Luxury stocks: an excellent first month of the year

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Generally speaking luxury stocks sprinted ahead in these first few weeks of 2019, with performances that could hardly have been better: with a few exceptions, mostly found in the troubled auto sector (still regarded by investors with a high degree of skepticism), investors have plenty of reasons to cheer.

We are currently seeing in green territory not only those high quality companies that already shone through 2018, a fairly difficult year, but also some of the most clobbered names in recent times.

What was the rationale behind the recovery ? Of course underneath every single stock performance lies a different corporate case with different fundamentals, in general though it is fair to say that luxury is quite a cyclical sector, particularly when the economic cycle has a lot to do with the situation of a country known as China (and the rest of the Far East as well). Good data coming from the US though have, at least momentarily, brushed asides some of the most gripping recession fears for the largest economy in the world. This turned out to be quite a nice support specifically for those American luxury names, whose revenues are strongly geared to the domestic market.

Once again we can also pinpoint how some of the best Italian names in this field have delivered for the investors, that’s definitely welcome good news for Italy, whose macro-economic scenario recently did not provide many reasons to be cheerful. As a matter of fact we cannot forget that risks still abound when investing in luxury stocks: as we have seen last week even some of the biggest names are capable of going through significant bouts of negatively-skewed volatility, when things go south for risky assets in general.

In order to keep investing in this segment of the market for the remainder of the year some rules must be observed : first of all over a longer time horizon quality DOES pay off, particularly in an hyper competitive sector like this one. Thus it would be wise to invest in the most solid balance sheets with the most lucrative brands. At the same time in the current scenario protecting our portfolio from general market volatility through hedging tools like financial derivatives would probably be appropriate. When investing in luxury what we want mostly is shedding as much beta as possible, while picking up all the available alpha, the extra yield a stock can offer  uncorrelated to the market.

We should not forget this: undoubtedly comparing to only two months ago the mood appear vastly improved, potentially though risky unknowns are still out there in large numbers.

CompanyYTD Performance Stock Market
Brunello Cucinelli0.106Milano
Moncler 0.1632Milano
Christian Dior0.101Paris
Hermes 0.0775Paris
Tesla -5,1%%New York
LVMH 0.1166Paris
Kering0.096Paris
Luxottica 0.0002Milano
Estee Lauder 0.177New York
Ferrari0.2624Milano
Ralph Lauren0.219New York
Burberry0.1London
Prada0.097Hong Kong
BMW-0.018Frankfurt
Ferragamo0.0005Milano
Tapestry/Coach0.031New York
Tiffany0.094New York
Porsche 0.051Frankfurt
Richemont 0.0775Zurich
Tod's-0.012Milano
Capri/Michael Kors0.228New York

 

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