Luxury Equities
December 2024
- The dilemma is whether active management still beats a broader ‘play the sector’ view
- The importance of monitoring luxury consumer spending decisions and trends cannot be overestimated
- Flexibility and the ability to adapt will be key in 2025
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
We are currently focusing on resilient names and presumably those with lower valuations will bounce more if there is a rising tide that lift all boats. This scenario might not be favourable to our strategy on a relative basis. If the sector rebounds – how do investors play this?
Our key assumption is that the accelerated normalisation of spend in luxury back to its historical 6% compound annual growth rate (CAGR) is driven by two factors: a) excessive growth in volume and price from 2021 to 2023, and b) an opportunity cost with a trade-off between ‘buying’ expensive things or ‘doing’ expensive things: luxury goods versus experiential opportunities. We believe that the three-year moving average for 2023 to 2025 will return to near its historical level, implying mid-single digit growth in 2025, which is still below the norm albeit a small bounce versus the current year.
The dilemma is then whether the need for careful screening will persist, ie whether active management still beats a broader ‘play the sector’ view. Our view is that volatility is here to stay for longer notwithstanding the strong spending power that is still a feature.
2. What do you see as the one major investment opportunity for you in 2025 and how can you capitalise on it?
Luxury Brands is a thematic strategy which under our remit is focused around the spending decisions and patterns of the luxury consumer across categories. As a result, the importance of monitoring said trends cannot be overestimated. Any meaningful shift in the mix of spending patterns matters and after a volatile year such as 2024, surprises are not unlikely. Identifying this early could offer a meaningful opportunity in terms of exposure and performance.
3. What is the biggest risk to your asset class next year and how can you mitigate that risk, or even turn it into an advantage?
Complacency is a risk. 2024 required ‘premiumising’ our strategy to focus on the wealthier, more resilient and less exposed customers which significantly outperformed sector average performance. We believe 2025 will be more of the same, but should external factors materialise, whether in the US or Asia, this may no longer be the case. Flexibility and the capability to adapt would be key to avoid being incorrectly positioned.
Flavio Cereda manages the Luxury Brands Equity strategy at GAM Investments.
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 nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market 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.
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 nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market 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.