Performance Review 2006
Varabot Ho (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "Launch in July 2006, the fund has been progressively invested during the second half of the year. The fund assets reached 39 Mio Euro as of 31-12-2006.
At the end of 2006, the main part of the portfolio was European (75%) with a large weight in France (38%), followed by the US (25%). Regarding the sub-sectors, the fund is well diversified but the main sub-sectors are consumer goods (32%), watchmakers (18%), leisure (12%) and alcohols (11%).
The over performance of the fund was due to positive stock picking in consumer goods (Hermès, Hugo Boss, Valentino, Burberry and Polo Ralph Lauren), watch makers (Richemont and The Swatch Group) and leisure (Carnival, Hilton hotels) but also from gains on operation: Guess +30% in 3 months.
Whereas, a slowdown can be noticed in the United States, the luxury good sector still benefited from very strong demand, group restructuration and capitalistic rumours and operations.
Regarding the currency, the fund’s exposure in USD was fully hedged against EUR."
Performance Review 2007
Varabot Ho (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "2007 performances: CS EF Global Prestige: -2.29% vs MSCI World in Euro: -4.19%.
During the first half under review, the luxury sector benefited from good publications despite the weakness of the yen and the USD but also from speculative rumours. But as with the rest of the markets, the luxury sector has then been impacted by fears of an acceleration of the real-estate crisis in the United States. The fundamentals remained however solid thanks to the vigour of the world’s growth and the published results which were for a great majority beyond the forecasts.
During the period under review, there were no significant changes in the portfolio in terms of sub-sectors or geographic breakdown. The main part of the portfolio belongs to Europe (82%), followed by the US (18%). Regarding the sub-sectors, the sectorial diversification was maintained but the main sub-sectors were consumer goods (28%), watchmakers (17%) and cosmetics (14%). Cosmetics represented at the moment a significant part of the portfolio due to their more defensive aspect.
The hedge in USD against EUR was settled late in the year. Exposure in USD was not more covered against EUR since the end of December 2007.
The over performance of the fund benefited from positive stock picking in cars (Porsche), wine, spirits & confectionery (Laurent Perrier, Lindt), watch makers (Richemont, The Swatch Group). The fund also benefited from the takeover of Hugo Boss and Valentino."
Performance Review 2008
Varabot Ho (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "2008 performances: CS EF Global Prestige: -41.26% vs MSCI World in Euro: -38.73%.
In 2008, stock markets were difficult and very volatile, driven by deteriorating newsflow on economic indicators such as consumer confidence, company results and increasing risk aversion.
In this context, the luxury goods sector delivered solid results until the third quarter 2008 but started to show a slowdown in autumn 2008 with the subprime crisis. Indeed the consumer confidence began to decrease and affected the luxury goods. But situations among luxury goods companies were very contrasted. Leather goods had still very good trends but leisure and lodging were suffering.
There was no significant change in the portfolio in terms of geographic breakdown. The fund remained invested in European (70%) and American companies (20%) but it is good to have in mind that European companies’ turnovers are geographically diversified with a significant exposure to Asia and Emerging Markets. Some positions sold were not reinvested due to the difficult environment and cash has been kept in the portfolio in order to benefit from market opportunities. And so, cash level reached 10% of the fund assets at the end of the year 2008.
In terms of sub-sectors, the exposure has been reduced in watch makers in order to take some profits but also in automotive due to more uncertainties and difficulties on cyclical activities. The exposure in cosmetics was also reduced with the sale of Clarins after the announcement of the bought back by the family (the stock has been delisted).
The main sub-sectors remained consumer goods (35%), watchmakers (15%), wine, spirit & confectionery (13%) and cosmetics (11%).
The funds performance was sustained by its exposure in Hermès, one of only stocks which registered positive performance in 2008.
During 2008, the USD exposure has not been covered against EUR."
Performance Review 2009
Varabot Ho & Patrick Kolb (since 1st of July) (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "2009 performances: CS EF Global Prestige: +40.34% vs MSCI World in Euro: +22.67%.
After the difficult period of the financial crisis, the economic situation was a little bit better in 2009 and the markets have strongly performed since the second quarter of 2009, supported by positive newsflow.
In this context, the luxury good sector has once more proved its resilience and its ability to rebound rapidly after periods of crisis. Most companies in this sector have announced results above expectations helped by economic recovery in developed countries and strong growth in emerging markets, especially in China. The situation was however contrasted within the luxury universe and premium brands with a significant exposure to emerging markets seemed better positioned to benefit from economic recovery.
During 2009, there was no significant change in the portfolio in terms of geographic. The fund remained invested in European and American companies whose sales are geographically diversified with a significant exposure to Asia and Emerging Markets.
In terms of sub-sectors, the exposure has been reduced in leisure (airways companies, cruisers) in favour of watch makers due to the high potential of the Chinese markets. In particular, positions in Swatch Group and Richemont were strengthened. Were also reinforced apparels by increasing the exposure in Coach and by a new investment in Abercrombie.
Sub-sector diversification was maintained and the main sub-sectors remained consumer goods (30%), watchmakers (19%), wine, spirit & confectionery (15%) and cosmetics (11%).
Since end May 2009, the whole fund USD exposure was hedged against EUR.
