Luxury Brands:

  • Michael and Ben discuss their personal preferences when it comes to luxury brands, with Ben admitting that he doesn't shop luxury brands at all.
  • They talk about the difficulty of defining where the line is with luxury brands, especially in the context of clothing. Ben prefers items without visible branding, while Michael has upgraded to Instagram shopping for his luxury purchases.
  • The conversation touches on the appeal of luxury brands and how they can be seen as status symbols or a way to keep up with others who have money.
  • They acknowledge that there is a growing aspirational buyer market, particularly fueled by social media, where people are willing to pay for name brand items.

Wealth Inequality and Luxury Spending:

  • Michael and Ben discuss their investment thesis of betting on rich people spending money, acknowledging that it may seem uncomfortable to bet on wealth inequality but recognizing it as a reality in our current system.
  • They point out that wealthy individuals don't often change their consumption habits because they don't have to. However, they note that there is growth potential in the fringe or aspirational wealthy market, as these buyers are more sensitive to economic downturns.
  • Social media is mentioned as a factor contributing to increased aspirational buying behavior, as people see pictures of luxurious trips and want to emulate those experiences.

The Creation of Kraneshares Luxury ETF:

  • Brendan Ahern joins the conversation as Chief Investment Officer at Kraneshares and discusses the creation of the Kraneshares Luxury ETF.
  • He explains that their goal was to provide exposure to companies not already owned by investors through individual securities or broad US equity exposure.
  • The ETF focuses on global luxury companies outside of widely held stocks like Apple and Nike. It includes French, Swiss, German, and other international companies that offer unique exposures not commonly found in portfolios.
  • Brendan highlights the benefits of surgical investing provided by ETFs and emphasizes the aim of getting exposure to companies that investors may find difficult to access on their own.

Demographic Trends and Utilizing the Wealth Effect:

  • Brendan discusses how demographic trends, such as urbanization and wealth accumulation among younger generations, are driving growth in the luxury market.
  • He mentions the rise of the middle class in China and India, as well as the passing down of wealth from aging populations to younger generations.
  • The conversation touches on the proclivity of female buyers and younger consumers for luxury goods, highlighting their role in driving demand.
  • Brendan also notes that luxury brands have been able to tap into emerging markets like China, which has become a significant source of revenue for many global luxury companies.

Challenges in Investing in International Markets:

  • The discussion briefly touches on challenges faced when investing in international markets, such as different regulations and accessibility issues.
  • Brendan mentions his experience with buying stocks listed in Hong Kong and highlights the benefits of using ETFs to gain exposure to specific sectors or subsectors without taking single stock risk.

Growth Potential and Valuations:

  • The conversation acknowledges that luxury brands have experienced high rates of growth relative to non-US equities. However, this growth potential comes with higher valuation premiums compared to other sectors or regions.
  • It is noted that higher valuations could be a factor contributing to recent drawdowns in luxury stocks.