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.
Performance summary of Q2 2021
The Emles Luxury Goods ETF shows us that there is more to selecting an outsized allocation to consumer discretionary names, as the Fund outperformed the S&P 500 Consumer Discretionary Index by over 13.96% since inception.
- Contributors: Non-secular trends in individual names identified Li Ning, Hugo Boss, and Watches of Switzerland as top performers in 2Q2021.
- Detractors: Fund positions in Automobile Manufacturers suffered uneven losses as the global chip shortage hindered manufactures’ ability to meet demand.
- Outlook: Real disposable income is on the rise. Personal debt, savings, and disposable income data in the U.S. indicate consumers’ propensity to spend as disposable income in the U.S. hits all time highs. A similar story unfolds overseas in China as urban disposable income outpaces equivalent figures in the U.S.
Quarter in review
The Fund continues to outperform its benchmark, the S&P 500 Consumer Discretionary Index between March 31, 2021 and June 30, 2021.
While some automakers (BMW) are better positioned than others (Volkswagen) to emerge from the chip shortage less-scathed, a sector-wide paradigm threatens to further exhaust the chip supply chain as automakers realize sales and demand for electric vehicles (“EV”). As automakers strategize to gain market share in countries like U.S. and China, we maintain a positive long-term view on the Fund’s auto positions. However, in the near-term, we also recognize the potential for market cannibalism as many EV manufacturers identify Tesla as a main competitor in the space.
A top performer in 2Q2021, Watches of Switzerland achieved a 26.5% return on the quarter as the retailer re-opened storefronts around the world to service pent-up demand against a 180% surge in supply from Swiss horological exports. We take a neutral view on the name as two-thirds of the brand’s unit sales fall in the 500 CHF or less category—a segment where real inflation threatens to cut into margins unlike higher priced categories where retailers or manufacturers might pass inflation through to the end-consumer. Nonetheless, the name represents listed exposure to private Swiss watchmaking titans such as Rolex and Patek Phillipe.
Allocations to select consumer discretionary (65% portfolio weighting) and consumer staple (25% portfolio weighting) names remain indicators of our conviction in the resilience of global luxury spending.
Approvals of various COVID-19 vaccines by global health authorities bode well for increased luxury goods consumption, a sizable portion of which has historically been tied to in-person and travel shopping.
The fund sits at the intersection of two rising trends, discretionary consumer spending and demand for luxury goods—where consumers’ propensity to spend becomes intertwined with social and cultural norms that perpetuate the story of the “Veblen good."