According to Dominion, luxury as an investment sector is not restricted to fashion and fast cars. It says the idea that luxury brands and products must be expensive, exclusive and limited to the elite of society has been one of the biggest limitations on the business side. But this has changed in the last 15 years as companies have combined luxury design with modern manufacturing, controlled distribution and brand management.
Luxury brands can now appeal to wider market by providing products at every level without damaging their exclusive image – a process that Dominion calls the ‘democratisation of luxury’.
In this context, Dominion’s use of chic – a 19th century French word that means smart or stylish – refers to a mix of luxury brands in everything from technology and haute couture to food and drink. Luxury is seen in broader terms as something that adds comfort or quality of life.
Central to Dominion’s definition of luxury sector companies is their ability to determine the price and supply of products while protecting their market and profit margin.
The chic fund will combine passive and active management. The passive part will invest in bigger listed companies according to an investment model created by Dominion and BlackRock Merrill Lynch that will manage a core index of shares according to defined criteria. This will comprise 80-100 per cent and will invest in a core index of shares such as Estee Lauder, Hugo Boss and Porsche.
Up to 20 per cent of the portfolio may be invested in smaller companies, including initial public offerings and companies that intend to list within the next 12 months.
This fund could take advantage of growing demand for a limited supply of luxury goods and services, particularly from counties such as China and Japan. Unlike mass market brands, strong luxury brands are driven by supply and demand rather than price, so changes in the market cycle may have less of an impact.
However, some investors may feel that luxury goods and services would still be hard hit when interest rates rise or there is a market downturn.