Navigating Luxury Investments

In the world of investing, there exists a realm of opulence that caters to those seeking more than just financial returns – the realm of luxury. This exclusive territory offers not only the promise of profitability but also the allure of exclusivity and prestige. Luxury investing can take two distinct avenues: luxury stocks and luxury assets. Each path comes with its own set of opportunities, risks, and considerations, making the choice between the two an intriguing journey into the heart of the high-end market. That said, we asked Pedram Parhizkari, co-founder of our partner firm Beurzbyte, an investment guide portal from the UK, to share his expertise on the topic. 

Access and Rarity

When it comes to luxury investing, access is often limited by the rarity of the assets involved. Luxury assets, ranging from vintage wines and rare watches to classic cars and exquisite art pieces, exude an air of exclusivity that draws in investors seeking to tap into their unique value. Entry barriers can be high, demanding significant capital, specialised knowledge, and a network of experts to navigate this captivating world.

In contrast, luxury stocks offer a more accessible entry point. While still exclusive in nature, they provide investors with the opportunity to be part of renowned luxury brands without owning the tangible assets themselves. This convenience, however, might not provide the same emotional connection that owning a rare masterpiece can evoke.

Opportunities and Diversification

The investment universe within luxury assets spans a broad spectrum of indulgence. From instruments and rare books to prized horse-breeding ventures, there are a plethora of segments to explore. The appeal lies not only in the potential for financial gain but also in the passions that these assets ignite. Investors often find themselves deeply engrossed in a particular sub-category, like watches or art, as they become educated connoisseurs who understand the nuances of their chosen realm.

Interestingly, the younger generation is showing a growing interest in luxury assets, with certain categories like art and collectibles capturing their fascination. This shift in demand is accompanied by a new paradigm where emotional investment decisions play a significant role alongside financial considerations.

Risks and Stability

Comparing the risks of luxury stocks versus luxury assets reveals distinct differences. Luxury stocks are subject to management decisions and market fluctuations, factors that can lead to volatility in investment returns. On the other hand, luxury assets tend to exhibit lower correlation and volatility. The custody of equities might be less complex, but the costs associated with safeguarding tangible assets, like storage and insurance, can add up significantly.

Take the example of investing in fine wine bottles. Collaborating with reputable parties can offer more security than investing in less tangible assets, like an "empty Macallan bottle." Moreover, bridging the knowledge gap is crucial to understanding the nuances of luxury assets.

Liquidity and Valuation

Liquidity, a critical aspect of any investment, plays out differently in the luxury realm. While the liquidity risks might seem low due to the continuous trading of items like the Daytona watch, the challenge often lies in finding the right buyer who shares the same enthusiasm for the asset. Collections of rare items can be incredibly valuable, but locating the perfect match for such a niche investment can be a time-consuming process.

Valuation and pricing of luxury assets, such as whisky, can be complex. The absence of readily available market data demands a different approach. Factors like pricing indices and supply-demand dynamics are integral to determining the value of these assets. This nuanced valuation process sets luxury assets apart from the more straightforward stock market.

Performance

When it comes to comparing the returns on luxury stocks and luxury assets, the debate is as intriguing as it is tantalizing. The perspective, as always, boils down to one phrase: it all depends. So, let's kick things off by diving into the world of luxury stocks.

Picture this: The Amundi Global Luxury ETF, a basket of around 80 distinct stocks. Yet, within its top 10 holdings, we find heavyweights like Richemont, LVMH, Hermes, Mercedes-Benz, Tesla, Kering, Ferrari, Pernod Ricard, Estee Lauder, and BMW. There's a bit of a head-scratcher here—should car manufacturers really be rubbing shoulders with these luxury titans? It's one of the quirks of owning an ETF when you're yearning for that unadulterated exposure to the crème de la crème of luxury brands. Year to date, this ETF has soared by an impressive 14%, while its journey over the past decade has seen a meteoric rise of approximately 200%.

Source: Amundi Asset Management (Top 10 holdings of the Amundi Global Luxury ETF)

Now, hold that thought. What if you had cherry-picked individual stocks instead of entrusting your fortune to the ETF gods? Brace yourself for a revelation: LVMH has notched up a jaw-dropping 470% increase over the past decade, and Hermes? Well, it has outshone its peers with an astronomical 660% surge over the same spellbinding period.

