As both current and emerging wealth skyrocketed in early 2007, many thought that the trend would continue and investors could potentially cash in on the uber-wealthy, so an exchange traded fund (ETF) was launched tracking luxury items.
This ETF was the Claymore/Robb Report Global Luxury (ROB). The ETF focuses on companies that mainly generate revenues from the sale of highly luxurious items. Some companies the ETF holds are Daimler (DAI), maker of Mercedes Benz, Coach (COH), Nordstrom (JWN) and Saks (SKS).
The ETF is a great idea, offering investors exposure to these high-end retailers and merchandisers while offering some diversity. However, the timing of its release was unfortunate, states Selena Maranjian of the Motley Fool. It launched a few months before the beginning of the global recession, which forced consumer consumption to dramatically decline and forced many to think twice about buying “the nicer” things in life. This caused many of the luxury retailers to tread in deep water.
ROB was simply the victim of an overall bad market in 2008, and it was down 51.5% for the year – in line with the broader market. The ETF worked exactly as it should.
On the positive side, as the economy starts to recover, consumer confidence will build up and spending will increase.
If you do choose to grab exposure to luxury retailers, don’t just jump into the ocean. As with all other investments, always have a strategy, stay diversified, do your homework and know exactly what is under the hood.
Kevin Grewal contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.