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Diamonds are forever: The case for investing in the global luxury goods market

20 May 2024 FNB
Samukelo Zwane

Samukelo Zwane

In recent years, market uncertainty has become the norm, leaving most investors actively searching for opportunities that offer them stability and long-term growth potential while limiting volatility in the face of constantly shifting economic sands.

Against this backdrop, the luxury goods sector has emerged as a compelling investment opportunity for investors. FNB recently launched the FNB 100 CapitalPreserver Autocall 2 (USD) structured investment solution. This innovative, US dollar-denominated product provides exposure to developed equity markets through the Bloomberg Luxury Series 1 Index. It offers an attractive five-year investment term, an indicative return of between 7% and 8% and offers 100% capital protection at maturity.

Samukelo Zwane, Head of Product at FNB Wealth and Investments, believes that diversifying your portfolio by investing in an index that tracks the global luxury goods market makes sound investment sense. With a minimum investment requirement of $6 000, and a competitive once-off upfront fee of just 3%, the FNB 100 benefits delivered by FNB CapitalPreserver Autocall 2 are accessible and affordable to all.”

He cites several reasons why this is the case:

• Strong brand loyalty and inflation insulation: Luxury companies are known for their strong brand loyalty amongst customers and for their high profit margins. "Luxury brands have effective pricing power, allowing them to maintain profitability by passing inflationary increases to consumers without losing sales, even during economic downturns," Zwane explains.

• Resilience during economic fluctuations: Zwane points out that the luxury goods market has demonstrated remarkable resilience during economic turbulence. He says that affluent consumers, who are less impacted by economic shifts, continue to spend on luxury items, providing a buffer for these companies against economic hardships.

• Growth in emerging markets: The expanding middle and upper classes in emerging markets, particularly in Asia, present significant growth opportunities for luxury brands. As these economies grow, so does the global demand for luxury products, driving sales and profits for companies in the luxury sector.

• Technological advances and e-commerce: The luxury sector is increasingly benefiting from technological innovations, including e-commerce and digital marketing. The rise of online sales has opened new avenues for growth, especially post-pandemic, as more consumers are comfortable purchasing luxury goods online.

• Exposure to high-end consumer spending: The luxury goods index provides exposure to high-end consumer spending, which is bolstered by trends such as the increasing influence of millennials and Gen Z consumers. These groups are likely to drive future demand given their preferences and increasing purchasing power.

• Potential for long-term, sustainable gains: The luxury market's potential for long-term growth is supported on various fronts, including strong brand identities, compelling global expansion strategies, and a growing young affluent consumer base that is highly brand conscious. All of this makes it a very attractive sector for investors looking for sustainable returns over time.

• Diversification benefits: Zwane highlights that investing in luxury goods companies through an index offers good diversification potential within the equity component of an investment portfolio.

“Investing in FNB’s structured solutions ensures that you get exposure in leading global companies and sectors without having to worry about market volatility as the capital is guaranteed should the solution not yield positive returns,” concludes Zwane.

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