How to invest in the lure of luxury goods

published 7 October 2019

A professional investor tells us where he'd put his money. This week: Sam Morse of the Fidelity European Values Fund PLC selects three favourites.

While continental European equity markets performed well in the first half of 2019, volatility over the summer has shown that few of the issues previously troubling markets have been resolved. Trade threats rumble on and political uncertainty remains high with Brexit negotiations at an impasse. Investors have welcomed central banks' shift towards monetary easing, but there is a risk that it could fail to kick-start global economic and corporate earnings growth.

Against this uncertain backdrop, Fidelity European Values PLC remains focused on investing in attractively-valued companies able to sustain consistent dividend growth and perform well irrespective of the economic backdrop. Over the long term these types of companies tend to outperform the broader market.My portfolio contains three global luxury goods companies with defensive qualities thanks to their top-quality franchises and growing sales in emerging markets.

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L'Oral (Paris: OR)

LVMH: an unrivalled portfolio of brands

LVMH (Paris: MC)

It has consistently delivered a good cash-flow return on investment coupled with strong growth and it remains well placed to benefit from the ongoing growth in luxury goods driven by middle classes in emerging markets, notably in China. Its brand equity, scale and diversification make it relatively defensive within its peer group if demand slows.

Hermes: a name withrare cachet

Hermes (Paris: RMS)

This scarcity value creates strong pricing power and also provides a buffer in periods of weaker demand, when Hermes can simply work through its waiting list. As a result Hermes has delivered an extremely consistent and defensive financial performance and this is reflected in its strong outperformance through the financial crisis in 2008/2009. Hermes trades on high multiples, but this reflects the exceptional performance since its flotation in 1993 and the extremely encouraging growth outlook from here.

Sam Morse is a portfolio manager of Fidelity European Values.He joined Fidelity in 1990 as a research analyst and four years later he progressed as a portfolio manager in 1994, where he was responsible for running several retail UK equity funds and mandates. In 1997 Sam joined M&G as Head of UK Equities and one fund he ran in particular was the M&G UK Growth Fund. Sam then went back to Fidelity in 2004 as Head of the Institutional UK Equity Team, and his role consisted of developing UK equity solutions for institutional clients and managing UK equity portfolios. Since 2009 to present, Sam continues to manage the Fidelity European Fund and Fidelity European Trust PLC since 2011.