The increased affluence of Russian and Chinese consumers has resulted in a strong increase in demand...
The increased affluence of Russian and Chinese consumers has resulted in a strong increase in demand for luxury goods. Stores in Hong Kong for instance are constantly packed by tourists from mainland China that want to buy a new Louis Vuitton bag or Rolex watch. Therefore we believe that the luxury goods theme offers investors that believe in the China story an alternative way to play it.
Although emerging economies are important drivers for demand, the developed economies should not be neglected. The manager, Scilla Huang-Sun, does not believe the US consumer will stop spending money on luxury goods, noting that the sector tends to be more resilient than mass consumer products. Even in difficult economic times, Japanese consumers have always found money to buy luxury goods and the improved economic conditions certainly have done no harm. The manager says that even the recent declining in sales in Japan for some brands can be attributed to the fact that holidays to Europe and US have become more popular and therefore Japanese tourists are spending more money abroad.
Huang Sun joined Clariden Bank in 2000 to assume responsibility for this fund, having previously worked for JP Morgan in Zurich and New York and for Bank Julius Baer where she was responsible for Asian equities. She applies a strict definition of luxury in order to achieve capital growth from the sector, restricting her investable universe to companies, predominantly in the consumer goods arena, that operate in the premium pricing band. The luxury goods universe consists of approximately 90 companies, which the manager has divided into five sub-sectors: fashion and accessories; jewellery and watches; automobiles and motorcycles; hotels and others (which includes companies in niche areas). Companies are compared with their peers within each sub-sector.
The investment process is driven by bottom-up stock selection but attention is also paid to top-down factors on the premise that the subsectors move in different cycles. Limited price sensitivity of consumers and brand strength typically result in pricing power. The overall sector therefore tends to be less cyclical, providing investors with some defensiveness as well as exposure to secular growth and favourable demographic trends.
The manager applies a synthesis of quantitative and qualitative criteria in the stock selection process. On the qualitative side, she pays particular attention to product and brand quality - preferring classical brands because of their stability - along with management quality. She also looks at strategy implementation, product innovation and inventory control. The manager seeks companies with solid balance sheets. There are no constraints at the sub-sector or country level, but individual holdings cannot exceed official 10% limitations. The portfolio will typically consist of 25-35 holdings.
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