KraneShares Bets on LVMH, Diageo with Luxury Brands ETF

KraneShares Bets on LVMH, Diageo with Luxury Brands ETF

The fund managers are seeking lavish returns with pure-play luxury-goods companies.

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Reviewed by: Ron Day
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Edited by: Mark Nacinovich

KraneShares launched the KraneShares Global Luxury Index ETF (KLXY) last Thursday, the third fund this year that aims to cash in on the rising sales of luxury goods. 

KLXY tracks an index of 40 to 50 luxury goods companies around the world, with a heavy concentration in Europe. (As of Aug. 23, the underlying index included 46 securities.) Its top holdings are Hermes, Richemont and LVMH, which combined, make up 23% of its holdings. 

KLXY joins the two other luxury ETFs that launched this year, the Tema Luxury ETF (LUX) and the Roundhill S&P Global Luxury ETF (LUXX). LUXX was just launched on Aug. 23. The funds all aim to capitalize on the growing global luxury goods market, which Bain & Co. estimates will grow by 60% or more by 2023. 

The fund idea came from KraneShares' founder Jonathan Krane, according to Derek Yan, senior investment strategist at KraneShares. Krane spotted the pickup in global travel and a new wave of luxury consumption post-COVID, Yan said.

China Tourism Picks Up 

While markets have sagged on a slower-than-expected economic recovery in China, Yan said that this sluggishness has been concentrated in certain sectors, specifically construction and manufacturing. A report from research firm McKinsey & Co. that was published earlier this year said that Chinese travel spending is expected to be resilient this year—especially among older and wealthier consumers, likely a boon for luxury sales. 

“I was in Italy this summer, and I interviewed a lot of stores and got hands-on experience in the recovery of East Asian tourists,” said Yan. “This is going to be a catalyst through the rest of the year.”

Focusing on Ferrari, Not Tesla 

KraneShares considered the S&P Global Luxury Index used by LUXX when making KLXY, but decided it didn't focus enough on pure-play luxury companies. Yan cited Tesla, Nike and Mercedes-Benz as top holdings of LUXX whose luxury status is debatable. TEMA ETF’s actively managed LUX also counts those companies among its top holdings.

In terms of cost, KLXY lands between the two other luxury ETFs launched this year. It has an expense ratio of 0.69%, compared with 0.75% for LUX and 0.45% for LUXX. 

All three funds are heavily concentrated in Europe, whose markets have lagged behind the U.S. for years. According to KraneShares’ data, as of Aug. 31, the Solactive Luxury & Lifestyle Index returned 6% annually over the last five years on a euro-dominated basis and 4.7% on a dollar-denominated bassis. The S&P 500 returned 11.1% annually during the same period. 

Gabe Alpert is a former data reporter at etf.com with over seven years’ experience in financial journalism. He also previously contributed reporting and analysis to Barron’s Magazine, Investopedia and other publications.