Chart of the Month – A luxury everyone should afford

by Marie-Caroline Fonta

A luxury everyone should afford

Source: NS Partners, Bloomberg. NS Partners has not acquired any rights or license to reproduce the trademarks or logos set out in this document. The trademarks or logos set out in this document are used only for the purpose of the presentation.

Looking for a long-term investment that can withstand the economic turmoil? Well, consider luxury!

Marketwise, a year never resembles the previous one. The last five years have been subject to many headwinds: Covid-19, Ukraine-Russia conflict, rising interest rates, inflation, etc. Finding a sector, an investment that resists and performs during these different and multiple periods of shocks is difficult.

Luxury might be a good candidate. We like this sector for its all-terrain characteristics, its resilience and adaptability.

On the European market, luxury is gradually establishing itself as a major sector and is gaining in importance. It now represents 19% of the French CAC40 index and LVMH has become the largest European company with a market capitalization of EUR396 billion at the end of February. Luxury got off to a flying start in January, riding on the current optimism on China. Indeed, the Chinese Economy showed a strong rebound which bodes well for luxury stocks. China’s manufacturing purchasing managers’ index rose to its highest level since April 2012.

The luxury sector is vast and its definitions are multiple, which adds a layer of complexity and confusion. This is why one must remain selective and focus on the major luxury players that sailed on headwinds. We no longer need to demonstrate the quality of their balance sheets, their ability to report higher results and double-digit margins year after year and their success in offsetting one region with another. Their scale brings them access to the best designers and increasingly to celebrities.

For example, let’s have a look at an equally weighted portfolio composed of 4 large and well-known listed luxury companies. First component, LVMH the most diversified group active in soft luxury (clothes, shoes, leather goods, etc.), hard luxury (watches and jewellery), perfumes and cosmetics, wines, hotels, and more, then Hermès, active in soft luxury, Cie Financière Richemont in hard luxury, and finally Estée Lauder in cosmetics and beauty, the latter being more defensive by nature. The dollar-based basket composed of these 4 equally weighted stocks has outperformed the MSCI World, as well as the 11 Global Industry Classification Standard (GICS) sectors over the last 5 years.

Most luxury stock prices are at all-time high. What about the future? Today the valuation multiples are high but appear reasonable, as the estimated Return on Equity and Earning per share are higher for the luxury basket presented than for any sectors. Its fundamentals remain sound and intact, as China brings some good hope. Additionally, one should keep in mind that inflation is still present and that luxury companies have strong pricing power, as demand for luxury goods is fairly inelastic to price. This means that they can protect their margins. But what would happen to the luxury sector in times of recession? The sector’s consumer base is wider spread and less sensitive to economic slowdown than most and it benefits from a simultaneously defensive and growth profile. In other words, the sector is able to grow profits whatever the economy throws at it. In order to capture the right moment, one entry signal to watch closely is the luxury premium. After shooting up, the premium has fallen back to historical levels, so now could be a good buying opportunity.

It is quite impossible to predict the coming year, but one thing is certain: investing in luxury and adding on/doubling down on this investment on eventual corrections seems to be an interesting strategy.

“Luxury will be always around, no matter what happens in the world”. Carolina Herrera




Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.  Additional information is available on request.
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Antonio Mira

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

Sébastien Poiret

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

Abir Oreibi

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Romain Pidoux, CAIA

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Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

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