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‘Luxury funds’ are in vogue

[STOCK IN FOCUS] Outperform other fund categories

July 22,2011
So-called “luxury” mutual funds, a category that invests in makers of high-end brands, are posting sky-high returns, far outperforming all other mutual funds.

Funds invested in recession-proof luxury brands have seen their value soar, as demand for high-end products remains largely unaffected by lethargic global economic growth. Consumers in emerging nations have also helped buoy luxury brands.

According to financial data provider FnGuide yesterday, 10 domestic luxury funds posted average returns of 10.26 percent during the past three months. This far outpaced runner-up gold funds, which posted a 4.26 percent return, even on the back of skyrocketing gold prices. It also towers above most mutual fund categories that posted nominal or negative returns during the same time period.

Such performances were on the back of explosive growth in high-end brands’ stock values, as the luxury market exploits unquenchable thirst for its goods in developing markets.

U.K.-based fashion brand Mulberry’s stock value increased on-year by an eye-popping 529.06 percent last year as its Alexa bag took the world by storm. Other luxury mainstays, such as Tiffany’s, Bvlgari and Coach also saw their stock values jump by 111.88 percent, 102.15 percent and 91.21 percent, respectively last year.

Windfalls are expected to continue. The U.S.-based business magazine Forbes forecasted that the global luxury market will grow 8 percent this year to reach $276 billion, flouting the sluggish recovery of the U.S. economy and the sovereign debt crisis in Europe.

The advantage of betting on luxury brands is in their ability to remain unscathed by larger market trends.

“Luxury goods are less affected by economic conditions, compared to regular consumer goods,” Kang Seok-hoon of Woori Asset Management. “Moreover, demand for high-end goods is increasing in emerging nations such as China and India, driving growth for those brands.”

But experts warn of volatility and a limited investment selection. “Luxury funds have comparatively higher volatility,” said Yang Eun-hee of Korea Investment & Securities. “A portfolio’s luxury fund ratio shouldn’t exceed 10 percent.”


By Lee Jung-yoon [joyce@joongang.co.kr]



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