High end consumers can be relied on to keep spending even though average consumers are tightening their purse strings in the current economic climate, according to Pictet Premium Brands fund manager Caroline Reyl.
She says investors have been piling out of consumer stocks but there are still opportunities to be found in luxury goods companies.
The reporting season has also proved positive so far, particularly for European companies focused on the very top end products which have produced solid results.
“We started to see some signs of the slowdown last summer but when the economy slows down it is necessary to focus on the very high end consumers as they are much more resilient than the others,” Reyl says. “High net worth consumers will continue to spend more than the average consumer.”
This approach forced the fund to reduce exposure to the US significantly in the past year as goods companies there are not as targeted at the very high luxury end of the market as their European counterparts.
The fund currently has around 60pc invested in Europe, around 20% in the US and 13% in Asia where Reyl and the team have concentrated their efforts in the past year.
She says: “We see lots of opportunities and very attractive growth prospects in Asia. Valuations are good and there are some great companies.”
Reyl also highlights the rapidly increasing demand for luxury goods from the emerging market areas particularly Asia.
The team estimates demand from the emerging markets as a whole is currently around 30% of global demand up from nowhere 5-10 years ago.
The fund, which launched three years ago, invests in luxury goods including accessories, jewellery, food and drink, luxury hotels across the world and higher end sporting goods.
“The idea was to try and find an investment theme which would combine solid organic growth, high profitability and cash regeneration. By launching Premium Brands the vast majority do have this. At that time there were also not many products focusing on luxury goods,” Reyl says.
Reyl and her co-managers run a high conviction portfolio which currently has 42 long term holdings and can hold between 30-50 names. The fund's largest holdings include Diageo, Cie Financiere Richemont and Pernod-Ricard as at the end of December 2007.
The PF Premium Brands fund is domiciled offshore in Luxembourg and has a sterling share class.IFAonline
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined