The wide world of bling

The rich are getting richer, and there are more of them every year. Why not ride on their coattails?

Globe Investor Magazine, Nov. 21, 2007

LUXURY ISN'T AS EXCLUSIVE as it used to be: According to Washington, D.C.-based Telsey Advisory Group, the global market for luxury goods and services is worth $150 billion (all currency in U.S. dollars) annually-and should grow 6% to 7% per year.

Not coincidentally, the number of millionaires on the planet has doubled in the past 10 years-to 9.5 million as of last year, up 8.3% from 2005. One third of them are in North America, including 248,000 in Canada.

All this means buying power is growing around the globe. Within 10 years, China is expected to be the world's largest market for luxury goods (it's in third place now, behind the U.S. and Japan). The country imported almost $5 billion of luxury goods in the first seven months of 2007, up 27.6% from a year earlier.

Luxury companies' pricing is also less vulnerable to economic vagaries; Forbes magazine's Cost of Living Extremely Well Index is up 6% over the past year-almost triple the rise in overall consumer prices. And investors can reap the rewards: Merrill Lynch's 50 Stock LifeStyle Index has outperformed the MSCI World Consumer Discretionary Index by an average of 8% annually since 2000, while dividend payments were 20% higher. Paribas's World Luxury Index, which trades on the Deutsche Börse, is up 54% over the past three years, compared to the S&P 500's 36%. It's not hard to see why the Claymore/Robb Report Global Luxury ETF, based on the Robb Report's Global Luxury Index, started trading in July.

When it comes to individual stocks, it's hard to beat the LVMH Group (market cap: nearly $60 billion). The conglomerate's holdings run the gamut from Dom Pérignon to Louis Vuitton (whose limited edition $45,000 "Tribute" handbag was a worldwide sellout), and also include fashion houses Marc Jacobs and Donna Karan and cosmetics chain Sephora. Last year profits were $4.4 billion-up 31%-and the company's operating margin was a tantalizing 21%. Unfortunately, currency impacts mean the stock is expected to return just 1.65% by the end of 2007.

Luxury retailers mulling initial public offerings include Italian designer Roberto Cavalli, Prada, Salvatore Ferragamo and Versace. But you can't buy these stocks indiscriminately. Be smart: ludicrous price tags aren't always restricted to designer shoes and handbags. Aeffe Group-the Italian firm that counts Moschino, Jean Paul Gaultier and Alberta Ferretti among its labels-had aimed to get as much as 5.40 euros a share in its July IPO, but ended up getting just 4.10 euros. Since then, the stock has dropped another 11%. - DAVID PARKINSON