Claymore Targets Luxury Retail

Now you, too, can put the wealthy to work for you! Claymore just launched its Claymore/Robb Report Global Luxury Index ETF (AMEX: ROB), which tracks companies that provide luxury goods and services. Now, when someone buys a Porsche or goes on a vacation at an elite resort, you could be an indirect beneficiary. If this seems, well, frivolous at first glance, you may want to rethink your opinion.

At a time when the gap between rich and poor in the United States is causing alarm among economists, sociologists, politicians, and pretty much anyone who really doesn't want to be the next casualty of the class struggle, this ETF makes a strange kind of sense. The wealthiest 0.01% in the U.S. saw their income increase 250% between 1973 and 2005, while the overall U.S. economy only saw 160% growth during the same time period, according to a recent article in The Christian Science Monitor.

Globally, the number of households with a net worth of at least $1 million increased more than 100% to 9.5 million during the 10-year period ended 2006, according to information provided by Claymore and The Robb Report. In addition, the current combined wealth of the world's high net worth individuals is now estimated at $37 trillion and is expected to reach $52 trillion within four years.

In a way, the new Claymore fund seems to take the somewhat controversial stance that "the rich just aren't like the rest of us." But for the purposes of the fund, that point of view is pretty much an absolute fact. High net worth individuals have a cushion against the vagaries of economic forces that most people don't. If the tech sector takes a dive or if China's stock market has a mood swing, they generally don't have to worry about layoffs or the safety of their retirement savings.

As a result, there's no reason for them to put off buying that luxury car or that diamond necklace or to worry that the price of yachts is going up. Equity research and consulting firm Telsey Advisory Group estimates that the luxury goods market, currently at $150 billion, will grow at 6%-7% annually over the next five years. Claymore's ROB ETF could help investors harness some of that growth for their own benefit.

And if a 70-basis-point expense ratio seems high, well, these are luxury goods and services we're talking about (although 70 basis points falls within the upper range of normal for specialty ETFs, lately). The press release for the ETF is perhaps the only one to include "luxury risk" under the heading "Risks and Considerations." It warns of the small size of the consumer segment represented, the fact that tastes change, and the perils of economic upheaval. That's right: taste as an investment risk. Don't say they didn't warn you.

The Robb Report Global Luxury Index that underlies the ETF was launched just last week by the luxury lifestyle magazine The Robb Report. Dan Galpern, COO of CurtCo Media, which publishes The Robb Report, says the company was looking to create a benchmark for the global luxury sector, just as the Dow Jones Industrial Average was the dominant benchmark for the U.S. stock market for so many years.

"We see it as a natural extension of the brand," he says.

The index currently contains 42 "luxury" companies, but the total number of components can range from 20 to 100, depending on the number of companies that fit the criteria for inclusion-if a company fits the criteria, it will be included, Galpern says, meaning that it essentially seeks to cover 100% of the global luxury market.

Individual components are capped at 5% of the index's market capitalization to keep large companies, such as the financial firms, from dwarfing the smaller ones, and U.S. companies can make up no more than 50% of the index, which must have constituents from at least three different countries. Constituents must have market capitalizations of at least $500 million and be listed on the stock exchange of a developed market.

CurtCo Media determines which companies qualify for the index, taking into account such factors as companies' core business activities and core consumers. Components can be removed if their business changes significantly, if they are taken private, or if they are acquired or divest their "luxury" businesses.

The top 10 components include BMW, Porsche, Credit Suisse, LVMH, UBS, Pernod Ricard, and Christian Dior. Among the index's other well-known names are Hermes International, Tiffany & Co., Harry Winston Diamond Corp., Coach and Dassault Aviation. Many of the companies are not strictly "luxury" companies but derive a significant portion of their revenue from the provision of luxury goods or services. Ironically, some of these companies, such as Coach, are trying to gain wider appeal among people who fall into lower income ranges, but Galpern points out that those companies' core consumers generally remain high net worth individuals.

Not surprisingly, the dominant sector is Consumer Discretionary, which constitutes 66.70% of the index, meaning it would not be totally inaccurate to describe the ETF as a play on the global consumer discretionary sector. Also unsurprising is the fact that Financials is the next largest sector at 22.01%. Consumer Staples, Industrials and Materials are the only other sectors represented in the index, each with weightings well under 10%. The United States has a weighting of just over 25%, well under its 50% limit. It is closely followed by France, which is just over 24%, and by Switzerland, with a 22% weighting.

The index has a PE of 18.23 and a PB of 2.67. The average market capitalization of its components is $24.25 billion.

So while the rich are getting richer and the poor are getting poorer, you can use the ROB as a hedge for your own socioeconomic status or simply to provide some additional diversification to your portfolio with a selection of established stocks that are perhaps a bit more independent of the movements of the general global economy than other stocks. And when you're watching TV and catch a glimpse of a vaguely orange comb-over, your first thought won't be about how it's possible that a billionaire like Donald Trump can't find a good colorist and stylist but rather, "Hey, that guy's working for me!"

Comments

[Panskeptic:]

Can waves of nausea constitute a new Wave Theory?

2007 Aug 02 09:39 AM