Through both economic booms and busts, luxury brands have proven they're not just fashionable—they are resilient. Understanding how to invest in luxury stocks is crucial for investors seeking to capitalize on this trend. This guide will explore the key aspects of luxury investing, current market trends, and the KraneShares Global Luxury Index ETF (Ticker: KLXY).

Understanding the Luxury Market

The global luxury market has shown impressive growth over the past few decades. According to Bain & Company, the sector has grown at a compound rate of 6% from 1996 to 2022, double the global GDP growth rate.¹ This trend is expected to continue, with forecasts suggesting the luxury market will reach $600 billion by 2030.²

Key drivers of luxury market growth include:

• Rising wealth in emerging markets, particularly China
• Increasing numbers of high-net-worth individuals globally
• Growing popularity among younger generations (Gen Y, Z, and Alpha)
• Technological innovations creating new luxury categories

Why Invest in Luxury Stocks?

Luxury stocks offer several advantages for investors:

• Resilience: Luxury companies often weather economic downturns better than other sectors due to their affluent customer base.
• Strong historical performance: Many luxury stocks have consistently outperformed broader market indices.
• High profit margins: Luxury brands typically enjoy superior pricing power and strong brand loyalty.
• Global exposure: Most luxury companies operate internationally, providing diversification benefits.
• Innovation potential: The sector is at the forefront of adopting new technologies and expanding into new markets.

Key Trends Shaping the Luxury Market in 2024

• Repatriation of Chinese luxury spending: There's a structural shift towards domestic luxury consumption in China, expected to rise from 32% to 70% of total Chinese luxury spending by 2025.³
• Demographic shifts: Women and younger generations are becoming more prominent luxury consumers in China and globally.
• Beauty and cosmetics as entry points: These sectors are gateways for aspirational consumers to enter the luxury market.
• Brand extensions: Luxury companies are expanding into new areas like hospitality and experiences to create 360-degree luxury lifestyles.
• U.S. Sun Belt expansion: Luxury retailers are increasingly focusing on fast-growing southern U.S. cities.
• Middle East growth: Rising wealth in the region is attracting more luxury brand investment and expansion.
• Digital transformation: E-commerce and omnichannel strategies are becoming increasingly important for luxury brands.

Future Outlook

The luxury sector's future looks promising, with several factors supporting continued growth:

• Expanding wealthy consumer base: The number of high-net-worth individuals is projected to grow globally, particularly in emerging markets.
• Generational shift: Millennials and Gen Z are becoming increasingly important luxury consumers, driving new trends and preferences.
• Technological innovation: Luxury brands are embracing digital technologies, creating new product categories, and enhancing customer experiences.
• Sustainability focus: Many luxury brands emphasize sustainability and ethical practices, appealing to environmentally conscious consumers.
• Experience-driven luxury: There's a growing trend towards luxury experiences alongside traditional goods, opening new avenues for growth.

How to Invest in Luxury Stocks

• The KraneShares Global Luxury Index ETF (Ticker: KLXY)

For those interested in gaining exposure to the global luxury market, KLXY offers investors access to leading luxury companies worldwide, including companies operating in various luxury industries, including leather goods, jewelry, accessories, skincare, cosmetics, travel, and supercar businesses.

Conclusion

Investing in luxury stocks offers a unique opportunity to capitalize on the growing global appetite for premium goods and experiences. By understanding luxury market trends and nuances, investors can potentially benefit from the luxury sector's continued growth and resilience.

For a more detailed analysis of the global luxury sector, please read our previous articles: 2024 Luxury Outlook: A Tale of Two Halves and New Catalysts and Global Luxury: A Golden Opportunity?, or for an overview of our conversation with CLSA’s luxury analyst Chris Gao, please read: Top Trends Driving Global Luxury.

For KLXY standard performance, top 10 holdings, risks, and other fund information, please click here.

Citations:

1. Data from Bain & Company.

2. Data from Bain & Company.

3. Data from Bain & Company and CLSA research.