2024-02-09 13:50:00
Photo: Freepik
It turns out that the basket industry, which in 2003 managed 204 billion dollars, reached at the end of 2023 a management of 11.118 trillion dollars (8.6 trillion of which in shares), and so did the mutual fund industry, which in 2023 reached 33 trillion dollars in the US, from 550 billion in 2003. These industries are growing for several reasons but one of them stands out in recent years and is what is called “environmental, social and governance principles” or ESG (Environmental, Social and Governance).
A significant part of the companies have adopted these principles and made them part of the strategy, which of course goes against the “principles of business capitalism” which, in 1970, the late Prof. Milton Friedman wrote. “, “is only to earn”.
We wrote about it before, but what has been happening in the last two or three years is simply amazing. Both industries were able to grow significantly also due to the fact that they were able to issue baskets and funds that interest investors due to their political views. Republicans want to outlaw the state’s (and all 50 states’) investments in funds they see as infected with progressive ideology. For the Republicans, this is a Trojan horse designed to introduce progressive approaches, on issues such as climate change, sexual diversity, religious inclusion, and the like, into executive suites and corporate meeting rooms, all under the guise of supposedly improving investment returns (there is an argument that the adoption of ESG principles helps profitability).
Accountants in countries that are considered republican are already attracting public funds from companies that have adopted, as a business strategy, the ESG criteria, including even some of the largest companies in the world, such as Disney, Blackrock, IBM and others. Moreover, Republican legislatures in at least 20 states have adopted various anti-ESG laws.
“Republican legislators in New Hampshire,” wrote the important conservative magazine, The Atlantic, “have proposed a bill that would instruct every government agency to ensure that the public money (such as pension funds, insurance, etc.) that it transfers to investment companies, which manage the funds for it, is not invested in any issue which is based on environmental, social and governance (ESG) criteria. The bill states that all ESG investments on behalf of the state will constitute a criminal act.”
The interesting thing is that so far there is no satisfactory answer to the question of the performance of ESG investments compared to the general market. In 2021, ESG strategies outperformed the broader market, but in 2022 ESG investments lagged behind. But the fund and basket industries have recognized the marketing potential in the dispute and are offering funds and baskets that are “for” or “against” the use of ESG.
The fund that invests according to conservative principles
Examples? There is the basket fundACVF Released in November 2020 which aims to: “achieve long-term capital appreciation in securities of American companies that meet its politically conservative criteria.” When it comes to its “politically conservative criteria” it means that the ETF does not invest in companies whose decisions are related in one way or another to ESG criteria. Recently, for example, IBM was removed from the portfolio because a decision was made there that the hiring of employees would take into account the gender and race of the employee.
The top ten companies in the basket are Microsoft, Nvidia, Cisco, Home Depot, Tesla, Berkshire Hathaway, MasterCard, Costco, Adobe and Eli Lilly. Since its inception, on 11.2020, ACVF has yielded 53% compared to 49% and 43% yielded by the 500 P&S and Nasdaq respectively.
On the other hand, there is the DEMZ basket whose goal is “exposure to large value companies that make political contributions to Democratic Party candidates” which of course support the adoption of ESG principles and it also performs well. There are many such baskets, right and left, but if you check the companies in these two baskets you will find that they are quite similar.
So what does all this mean? Nothing, except for the fact that the mind engineers of Wall Street, whose genius is mainly in marketing, have succeeded again and are selling the same goods to both sides, and that the war between the right and the left, when it comes to Wall Street, is being used to expand the industry of funds and baskets, nothing else. We will probably see such baskets here soon.
Returning to the luxury industry
We have previously written several times about the luxury industry, mainly about the company LVMH Moët Hennessy – Louis Vuitton, Société (NYSE: MC.PA in France), which actually represents a basket of the entire industry, and also about baskets and other companies. But, in the days when the stock indices are at an all-time high, when the media still threatens an economic slowdown in the US, when interest rate cuts are expected in the US and Europe, when, despite the concerns in the media, income, consumption and employment are on the rise, and in short, when the gap between the media’s interpretation of the economic situation and the interpretation of those who listen to it goes And when the investor is confused, it is always worthwhile to re-examine investments in the companies of this industry, because the main customers of the industrial products are not those that are affected by situations of uncertainty.
Louis Vuitton store. Photo: Christian Wiediger, Unsplash
Luxury goods companies are considered a relatively safe investment because their customers are “captive” (Client captive in French). This is factually true because most of the income there comes from high-income consumers who are less affected by crises. The top 2% of luxury customers drive 40% of luxury sales.
The reason it is now worth revisiting investments in the luxury industry has to do with the fact that since the world emerged from the 2020 coronavirus lockdowns, consumption of luxury goods has kicked into high gear, especially in East Asia and led by China and India. This was good news for luxury brands, which experienced rapid growth. During 2023, there was indeed a decrease in the rate of growth due to the increases in interest rates that took some consumers out of the consumption cycle (mainly Chinese who were affected by the slowdown in China), but the demand among those 2% continued, and towards the end of 2023, India began to become an important engine of growth.
