Are Luxury Stocks a Better Investment Than Designer Handbags and Fine Wines?
In November 2020, an Hermès handbag sold at Christie’s for a cool HK$3.4 million, or US$437,330. It set a new sales record for a handbag of any kind according to the auction house, which described the item as being made from the hide of a rare white Nile crocodile.
Designer handbags have gained acceptance as alternative investments along with other tangible assets, some examples of which include art, fine wines, classic cars and more.
Such assets are often favored by high-net-worth investors (HNWIs) because they serve as portfolio diversifiers and can have high returns. Plus, they’re great to show off.
At the same time, these assets—like conventional investments—can have risks. They’re difficult to value, illiquid and unregulated.
Why not, then, just buy stock in the companies that make the handbag or wine or car?
That was the question I asked myself as I skimmed through Knight Frank’s annual report on wealth and luxury investment. Now in its 15th edition, this is the first Wealth Report that’s come out since we launched the Global Luxury Goods Fund (USLUX), so I took particular interest in what it had to say about the luxury market in 2020.
According to the British consultancy firm, high-end handbags—those manufactured by Hermès, Louis Vuitton and others—were the top performers for the second year in a row, their value increasing by 17% in 2020, based on the Knight Frank Luxury Investment Index (FKLII). Fine wines were a close second, up 13%. Five asset types lost value during the year, including rare whiskeys, down 4%, and art, down 11%.
Luxury Stocks Have Delivered Competitive Returns
I was curious to see how these tangibles stacked up against equity in luxury companies. I wasn’t disappointed by the results. The S&P Global Luxury Goods Index, which tracks around 80 companies that are engaged in producing or distributing luxury goods, ended 2020 up 36%, or more than double what handbags returned.
Source: Knight Frank (“The Wealth Report 2021”), , U.S. Global Investors • Returns for physical assets compiled by Knight Frank Research using data from Art Market Research (art, coins, furniture, handbags, jewelry and watches), Fancy Color Research Foundation (colored diamonds), Historical Automotive Group International (cars), Rare Whisky 101 and Wine Owners Limited (whisky and wine). A Flourish chart
Granted, that’s just for one year, and it’s fair to assume that the pandemic, not to mention the economic pullback that came as a result, dented demand for certain tangible assets. Due to lockdowns, auction houses had to cancel or postpone lives sales. Art galleries around the world reported an average 36% drop in sales in the first half of 2020 compared to the same period in 2019, according to analysis by Art Basel.
But even when we extend the comparison out 10 years, we see that luxury stocks remained highly competitive. The index of luxury goods increased 227% for the period ended December 31, 2020, more than any other tangible tracked by Knight Frank except rare whiskeys, up 478%.
Source: Knight Frank (“The Wealth Report 2021”), , U.S. Global Investors • Returns for physical assets compiled by Knight Frank Research using data from Art Market Research (art, coins, furniture, handbags, jewelry and watches), Fancy Color Research Foundation (colored diamonds), Historical Automotive Group International (cars), Rare Whisky 101 and Wine Owners Limited (whisky and wine).A Flourish chart
I don’t know about you, but this makes me wonder if luxury stocks aren’t a more thoughtful gift for a loved one than a new watch or jewelry.