Roundhill Investments has expanded its suite of thematic equity ETFs in the US with a new fund providing global exposure to the luxury goods sector.

Luxury goods companies typically benefit from high profit margins and brand loyalty.

The Roundhill S&P Global Luxury ETF (LUXX US) has been listed on NYSE Arca with an expense ratio of 0.45%.

According to research from Bain & Co., the global luxury market is expected to grow by roughly 50% between 2022 and 2030, resulting in a total market size of more than $600 billion. Generation Y, Z, and Alpha are expected to be the key drivers of this growth with their spending predicted to expand at a rate three times faster than other generations.

Investors adding luxury goods companies to their portfolios can expect to benefit from these firms’ high profit margins, brand loyalty, strong free cash flow generation, and well-balanced revenue exposure to both developed and emerging economies, characteristics that historically have offered a degree of resiliency during economic and market downturns.

The global luxury sector has performed well over the past decade with the S&P Global Luxury Index, the ETF’s underlying reference, exhibiting a compound annual growth rate (CAGR) of 11.8% between 31 August 2011 and 31 July 2023.

Dave Mazza, Chief Strategy Officer at Roundhill Investments, commented: “Luxury goods have shown resilience through challenging economic conditions, and we believe the sector has long-term growth potential. We are excited to offer investors efficient, low-cost access to the global luxury sector with the launch of LUXX.”

Methodology

The S&P Global Luxury Index consists of 80 companies globally that are engaged in the production or distribution of luxury goods or the provision of luxury services. To ensure investability, constituents must be listed on a developed market and have an average daily trading volume of at least $1 million.

Companies are selected for the index based on their size as well as a ‘luxury exposure score’ which is calculated by S&P’s equity research team using quantitative metrics such as revenues by business area as well as qualitative factors such as market perception of their industry segment.

Constituents are weighted using a combination of market capitalization and their luxury exposure scores. Individual stocks are capped at various levels depending on their luxury exposure scores – the companies most aligned with the luxury theme are capped at 8% while those that are least aligned are capped at 2%.

The US (32.6%), France (25.8%), Germany (10.0%), Switzerland (7.6%), and Italy (7.4%) contribute the largest country weights, while the index’s sector allocation is naturally dominated by consumer discretionary companies, which make up 86.5%, followed by consumer staples at 13.5%.

Notable positions include Hermes (8.2%), LVMH Moet Hennessy (7.9%), Richemont (7.6%), Mercedes-Benz (5.3%), Ferrari (5.0%), Kering (5.0%), and Diageo (4.0%).