In 2009, the funds performance was affected by small & young luxury groups – sold during the year - impacted by their financial weaknesses (Mariella Burani, Escada, Groupe partouche, Hotel Regina & 1855). But they have been widely compensated and sustained by the exposure of the fund in watch makers, thanks to The Swatch Group and Richemont, but also the French diversified group LVMH (and its holding Christian Dior) thanks to its activities in watches."
Performance Review 2010
Patrick Kolb (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "2010 performances: CS EF Global Prestige: +49.73% vs MSCI World in Euro: +18.11%.
In 2010, the luxury good sector continued to benefit from global economic recovery and more specific positive factors: the leverage generated by the growth of sales, the effect of the pricing power and the cost reductions operated the last years. Furthermore, the sector benefited from its strong presence on the emerging area, particularly in China which is becoming the second luxury market after the USA.
During the reported period, the main change in terms of geographic breakdown was the increase of direct exposures in emerging markets with stocks such as Hengdeli Holdinds, Hong Kong & Shanghai Hotels, Shangri-La in Hong Kong and Natura Cosmeticos in Brazil. These investments accounted for almost 7% of the funds total assets at the end 2010.The fund remains invested in European and American companies which sales are geographically diversified with a significant exposure to Asia and Emerging Markets.
In terms of sub-sectors, the exposure has been reduced in retail in favour of automotive (Daimler, etc). Sub-sector diversification is maintained and the main sub-sectors remain consumer goods (31%), watchmakers (22%), cosmetics (11%) and wine, spirit & confectionery (10%).
Our exposure in USD is not covered at all since February 2010.
The funds performance has been a little bit affected by the currency hedge the first two months of 2010. But it has been widely compensated, as in 2009, by its exposure in watch makers that performed well."
Performance 2011 - Year-to-Date
Patrick Kolb (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "Since the beginning of the year, we have not significantly changed the sectors breakdown of the fund that is, for us, always adapted to the current context. Indeed, despite a difficult beginning of the year due to a sell-off of the sector, we remain confident in the good health of the luxury companies. Emerging markets remain a strong contributor of the sector’s growth.
One of main facts of the first quarter is the recovery of major M&A operations. LVMH has, for example, announced the acquisition of Bulgari with a very high premium (50%). The fund greatly benefited from this announcement.
Good performance of the fund can be explained by the very healthy figures for the sector compared to the markets that continue to suffer from European debt crisis."
Performance since 2006
Varabot Ho & Patrick Kolb (since 1st of July) (Sub-Advisors: Marjorie Sonigo and Florence Mosse): "No major change during the full period neither in terms of sub-sectorial breakdown nor in terms of geographical repartition. However, a direct exposure in emerging markets since 2010 can be noticed.
The funds performance was sustained by its exposure in Hermès, the French specialist of leather goods and in watch makers, the specialized Swiss groups: The Swatch Group and Richemont (Cartier, Baume & Mercier, IWC, Jaeger-LeCoultre,Vacheron Constantin, etc) and the more diversified French group LVMH (Tag Heuer, Hublot, Zenith)."
Investment Process and Strategy – How does the Fund Manager invest?
Marjorie Sonigo & Florence Mosse:
The investment universe:
• Identification of companies active in the luxury sector in several sub-sectors (cosmetics, cars, leather goods, leisure, hotels, jewellery, watches, yachts…) that offer a good diversification to the fund.
• Screening of sales and EBIT to select companies with at least 20% of their revenues/profits related to luxury goods
• Regular update of the universe to take into account the evolution of the sector (IPO, emerging of new brands, market cap, liquidity …)
Management of the portfolio:
• With the help of our personal database updated on a continual basis and Bloomberg data on the stocks, we screen very carefully several criteria:
Financial criterias
- Sales growth and growth potential
- Capacity to generate annual double digit increase in earnings
- High margins and margins growth
- Market share growth
- High return on capital
- Strong cash flow generation
- Sound balance sheet, low gearing, inventories
Qualitative criterias
- Quality of management
- Strong business model (brand, unique product, strong barriers to entry…)
- Long term competitive advantage
- Pricing power
- Business plan and strong earnings visibility
- Brands positioning
Valuation criterias
- Traditional ratios: PE, EV/EBIT, EV/CA…
• Investment decisions are taken only after a careful analysis of these criterias support by internal and external research, discussion with analysts and visits to companies.
• We also organized meetings with specialists of luxury sector that give us their opinion, views and consensus on the luxury sector but also anticipations of the new trends.
• We tend to have high conviction in limited number weightings. This process leads to a relatively concentrated portfolio with between 35 and 50 stocks.
• Maximum 10% weight of each stock in the portfolio. Weight on each company is determined by a combination of some qualitative and quantitative criterias as:
- New product launch
- Visibility on the revenues
- Country risk
- Currency impact
- Liquidity and market cap,
- Potential M&A target,…
Investment Outlook
Marjorie Sonigo & Florence Mosse: "Despite the very good performances over the long term and particularly since the last 2 years, we remain convinced of the potential and forecasts on the luxury sector.
Luxury companies benefit from very healthy balance sheets thanks to a high visibility on growth and so strong and resilient margins and significant cash-flows.
The main drivers for the next few years are:
High contribution from the emerging markets: share of emerging consumers in the luxury sector will increase from 40% to 60% by 2020 (China plays the major role).
- Increase of wealthy consumers
- Increase of tourism
- New way of luxury consumption (business women; wellness / research of special feelings....).
A recovery in the M&A within the sector could also be a good support for the sector."
