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These ETFs are capitalizing on the luxury goods boom

From couture fashion to high-end automobiles, it seems luxury buyers can’t get enough.

High-end retailer Neiman Marcus says 2% of its customers account for 40% of sales, and those wealthy customers are buying the retailer’s luxury brands. Neiman says the top 20 brands on offer are all high-end brands.

Luxury outfitter Canada Goose (GOOS), which just crossed the $1 billion sales mark, recently said it has zero issues with inventory gluts affecting other retailers, and that it never needs to discount its goods because sales are so strong.

And in the luxury automotive world, luxury brands like Rolls-Royce (BMW.DE), Audi (VOW.DE), and Lamborghini claim client demand is insatiable, especially at the highest end. In fact Mercedes-Benz’s (MBG.DE) new corporate long-term strategy calls for focusing more on the its most expensive models, and reducing the amount of entry-level vehicles for sale.

A red Ferrari is parked on the pavement outside the Louis Vuitton store in Bond Street, on 12th August 2022, in London, England. After the Bank of England raised interest rates to 1.75%, there is a certainty that Britain will be in recession by the fourth quarter of 2022 and with inflation to climb further. (Photo by Richard Baker / In Pictures via Getty Images)
A red Ferrari is parked on the pavement outside the Louis Vuitton store in Bond Street, on 12th August 2022, in London, England. After the Bank of England raised interest rates to 1.75%, there is a certainty that Britain will be in recession by the fourth quarter of 2022 and with inflation to climb further. (Photo by Richard Baker / In Pictures via Getty Images)

“First, the wealthy have been little affected by the pullback in the markets — they keep buying,” VettaFi Founder & CEO Tom Lydon told Yahoo Finance on why luxury buying is so strong at this time. “Also, luxury brands overseas are less expensive for U.S. buyers as the USD has been on a roll.”

VettaFi specializes in offering research and trends analysis in the world of ETFs. One way for investors to capture a piece of the high-end luxury boom is to invest in ETFs that model that market.

There are only a handful of ETFs and active funds that track this market, and most of those are below $50 million in assets under management (AUM). The largest ETF by assets that focuses on the luxury consumer market is the Amundi S&P Global Luxury ETF (GLUX.DE), which has an AUM of around $360 million.

The top holdings in the ETF are Richemont (Cartier, IWC, Chloe), LVMH Moet Hennessy (Louis Vuitton, Dior, Fendi, Tiffany), Tesla, Hermés, and Estée Lauder; though the fund also holds stakes in Kering (Gucci, Saint Laurent, Balenciaga), spirits brand Diageo, and Nike. Foreign conglomerates like Richemont and LVMH in particular are benefiting from the strong US dollar, which makes their goods even more attractive to stateside buyers.

Looking for the next luxury buyers

When looking ahead at where investors can go to capture nascent luxury buyers, there is only one place to turn to — youth.

“Looking at demographics, the biggest contributors to the global sales recovery in 2021 were millennials and Gen Z,” Global X Funds director of research Pedro Palandrani told Yahoo Finance. “These two cohorts are expected to make up 70% of all spending on luxury goods over the coming years.”

Palandrani says high-end luxury brands tend to have a strong customer loyalty, where existing customers are 50% more likely to try new products and spend more, on average, compared to new customers. Millennials and Gen Z tend to be loyal customers of the brands they purchase, he says.

Bentley car parked on Bond Street on 12th July 2022 in London, United Kingdom. Bond Street is one of the principal streets in the West End shopping district and is very upmarket. It has been a fashionable shopping street since the 18th century. The rich and wealthy shop here mostly for high end fashion and jewellery. (photo by Mike Kemp/In Pictures via Getty Images)
Bentley car parked on Bond Street on 12th July 2022 in London, United Kingdom. Bond Street is one of the principal streets in the West End shopping district and is very upmarket. It has been a fashionable shopping street since the 18th century. The rich and wealthy shop here mostly for high end fashion and jewellery. (photo by Mike Kemp/In Pictures via Getty Images)

Palandrani suggests investors take a look at the The Global X Millennials ETF (MILN) to capture that behavior. “It’s a fund that seeks to invest in companies that have a high likelihood of benefiting from the rising spending power and unique preferences of the U.S. Millennial generation,” Palandrani says. “As of today, you’ll see companies such as Peloton (PTON), Lululemon (LULU), Apple (AAPL), Starbucks (SBUX), and others, which tend to have premium pricing but also strong customer loyalty.”

Lastly Palandrani suggests another area that I myself have seen high-end consumption in, electric vehicles (EVs). Purchase prices for EVs tend to be on the higher end, mostly luxury, and these are the kinds of cars manufacturers cannot keep on dealer lots.

The Global X Autonomous & Electric Vehicles ETF (DRIV) seeks to invest in “companies involved in the development of autonomous vehicle technology, EVs, and EV components and materials. Many of these companies offer premium vehicles,” Palandrani says. Notable holdings in the ETF include Tesla (TSLA), NIO (NIO), Lucid (LCID), Microsoft (MSFT), Ford (F), and Apple (AAPL).

Pras Subramanian is a senior autos reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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