The Emles Luxury Goods ETF (LUXE) seeks investment results that correspond, before fees and expenses, to the price and yield performance of the Emles Global Luxury 50 Index, an index comprised of companies that substantially focus on, and significantly benefit from, the sales and consumption of luxury goods globally.
For the quarter ended June 30, 2022, Fund positions returned -19.64% at NAV, versus benchmark losses of -26.32% by the S&P 500 Consumer Discretionary Index over the same period.
- Contributors: n/a
- Detractors: Retail Platforms, EM exposure
- Outlook: After several quarters of underperformance, we are hopeful that hawkish central bank policies will start to temper inflation, and luxury goods players will see a bounce as markets price for a rise in consumer sentiment. We continue to favor larger, well-capitalized names as well as those that have a backlog of demand.
Quarter in review
- 40% of LUXE names with position level gains in 2Q2022 came from Hong Kong listings as the Hang Seng market broadly outperformed Europe and the US. Li Ning stood out as top contributor as the name swung 33% from peak to trough during 2Q2022 on the back of Shanghai's Economic Recovery plan following the city's extended lockdown.
- Names such as LVMH and Hermes lead the category in terms of revenue growth, earnings beats, and peer outperformance. Described as "the most resilient player in luxury goods during a recession", Hermes can attribute its record 42% operating margin to years' worth of backlogged demand and steady price increases for items like its legendary Birkin bag. Boasting a similar operating margin of over 40%, LVMH's Fashion and Leather Goods division shrugged off Chinese consumer concerns and delivered record global sales with further upside guided through 2H2022 on the back of easing lockdowns in China.
- Negative economic sentiment in Chinese, U.S., and Eurozone consumer economies remain a primary factor for underperformance of the luxury goods sector. We hope for improvements and reversions to the following negative events:
- Europe - Ukraine-Russia war
- China - COVID resurgence, lockdowns
- U.S. - GDP contraction