Investors highly estimate shares of luxury-article producers at the moment. Makiko Zürcher-Hosaka, who has been a fund manager and expert on the issue for many years, judges the chances and risks of this investment category in her discussion with finews.ch.
Tokyo-born Makiko Zürcher-Hosaka (picture) has been living and working in Switzerland for about 20 years now. During this period of time, she has earned herself the reputation of being an extremely reliably fund manager while working for Credit Suisse and then for Clariden Leu Bank.
Also on an international level, she enjoys a first-class reputation and the British trade journal «Citywire» has recently granted her one of the much esteemed «Rising-Star»-awards.
It's been roughly half a year meanwhile that Zürcher-Hosaka has been working for Zurich's asset manager Dynapartners, which launched its «Luxury Brands Fund» just a few weeks ago. The fund is approved in Luxemburg for now and approval in Switzerland is expected within the next few months.
For the time being, the fund mostly seeks to attract institutional investors with a minimum investment of 500.000 Francs. Later on, Dynapartners plans to directly address private banking and retail clients.
Pearls in the universe of luxury
Zürcher-Hosaka has current investments in about 20 companies from a «universe» of approximately 150 enterprises worldwide. Besides known brands and names like Hermes, LVMH and Richemont, the fund manager can also bet on small, less known companies thanks to her expertise. These include Interparfums / France, Ted Baker / Great Britain and Kyoto Kymono and Pilot Corporation / Japan.
It is often about shares, which are not covered by other, specialized analysts, as Zürcher-Hosaka explains in her discussion with finews.ch. «Especially the luxury sector is home to many small companies, which are neglected by sell-side-analysts since such enterprises do not mean much of business for banks,» says Zürcher-Hosaka.
In addition, given the background of ongoing saving measures of many financial institutions being implemented, the amount of analysts is to decrease further, which means even better chances for remaining analysts, as Zürcher-Hosaka assesses further.
Dynamic strategy for allocation
Working with Dynapartners, Zürcher-Hosaka can make long-term investments of up to five years. Since she doesn't publish research reports to the public, different managers of the companies covered sometimes provide her with highly comprehensive information, which make her analyses even more valuable and support her decisions for investments.
What is determining for Zürcher-Hosaka's strategy, however, is to have a so-called dynamic strategy for allocation. This means that the fund can convert up to 100 percent of the investments in cash when market prices decrease. «We have chosen this investment approach in order to be engaged in rising markets but also to limit drawdowns when prices fall,» explains the expert.
Correlation to money in circulation
As for the further development of her sector, Zürcher-Hosaka opposes the frequently made claim saying that shares for luxury products would correlate with the global development of the economy. The fund manager does not see any indication for this but recognizes a link between the growth of the volume of money in circulation in individual countries and the consumption of luxury goods.
Zürcher-Hosaka raises the example of her home country Japan, in which the consumption of luxury products had been especially on the rise in those years, in which the central bank massively increased the volume of money in circulation.
M&A-activities driving price developments
Given this background, there were a lot of indications suggesting that this development was going to repeat in other parts of the world now, in which issuing banks were flooding the markets with high liquidity, concludes Zürcher-Hosaka. In addition, luxury products were also a popular investment especially in Asia given low interest rates and possible scenarios of inflation.
It's also because of another reason that luxury shares should increase in value: Zürcher-Hosaka recognizes clear M&A activities in the luxury sector. Swatch's recent takeover of Harry Winston was only the best-known example of this trend. Tiffany was a further brand associated with similar takeover fantasies.
Continuing pressure for consolidation
According to Zürcher-Hosaka, there are generally speaking lots of luxury brands, which have a considerable reputation but which are not very profitable from an economic perspective. «This results in continuous pressure for consolidation», stresses the fund manager, especially since interest charges should remain low for longer and since consolidators still had a lot of funds available – which had also been demonstrated in the takeover of Harry Winston. «This is a good time to buy, especially because inflation is very low,» says Zürcher-Hosaka.
With margins remaining high in the sector, Zürcher-Hosaka predicts the market of luxury goods to grow by around 15 percent per year – a prognosis, which is supported by a further observation: «People in Asia have a different attitude to luxury. If one buys a luxury handbag, for example, her neighbor will mostly also want such a bag.»
Porsche and BMW included
Zürcher-Hosaka explains that there's something like a «collective sense for luxury» among Asian middle-classes. This behavior of consumers had a positive impact on the market – supposedly for the long run.
Also luxury brands like BMW, Porsche and Estée Lauder are part of her investment universe.
