I have been looking forward to writing about the investment thesis for the Claymore/Robb Report Global Luxury (ROB). Before we go too far, it is disclosure time, as my firm Clear Indexes LLC was hired by Robb to assist in the technical aspects of index design, construction and frequency of reconstitution. We are compensated by assets under management, so by definition, I am conflicted.
I think readers who know us will wonder why we accepted this engagement. Why we would work on an index that would not be our own, or branded for Clear. There are several reasons:
The Robb brand and expertise. The market and investment thesis. The global growth of the universe of constituents. The Robb team is comprised of great people and I love working with them.
Who and What is Robb?
Robb is part of Curtco media. The Robb Report is one of the few publications you really don't want to experience on-line. The paper, colors and tactile experience outweigh the immediacy, and other advantages of the web. For almost 30 years, the brand and its affiliates have been an undisputed universal purveyor of luxury. Additionally Robb publishes Worth Magazine, publications covering Vacation Homes and Luxury Homes - you get the picture. Robb covers everything most people dream about. So in the case of luxury, there couldn't be a better partner. Their chief creative person is considered one of the most knowledgeable wine people globally, and I await dining with them in California! Their writers, editors and photo editors are tops, and most of all, theirs is a prestigious world.
The basic facts: According to Merrill Lynch/Capgemini World Wealth Report we are minting new millionaires on a regular basis globally, there were 4.5 million in 1996 and 8.7 million in 2005. The top 10-20% of the most affluent controls an estimated $31 trillion of aggregate wealth. An interest chart from the investment banks can be found here:
There is no doubt that the rich are getting richer, this is a theme I have written about previously, as it is an underlying theme to the investment thesis to (EXB) which also capitalizes on global wealth creation. It is not just in the United States. Let's look at some more recent news from around the world. Then there are the stats on luxury goods: according to the Boston Consulting Group, the global luxury goods market is expected to double to $880 billion by 2010.
In addition to third party research from the investment banks, the media has also done a fine job of making the case for us:
Luxury goods market set to soar
Source: mad.co.uk | Author: Nikki Preston | Published: 05 October 2007 09:15
The global luxury retailing shows no signs of abating with the growth rate expected to almost double to £225 billion within the next five years, according to a report by Verdict Research.
The luxury market, which includes labelled clothing, accessories, watches and jewellery, fragrance, cosmetics and homewares and is currently worth £131 billion, is set to grow 71 per cent between 2007 and 2012. Emerging markets such as India and China are expected to drive the growth, representing a quarter of the total spend at £57 billion, as they continue to become wealthier and seek to demonstrate this with expensive goods.
Eastern Europe and Russia in particular are also expected to become significant markets.
Let's move to the emerging markets in Asia:
AP Vietnam Develops Taste for Luxury Goods
By BEN STOCKING -; Sep 23, 2007
HO CHI MINH CITY, Vietnam (NYSE:AP) - In a country whose peasant army once marched on flip-flops cut from old tires, Gucci beach sandals priced at $365 can come as a shock.
But the luxury market is booming in Vietnam, where Ho Chi Minh's communist revolution exalted equality and the common man just a generation ago.
As the country begins to embrace private enterprise, its nouveaux riches are snapping up shoes at Gucci, handbags at Louis Vuitton and watches at Cartier, offering proof of how much the country has changed after decades of war.
"I sold a $4,000 leather jacket recently," said Do Huong Ly, a stylish young saleswoman at the Roberto Cavalli shop in Hanoi. "Our customers want people to know that they are high-class."
China's imports of luxury goods up 27.6% in 1st 7 months
Sep. 17, 2007 (China Knowledge)
The imports of luxury consumer goods hit US$4.85 billion in the first 7 months, up 27.6% year-on-year, according to statistics released by China Customs on last Thursday. From January to July, Chinese spent US$4.05 billion on 117,000 passenger vehicles with the engine size above 2.5 liters, which accounts for 75% of the gross value of all imported luxury items.
It's changing India that greets NRIs coming home
Tuesday, 09 October , 2007, 11:01
When Surya 'Sue' Patel landed at Mumbai airport, she stepped out like many confident NRIs.
Wearing the latest Nike sneakers, a designer pair of jeans and her Rolex watch, she thought she would make her presence felt among her relatives in Mumbai before going on to Gujarat to celebrate Navratri and, later, Diwali.
She trundled her Samsonite bags to be welcomed and hugged by her cousin, Meera. Her cousin fished out a mobile and asked the driver to pick them up. Soon the car arrived - a big, gleaming Mercedes Benz. Sue also noted the Gucci bag she was carrying and her Cartier watch. Sue swallowed hard.
An Index with Benefits
This affluent group's buying habits remains relatively stable in multiple economic environments, planning their purchases and managing their lifestyles further in advance than most everyone else. The group expects and embraces new customized products that don't require the mass production of other products. Services can be designed that do not require replication en masse.
Higher prices for such levels of design and service usually come with higher margins.
How was the index constructed?
While constructing the index, Robb looked globally as wealthy groups are truly global in their business dealings, investing and lifestyles.
Companies that have a significant portion of their revenues from luxury goods and services comprise an invest-able sector with profit growth which can be faster than the majority of sectors.
Clear Indexes designed the index utilizing a modified market cap weighting allowing every firm a voice and none to over-dominate, as could be the case if it were based solely on market cap.
In conclusion, we make a strong team: They are the selectors of luxury companies, and we are the quantitative construction people. Stranger partnerships have also done well. As usual, my cash was invested on the first ticket when it opened. The index, and the ETF took a dive on August 16, but since then it has out-performed the major indexes by, should we say, a "luxurious margin."
Disclosure: Mr. Corn is CEO of Clear Indexes LLC which consults to Curtco media for the index tracked by the Claymore/Robb Report Global Luxury ETF (ROB). Clear Indexes also publishes the Clear Global Exchanges, Brokers and Asset Managers Index which is tracked by the ETF (EXB). Mr. Corn owns shares of (ROB) and (EXB).