulus programmes.”

Adrian Lowcock of the wealth manager Willis Owen said luxury brands were well placed to weather the pandemic.

“Demand for luxury goods is not likely to be as seriously impacted longer term. They aren’t subject to the same competition and consumers can’t go anywhere else to buy the brand,” he said.

Moncler has also thrived

CHRISTIAN VIERIG

Hollands said: “Asia was the first to be hit by the pandemic, but it has also been the first to emerge from it,with a positive knock-on effect for luxury goods firms with high exposure to the region.”

China accounts for about a third of all global luxury goods sales, but other markets such as South Korea and India are also very lucrative, Hollands said.

China is the biggest market for Burberry and, at least before the pandemic, about 37 per cent of LVMH’s revenues came from Asia. But it is not just the super wealthy taking advantage. Lockdown has meant that household savings have rocketed as people have been unable to socialise or take holidays.

“The rollout of vaccines gives hope that life will start to normalise this year,” Hollands said. “If this happens, we could see a pent-up spending blitz as consumers treat themselves after a year of enforced saving.”

There are, however, risks and not all luxury brands have done well. Burberry is down 16.3 per cent over a year while Aston Martin is down about 43 per cent.

A drop in international travel could hit demand, as could political unrest in key markets such as Hong Kong.

Emma Wall from the investment platform Hargreaves Lansdown said: “Luxury goods stocks are not immune to downturns or changes in consumer trends. Even the wealthy cut back in a recession and a wrong turn on environmental, social or governance can be costly.”

How do I invest?

You can pick up the individual shares or buy the funds managed by Smith and Yiu. A cheaper way to play the theme is through a fund such as the Amundi S&P Global Luxury ETF, according to Dzmitry Lipski, head of funds research at the investment platform Interactive Investor.

It is a passively managed fund that uses algorithms to follow the performance of the S&P Global Luxury index of about 80 firms around the world. LVMH is its second largest holding after the electric car firm Tesla. Over a year it is up 29.4 per cent.

If you think a professional stockpicker can do better or want more variety, Lipski suggests the GAM Multistock Luxury Brands fund, which includes large positions in LVMH, Hermès, Kering and Estée Lauder.

For a less specialised fund that includes luxury brands, Hollands at Tilney suggests the Lindsell Train UK Equity fund, which holds 8.15 per cent in Burberry and 4.5 per cent in Remy Cointreau, the French spirits company.

Times Money Mentor
Interested in learning about investing? Take Times Money Mentor’s free Investing for Beginners course