Thursday, September 06, 2007

Does bling beat the market?

[Editor: this article is about stock indexes composed of sellers of luxury goods. "The market" refers to the S&P 500 index, which is a list of 500 US companies taken as representative of the "market" as a whole. The theory is that companies that produce luxury goods are benefitting from the increased consumption of those goods, and will do better than "the market" as a whole.

Whether that is true or not is of more interest to financial professionals and investors. I am posting this article here to highlight the change in our consumption patterns, particularly those in Global South countries that are developing rapidly and becoming wealthier. This has environmental implications, obviously.]

(Fortune Magazine) -- Remember when it was all the rage to screen socially and environmentally irresponsible stocks, like sweatshop employers or polluters, from your portfolio? Now a new class of niche investment products has emerged to weed out what some see as even worse: the hoi polloi.

Luxury goes mass market

In February, French bank BNP Paribas and the Deutsche Börse launched the world luxury index, a collection of 20 luxury-goods purveyors from Hermès to LVMH . Merrill Lynch soon followed with the Merrill Lynch lifestyle index, which tracks 50 such stocks.

In June, British money manager Dominion Group launched Chic, a mutual fund that invests in 61 makers of high-end goods.

Even wealth bible Robb Report has gotten into the game, teaming up with Claymore Securities to slap its name on an index and an accompanying exchange-traded fund (ETF). It was launched in July, with a celebration that included the ringing of the opening bell on the New York Stock Exchange and a cake decorated in $1 million worth of Harry Winston diamonds.

What's driving the trend? An unprecedented surge in global wealth, for one thing. At the end of last year, according to the 2007 World Wealth Report by Merrill Lynch and consultancy Capgemini, there were 9.5 million millionaires worldwide, double the figure from a decade ago.

Ralph Lauren's exploding empire
The resulting tidal wave of spending among newly rich consumers has pushed up prices of everything from watches to rooms at five-star hotels.

Shares of stocks that serve the leisure class, too, have been soaring over the past five years. Christian Dior is up 247% since 2002; Richemont, keeper of such brands as Cartier and Chloe, has appreciated 337% in the same period. It was only a matter of time before the financial services industry spotted the pitch-perfect marketing opportunity for a niche investment class.


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