Luxury funds out of fashion as wealthy tighten designer belts
“It’s all about quality, not quantity,” said fashion icon Vivienne Westwood, during her acceptance speech at the Walpole UK luxury awards last week. Sadly, a lack of quality has been displayed by a string of luxury brand equity funds created during more optimistic market conditions. Many have lost 40% of their value over the past 12 months and underperformed mainstream indices.
Wealth advisers are telling their clients not to bother with the sector, given it shows no sign of improving.
Martin O’Hare, group head of discretionary portfolio management at SG Hambros, said in the current environment, the wealthy were pulling in their purse strings. He said: “While the fallout from ultra-high-net-worth individuals has not yet been too evident, there will be retrenchment in the luxury goods sector and some franchises will be forced to close as companies refocus on key, and profitable, market segments.”
Swiss private bank Julius Baer’s Luxury Brands fund, run by Scilla Huang Sun, lost 21.6% since January – enough to outperform the MSCI World Index in euros as at the end of last month, which had fallen 29.1% year to date.
However, last month the fund underperformed the index.
Swiss private bank Pictet’s Premium Brands fund, launched in June 2005, has fallen 33.9% year to date, underperforming the MSCI by 4.7%.
Swiss lender Credit Suisse’s Global Prestige fund, run by Varabott Ho out of Paris, is down 40.4% on the year, underperforming the MSCI European benchmark by 11%. The fund was launched two years ago and has €49m ($61m) under management.
London-based asset manager Dominion Group launched its Chic fund last June, which has since fallen 45.3%, 16% more than the benchmark.
Clariden Leu’s Luxury Goods fund has also taken a hammering. The eight-year-old fund, which now has €85.7m of assets with its largest holdings in Swatch, LVMH, Richemont and Tiffany & Co, fell by a record 37.4% this year, 8% under benchmark.
While equity funds have underperformed, the luxury goods sector is on wobbly ground as high net worth individuals think twice before splashing out.
Huang Sun, one of Julius Baer’s top managers, said in terms of companies, there were obvious winners and losers. She said: “Big is beautiful at the moment – larger, more traditional companies will retain clients as classic luxury brands are favoured in difficult times. Smaller, affordable luxury will lose out.”
Huan Sun added that she had observed a shift in the way the wealthy were spending money. She said: “The wealthy will not stop buying luxury goods, but are making smaller purchases, like lipstick and champagne rather than cars or art.”
Even shares in the best capitalised luxury specialists are suffering. Shares of French luxury retailer Louis Vuitton Moet Hennessy hit a five-and-a-half-year low of €40.87 this month, or half their level a year ago.
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