India has become a strategic focus for brands and recently partnerships between Indian luxury product manufacturers and global leaders such as the Mumbai-based Indian fashion company Aditya Birla Fashion Retail (NYSE:ABFRL in New York), through which companies such as Prada, Christian Dior and Armani entered India.
But many leading foreign companies are also entering India, including the American luxury goods giant Coty (NYSE: COTY), LVMH, the leading online sales company Mytheresa Group (NYSE: MYTE), the Swiss watch, diamond and jewelry manufacturer Richemont group (NYSE: CFR.SW in Switzerland) and others. The CEO of Richemont told the leading Indian daily Economic Times of India that in his opinion India will become the leading luxury market in the world. The newspaper did an investigative article on the subject under the title “India becomes a magnet that attracts global luxury goods”.
Many experts claim that India alone can be a significant growth engine, also because of the rapid economic growth there, and not least because of the Indians’ love for luxury products. The experts also think that the Chinese market will come back this year.
Technology is an important factor in the development of the industry. Online trading is one thing, as mentioned, but technology also affects the development of innovative products. One interesting example is a new brand called VerseLuxe, developed and produced by Cathy Hackl, an American futurist, author and expert in the augmented reality and virtual reality industry known as “the mother of the Metaverse”). The VerseLuxe is a brand name for a collection called “Thrills”, the demand for whose products is skyrocketing. What makes this collection unique is the integration of Near Field Communication (NFC) technology into the products. An NFC chip is embedded in every necklace or bracelet in the collection. When scanned, the chip verifies the jewelry’s authenticity and registers it in the blockchain, ensuring ownership and protection against theft or loss.
NFC technology is not new, but the application of the technology in VerseLuxe jewelry opens up many possibilities that consumers love. NFC stickers, available at affordable prices, can be used in various creative ways. For individuals and businesses alike, NFC stickers can be linked to websites, used for loyalty programs, activated to automate reminders, track deliveries and even provide additional product information. The potential for innovation and imagination with NFC technology is enormous.
“The VerseLuxe is not just jewelry,” says a background article on LinkedIn, “it represents a milestone towards the convergence of the fashion and metaverses. The VerseLuxe leads us into a new era of fashion and technology.”
The system was first introduced in China at the beginning of 2023, and in April 2023, the prestigious New York fashion house Coach New York launched a global campaign under the name “Coach’s Utopia”, a line of luxury fashion products equipped with NFC chips.
Luxury products are defined according to 4 characteristics, exclusivity, known brand identity, increasing brand awareness, perceived quality and maintaining sales levels and customer loyalty. The scope of the global market reached 230.05 billion dollars in 2021, in 2022 it rose to 272.7 billion, in 2023 to 284 billion, and the forecast for 2024 indicates a sharp increase to 368.9 billion. Luxury fashion is the largest segment of the market, about 31% of turnover, and the largest market is in the US with 21% of revenues, with the Asia-Pacific region (India and China mainly) showing the fastest growth. Technology, as in any sector, accelerates growth in particular Because of online marketing, women are the top customers.
These are the top ten companies by market value:
How do you invest in luxury?
When it comes to investing in the luxury industry, the problem is that the industry is fragmented. Even the fashion sector we mentioned is divided into sub-sectors such as women’s clothing, coats, purses, etc. The only company that represents the entire field is LVMH which is also the largest luxury goods company in the world which consists of five divisions: fashion and leather goods, wines and spirits, watches and jewelry, perfumes and cosmetics and selective retail. The main source of income (about 40% of the total income of about 85 billion in 2023) is the fashion and leather division. The selective retail division is a new division but already the second largest, and there they design, manufacture and sell products only in a limited number and only to a limited number of stores or a special type of stores.
Some investors only invest in LVMH as a basket for the luxury industry. LVMH has been beating the Nasdaq and the P&S 500 since the turn of the century, and the gap has even widened in the past five years. Many investors prefer Hermès International Société (Hermès International Société), the leading competitor that beats LVMH. But Hermès is much smaller and covers less of the industry compared to LVMH.
There are quite a few baskets and funds that follow the industry. A leading part of European baskets. I recently saw the new basket, raneshares Global Luxury Index (NYSE:KLXY) which gives global exposure to leading companies in luxury sectors weighted by market capitalization. These companies operate across industries such as leather goods, jewelry, accessories, skin care, cosmetics, high fashion, beverages, travel, collectibles and supercar businesses. The basket contains 45 companies that cover all the leading global companies, from LVMH that sells everything in the field to Casio (NYSE: CSIOY) that specializes in luxury watches. The basket was issued in September 2023. It is a new and still small basket but suitable for an investor who wants full coverage for the long term. There is also the basket of Roundhill S&P Global Luxury (NYSE: LUXX) which includes 52 companies, and there is the basket of the French property management company Amundi which trades in euros, GLUX.DE.
*The above should not be seen as a recommendation to carry out actions and/or investment advice and/or investment marketing. The information presented is for information only and is not a substitute for advice. The one who makes use of the above information – does so at his own discretion and sole responsibility. The reporter may hold some of the papers mentioned above.
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