A New Way to Bet on the Spending Power of the Ultra Rich
Luxury has always been a rarefied world that few can access.
And as it was in the store, so it was on Wall Street, where the Average Joe or Jolene investors could not easily bet on the big European stalwarts like LVMH Moët Hennessy Louis Vuitton or Hermès International, which trade in Paris.
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But Tema Global is changing that with a new exchange traded fund — the Tema Luxury ETF — that makes it easier to invest in the spending power of the ultra wealthy.
While the fund is a democratizing force in luxury investing, the team behind it takes more of a purist view of the sector, focusing on the truly premium players and bypassing the more affordable brands, like Tesla or Nike, that sometimes get lumped into the sector by financial types.
The ETF launched this month under the “LUX” ticker and lets traders take a stake in a group of stocks at once, including LVMH and Hermès, but also Ferrari, spirit makers Pernod Ricard and Kweichow Moutai Co., beauty giant L’Oréal and more.
Some of those companies make products mere mortals can buy, but the idea hew closer to the spending of the “if-you-have-to-ask, it’s-too-expensive” crowd.
It’s a consumer cohort that is relatively small in numbers, but big in spending and has been growing stronger and more resistant to the kind of shocks that caused the industry to slow down in the past.
A stock market crash in the U.S. might not be enough anymore to make the luxury shopper wince.
“What makes luxury so resilient today is geographic diversification, but also demographic diversification,” said Maurits Pot, chief executive officer and founder of Tema. “First-time customers are younger, they can participate easier, they can participate quicker and ultimately the category is becoming more accessible financially.
“If you think about luxury ultimately as the aspirational ladder of consumerism, then people can enter the ladder at different points and there’s more entry points for the luxury consumer at both the low end but also at the higher end,” he said.
A more global customer base also provides some cushion for the companies.
Javier Lastra, fund manager of Lux, said: “The common message from all the companies is that the U.S. is slowing…and a lot of that is being compensated by Chinese reopening.”
“If you think about how wealth portfolios of wealthy Chinese people are structured, it’s very different to how American portfolios are structured,” Lastra said. “In China, a lot of it has to do with real estate.”
That makes for less volatility overall in the profile of luxury shoppers, who have ridden what Lastra described as a “tremendous secular trend.”
“Generally global wealth keeps rising and we see it in all the segments of the consumer goods industry,” he said.
Parts of the customer base might be new, but the brands are generally old in luxury — and therefore protected, making the companies all the more attractive to investors.
Lastra said a key difference between technology and luxury is “the longevity of the trend.”
“When I think about an Apple watch or I think about an iPhone, at the end of the day, it is like a machine, a toasting machine, right? It’s great innovation in year one, but clearly it will be disrupted in year two, year three,” he said. “This disruption in luxury goods is hard, it hardly exists. We had the issue of the Apple Watch disrupting potentially the high-end watches. It really didn’t disrupt that. The reason why you’re buying a Cartier watch is very different.”
That is the magic of luxury. And, at least lately, that magic has been good for investors.
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