But don't let the spotlight linger solely on luxury stocks. On the flip side, the realm of luxury assets has some equally enchanting opportunities, each promising its own unique allure. Take the Rare Whisky Apex 1000 index, for instance. It's staged a staggering climb, boasting a nearly 400% ascent over the past 10 years. Impressive, right? Especially when you compare it to the Luxury ETF's "mere" 200% achievement.

And then there are the timepieces that grace our wrists—luxury watches. Take, for instance, the Audemars Piguet Royal Oak Skeleton Steel Watch, a true masterpiece in this realm. It has demonstrated an awe-inspiring performance, steadily appreciating at a rate of 21.7% annually over the past seven years. This cumulative achievement translates to a remarkable price surge, elevating its value from $50,000 to a jaw-dropping $210,000!

Source: Luxury Bazaar (Audemars Piguet Royal Oak 15407ST Watch Price Chart)

These glimpses are just a tantalizing teaser of the wealth of opportunities awaiting those who dare to venture into the realm of luxury investments, whether in the form of assets or stocks. So, when it comes to the world of luxury, one thing's for sure: the allure of returns is undeniably captivating.

Breaking Down the Barriers

When considering the realm of luxury investments, whether in assets or stocks, it's essential to address the barriers that exist and how they can be overcome. These barriers can be broken down into three key components: access, education, and insights.

Access has traditionally been a hurdle when it comes to luxury assets like high-end bags, watches, and other luxury items. However, a positive shift is occurring. Platforms like Splint Invest are making it easier for individuals to gain exposure to these assets with low minimum investments, democratizing access to what was once exclusively reserved for a select few. While stocks have already made strides in accessibility, there's still room for improvement in making luxury investments more widely available, especially with fractional shares.

Education plays a pivotal role in navigating the world of luxury investments. Investors must continue to educate themselves about these asset classes to fully understand their potential

and associated risks. As the investment landscape evolves, ongoing education remains essential. This educational journey goes hand in hand with research and insights, keeping investors informed about the latest opportunities. This is where Beurzbyte can provide valuable assistance.

Fees and Outlook

In the arena of fees, competition is fierce among players in both luxury stocks and assets. Luxury assets, however, carry additional costs such as storage and insurance, which can constitute a significant portion of the investment. These fees are often structured according to the intensity of the asset's requirements, making it crucial to weigh these costs against potential gains.

The outlook for luxury investments is intriguing. Luxury stocks, especially those encompassed in an Amundi luxury ETF, offer a bridge between traditional investment avenues and the allure of luxury. However, the stability of certain luxury assets, like whisky, presents an appealing contrast to the volatile nature of stocks.

In today's macro-economic environment, the allure of luxury remains strong, as this type of investment has historically followed inflation trends. Yet, it's essential to note that segments like luxury watches and wines have been deemed overpriced. Experts anticipate that we might soon witness a shift, potentially reaching a bottom in their prices.

In conclusion, the decision between luxury stocks and luxury assets is a finely woven tapestry of opportunities and risks, exclusivity and accessibility, emotional connections and financial returns. Navigating this realm requires not only financial acumen but also a passion for the finer things in life. Whether you're drawn to the stability of a rare bottle of whisky or the potential of luxury stocks, the luxury investment landscape promises an exhilarating journey for those with an appetite for the extraordinary.

About the writer:

Pedram Parhizkari, CAIA, is the co-founder and co-CEO of Beurzbyte. Beurzbyte is a London-based fintech company that offers financial literacy and investment intelligence to retail investors. Previously, Pedram worked at Clermont Group, a multi-billion-dollar private fund, where he managed portfolios across special situations, distressed, quant strategies, and private equity, among other asset classes. His expertise also spans into investment banking, where he previously worked for Financial Technology Partners, advising fintech companies and banks on M&A transactions, capital raising, and IPOs.

Pedram holds a BSc in Finance (summa cum laude) and graduated Valedictorian from Richmond, American University in London, and holds an MSc in Finance from Cranfield School of Management. He is a Chartered Alternative Investment Analyst and is a CAIA London Chapter Executive.

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