PICTET PREMIUM BRANDS: Luxury brands fund CAN put price on quality

Fund management group Pictet is one of the world’s leading thematic investors. Over the past 28 years, the Swiss-based group has built a range of funds around themes it believes will drive global economic growth – everything from biotechnology, clean energy, health to robotics.

One of the first themes Pictet latched onto was premium brands: investing in companies that own best-in-class brands that consumers like, are loyal to and are willing to pay a premium price for. It says 120 companies worldwide are currently eligible for premium brand status, though it’s not investing in all of them.

The identification of this investment theme has proven to be a smart move. The asset manager now manages £3.5bn of portfolios around it, £2bn of which is invested in Pictet Premium Brands, a fund available to UK investors.

The fund is managed by experienced asset managers Caroline Reyl and Laurent Belloni and has a strong track record. Over the past one, three and five years, it has achieved returns of 16, 71 and 70 percent respectively – superior to its global growth peer group.

The fund consists of 39 stocks, most of which are listed in the United States and Europe. Many of the names of the companies in his portfolio are associated with luxury goods: such as Italian automaker Ferrari and LVMH, which owns a portfolio of die-for consumer brands such as Dior, Hennessy, Louis Vuitton and Moet.

“Luxury is the fund’s DNA,” says Belloni, “but premium brands can be found in many areas. What we look for are companies with pricing power, benefiting from consumer loyalty, enjoying sustainable business growth and operating in markets where barriers to entry exist.”

He adds: “That’s why we have stocks like cosmetics giant L’Oréal, stakes in major financial brands like Visa and American Express, as well as hotel groups like Marriott International and Hilton Worldwide.”

Although the portfolio has a western bias in terms of exposure, it is highly responsive to economic growth across Asia, particularly in China. Many of the companies sell their goods to the growing middle class in Asia who have money to spend and an eye for premium western goods. Indeed, with the reopening of the Chinese economy, the fund also bought interests in American luggage specialist Samsonite and Chinese company Anta Sports, owner of sportswear brand Fila. “Both companies should benefit from China opening up its economy and borders,” added Belloni.

Premium brands are naturally long-lasting. This keeps the fund’s portfolio relatively stable. But when the shares of specific holding companies rise in price, the managers often take the opportunity to take some profit by lowering the stakes. In recent months, positions in the electric car manufacturer Tesla and the French luxury brand Hermes have been included.

While Reyl and Belloni choose the fund’s stocks, they call on an advisory board’s expertise for themes within the premium brand space that could emerge in the future and prove profitable. ‘The members have specific knowledge in areas such as fashion, sporting goods, leisure time and the Chinese economy,’ says Belloni. “We meet with them twice a year and that is very helpful for us as fund managers. It gives us a glimpse into the future and some of the sub-themes we should explore.”

The fund has an annual ongoing charge of just over one percent and is available through major platforms such as AJ Bell, Hargreaves Lansdown and Interactive Investor.