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Active Thinking: Top of the Luxury Pyramid

Flavio Cereda, Investment Manager, Luxury Equities, highlights the polarisation within the luxury sector, defines what he calls the ‘luxury pyramid’ and discusses two of the stocks that he feels exemplify the top of the pyramid.

26 April 2024

In the luxury sector, there is an increasing gap opening up between those that are doing really well and those that are struggling. This is the polarisation effect I have mentioned in previous articles; stronger brands gain significant market share at the expense of weaker ones. As an investor it is important to make the right call and be involved with the right names. For instance, Chanel has more than doubled the price for a Medium Classic Flap Bag over 2016 to 2024.1 If you have the right brand and you have the right momentum, people will pay the price. However, if much of your revenue as a brand comes from weaker consumers, there is likely to be a lot more volatility. This is why we are trying to keep away from the brands that are disproportionately exposed to the weaker consumer.

The polarisation effect is not confined solely to personal luxury goods; two of the companies right at the top of the luxury pyramid focus on yachts and cars.

Luxury pyramid

Source: GAM, as at March 2024.
The views are those of the manager and are subject to changes. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Logos are trademarks of their respective owners and are used for illustrative purposes and should not be construed as an endorsement or sponsorship of GAM.

The Italian Sea Group

The Italian Sea Group focuses on the super yacht segment. Why is this significant? Super yachts cater to the ultra-wealthy. These are the folks who do not flinch at the thought (or cost) of an 80-meter yacht; they simply add it to their collection.

I like the The Italian Sea Group because of this focus on the super wealthy.

As the super yacht game unfolds, this Italian company continues to steal the spotlight from its Dutch and German counterparts. Its capacity is full now, so it has a clear pipeline and is gaining market share while picking up high margins.


Even today, after all the surges in share price and revenue growth, some brokers still struggle to fully grasp Ferrari’s unique position. Ferrari is more than just another car company.

We recently spent a day in Italy meeting Ferrari’s management, seeing the premises and everything. Ferrari is now venturing into the electric vehicle market, and has built a huge new manufacturing plant that will open in June. Interestingly, to accommodate the enthusiasts it is adding engine noise to the vehicles. I believe Ferrari’s essence lies in the complete package. It is about the driving experience, the meticulously crafted interiors, impeccable service and iconic design. These elements define what it truly means to own a Ferrari. Ferrari experiences little volatility in terms of its business or pipeline – it is one of those rare companies that can more or less define its own customers. This exclusivity contributes to its allure.

While clothing, shoes and other ancillary products contribute only a small percentage to overall sales (3%), they also significantly impact Ferrari’s brand perception. Customers associate Ferrari with excellence, and any deviation from that standard could dilute the brand. Ferrari’s brand extends far beyond the racetrack, and managing it effectively will require continued meticulous attention to detail.

Well-insulated against global trends

Companies such as the two mentioned above, who engage with the super wealthy, are examples of those who are more likely to remain unaffected by inflation, geopolitical conflicts or other external shocks. For us as investors in luxury brands, these companies at the top of the luxury pyramid feel like a good place to be as part of our overall portfolio composition.

Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.

The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

Flavio Cereda

Investment Manager
My Insights

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