Investing in luxury goods

Splashing out on luxury goods is a popular pastime among dedicated followers of fashion.

Lockdown has meant that household savings have rocketed for some people who have been unable to socialise or take holidays but kept their pre-pandemic income.

The share of purchases made online for luxury goods nearly doubled to reach 23% of total sales in 2020 (up from 12% in 2019)¹.

The Bank of England expects spending in general to accelerate as people start running down their share of the hundreds of billions of pounds in excess savings that has been built up during the lockdowns².

An addiction to designer labels by loyal customers can benefit investors who invest in high end brands listed on the stock market.

Stephen Peters, Portfolio Manager at Barclays, said: “Luxury goods companies are not immune to downturns or changes in consumer trends. But the long-term trends look solid, pointing towards this being an area of potential continued growth.

“Much of this will be fuelled by wealthy Asian consumers, who are getting wealthier. In particular it’s the younger consumers that are crucial to the luxury market because they spend more on luxury goods than previous generations.

“Westerners are also prone to spending well on luxury brands. They have more disposable income than older generations who were more conditioned to saving to get on the property ladder as young as they could.

“Younger generations are also more interested in sustainability and therefore bespoke, hand-made luxury goods.

“However, fund managers need to be as discerning with their choices of company to back as consumers need to be with their shopping. Just because a company offers items with a large price tag, it doesn’t mean it’s a decent investment.”

Here are the labels capturing the attention of fund managers at the moment:

• LVMH is the French conglomerate best known for the brands Louis Vuitton, Tiffany & Co, Christian Dior, Givenchy, Marc Jacobs, Tag Heuer and Stella McCartney. In total it owns 75 brands, giving wide exposure to the high end market for fashion, watches and jewellery, perfumes and cosmetics, and wines and spirits
• Kering, another French-based multinational corporation has Gucci, Yves Saint Laurent, and Bottega Veneta in its stable
• The high-end Italian skiing brand Moncler was founded in the early 1950’s and their quilted coats – today’s ski jackets – were used on many of the ground-breaking ascents of Everest and K2
• London-based Burberry is best known for its trench coats. The fabric was invented by Thomas Burberry in 1880. Known as gabardine, the fabric repels water, making it suitable for wear in wet weather.

Investors who believe in the growth story of luxury brands can access these mentioned above and more through funds managed by professionals, rather than choosing individual stocks themselves.

We have a number of funds on the Barclays Funds List which currently own luxury brands, among other holdings.

• Blackrock European Dynamic holds LVMH and Kering
• Montanaro European Smaller Companies holds Moncler
• Lindsell Train UK Equity holds Burberry.

Please remember that the fund manager may choose to disinvest in stocks at any time so if you want exposure to the luxury goods market on a more permanent basis, you may want to consider other investments such as Exchange Traded Funds.

Investing in luxury brands is just one of many investment ideas and should be part of a widely diversified portfolio.