Luxury ETF Giving US investors access to hard-to-access Luxury stocks

Javier G. Lastra, CFA
By Javier G. Lastra, CFA
Investment Partner
September 11, 2023

In the past decade, advances in technology have significantly improved individual investor’s ability to participate in the stock market. This was made possible by apps like Robinhood and Public, offering easy, low cost trading. However, what might not be so clear is that on most of these trading apps the ability to buy and sell stocks is still restricted to companies that are listed on US stock exchanges. For international companies this can present a challenge:

  • Some international companies are directly listed in the US, like Ferrari.
  • Others, like Alibaba, have a kind of special US listing called a sponsored ADR (American depository receipt)1.
  • Yet, a long list of important internationally listed companies such as LVMH (France), Aramco (Saudi Arabia), Samsung (South Korea) and Reliance (India) have neither of these and therefore are not accessible on many US trading platforms.

The majority of Luxury stocks are foreign-listed and thus difficult to access for individual American investors

Luxury sector is disproportionately listed outside of the US, with ~70% of pure luxury companies listed in a foreign country without a sponsored ADR. This means most luxury companies cannot be accessed by individual American investors, preventing them from investing in some of the largest, fastest growing luxury brands.

Investors can buy US listed luxury companies such as Tapestry Holdings, Capri, Ferrari and Zegna. However, the largest luxury companies, that own the most iconic international brands, such as LVMH (owns Louis Vuitton and Loro Piana), Richemont (owns Cartier and Van Cleef), Kering (owns Gucci and Bottega Veneta), Prada, Burberry, and Moncler are difficult to access for US investors.LUX Blog Charts - non US-listed companies

The Tema LUX ETF offers pure-play2, convenient access to the luxury industry in an efficient ETF wrapper

ETFs provide a solution to this problem by creating a portfolio of stocks which can be purchased in a single trade on any app.

The Luxury sector is quality one with a revenue growth rate and return on equity comparable to that of the tech sector3. For those looking to invest in luxury companies, The LUX ETF is the only actively managed ETF that allows American individual investors to get pure-play exposure to the global luxury industry.

Investing in Luxury companies through an ETF wrapper has other benefits for investors’ portfolios. It can provide a convenient and cost-effective way to diversify one's investment portfolio across international markets without the complexities and expenses associated with directly purchasing individual foreign stocks. Instead of trying to pick and then invest in a few winners, the LUX ETF is run by an experienced professional in this space creating a portfolio of pure luxury firms across different regions and product categories. This diversification4 minimizes single-stock risk and can help to enhance the potential for stable, long-term returns.

LUX avoids some of the issues plaguing luxury indices such as inclusion of mass-consumer brands

The LUX ETF is the first US listed pure luxury ETF and is led by an experienced investor who is deeply connected across the sector. The LUX ETF is focused on what we believe are the best luxury companies at reasonable valuations, such as LVMH (owns Louis Vuitton and Loro Piana), Richemont (owns Cartier and Van Cleef), Prada, Burberry, Moncler and Ferrari5. This contrasts with the S&P luxury index which undermines luxury exposure with almost 25% invested in mass consumer companies such as Lululemon (sports wear), Carnival Cruises (mass cruises) and Nike (sports shoes), which we don't believe are true luxury companies but rather mass consumer companies.

Conclusion

In a rapidly evolving financial landscape, the power of technology has given individual investors an unprecedented ability to engage with global markets. However, many trading platforms still limit access to international listings creating the need for innovative solutions like the LUX ETF. By providing a singular focus on luxury with both international and domestic companies, the LUX ETF empowers American individual investors to align their portfolios with some of the world's most iconic and burgeoning luxury brands. Beyond its curated access, we believe this ETF exemplifies the broader potential of exchange-traded funds, offering diversification, convenience, and risk mitigation to investors seeking exposure to international markets.

Footnotes

1Each ADR represents a certain amount of securities listed on a foreign exchange. Sponsored ADRs come in three levels I, II, III with increasing compliance and regulatory requirement. Level III allows companies the ability to raise fresh capital using this security. There are also unsponsored ADRs which are not sponsored by the company and often only trade on pink sheets or over the counter.

2Pure-play: a company that focuses exclusively on a particular product or service in order to obtain a large market share. In this case, we reference the luxury companies that Tema believes are ‘true, pure-play luxury companies’

3Source: Bloomberg data. Comparing GICS level 1 sectors using Bloomberg global mid/large cap indices (financials, utilities, industrials, consumer staples, consumer discretionary, communication, healthcare, energy, materials, technology). For Luxury, using Tema proprietary luxury universe defined as all companies that derive >50% of their revenue from luxury goods. Revenue growth 5 year average (2017-2022) total growth rate. Return on equity 5 year average. Past performance does not guarantee future results.

4Diversification does not guarantee a profit or eliminate the risk of a loss.

5For a full list of fund holdings, please visit temaetfs.com/lux.