Investments in luxury: perspectives and strategies for an evolving market

The luxury sector has always held a special fascination for investors. But what really makes investing in this sector attractive?

The luxury sector has always held a special fascination for investors, owing to its ability to combine prestige, quality and desirability. But what really makes investing in this sector attractive? In this article, we will explore the performance of the luxury sector, how to access this market segment and other factors to consider before investing in it.

Defining "Luxury"

‘Luxury’ is characterised by its close association with exclusivity, high quality and prestige. Luxury products, which include watches, top-end cars, diamonds, leather goods, fashion, perfumes and wines, are characterised by their elevated prices, significantly above non-luxury alternatives. Luxury companies emphasise their heritage, craftsmanship and traditional production methods, continuously innovating to maintain the high quality of their products.

Access to the luxury market

Diversification is one of the cornerstones of investment success, and this is valid for the luxury sector as well. A simple way to gain exposure to this industry is through a luxury ETF, which includes several stocks in the sector, thus offering direct and simplified exposure. However, it is essential to select funds and stocks meticulously, considering that not all of them may fully reflect the criteria of real luxury.

Market performance

Despite the aura of opulence and success surrounding luxury goods, investing in this sector is not always synonymous with brilliant returns. For example, while some companies have experienced impressive growth over the past five years, others have shown negative performance. It is therefore crucial to select stocks accurately, as performance fluctuates significantly between brands.

Current Valuation

Analysis of current valuations shows that, although successful in the past, some of the best-performing companies may not maintain these results in the coming years. Valuations may appear stretched, especially for brands that have already achieved high prices.

Useful considerations for investors

For those considering investing in ‘Luxury Goods’, it is crucial:

• Appropriately diversify investments, either through ETFs or by selecting different companies in the sector.
• Focus on established luxury brands with a solid heritage and history.
• Look for brands that invest in innovation to remaining significant while maintaining their exclusivity.
• Consider companies that influence culture and possess loyal customer base, indicative of strong, impactful pricing power.
• Be aware that the luxury market tends to be more resilient during economic downturns due to a more affluent customer base that is less impacted by economic fluctuations.

Investing in well-established luxury brands that combine heritage, innovation and cultural influence can add value and diversification to a long-term portfolio. However, careful analysis of brand strength and accurate valuations are essential when investing in this segment. Precise selection and diversification can help reduce risk in order to maximise potential growth opportunities in an extremely dynamic sector.