HEAD-TO-HEAD: Julius Baer/GAM vs Pictet

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Fatima Khizou, manager research analyst at Morningstar

The luxury brand niche sector is within the larger consumer goods and services category. It experienced strong, double-digit growth from 2009 until early 2014, spurred to a large extent by emerging markets and especially China. As China’s economy grew, much of the new wealth was channeled into the luxury sector.

“China contributes nearly half of the growth in the luxury sector, and the contribution of emerging markets overall is about 70%,” said Fatima Khizou, manager research analyst at Morningstar.

The sector was negatively impacted by China’s crackdown on corruption and excessive spending, which the government launched in 2012, as well as the general slowdown in mainland economic growth.

Some luxury brands based in Switzerland were hit by the unpegging of the Swiss franc to the euro in 2015 and the sudden revaluation of the country’s currency. The two factors in combination affected Swiss luxury watch makers in particular. Terrorist attacks in France and the UK also contributed to the diminished number of Chinese and Russian tourists who tend to be big spenders on European luxury goods.

After a difficult 2014 and 2015, the sector’s earnings started recovering in 2016, propelled by a global economic recovery and luxury brand companies’ increasing focus on millennials.

FSA looks at two mutual funds in this niche sector: the Julius Baer Multistock Luxury Brands Fund and the Pictet Premium Brands Fund.

Note:  The Julius Baer fund is managed by GAM, which used to be part of Julius Baer Group before it spun out in 2009. GAM had a licensing agreement to continue using the Julius Baer name on some funds. The agreement was terminated on 1 March 2017 with a six-month transition period.

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