With its latest strategy launch, KraneShares has added a new global luxury ETF to its roster. The strategy, the KraneShares Global Luxury Index ETF (KLXY) joins the firm’s suite of China and climate-focused strategies. It arrives as luxury goods boomed to start the year following strong years for the luxury industry overall in 2021 and 2022. What, then, should investors know about the new strategy launched on the New York Stock Exchange?
KLXY offers exposure to top luxury firms around the world by market capitalization in areas including jewelry, leather, skincare, travel, and cosmetics. KraneShares sees positives in how the luxury goods industry has persisted through downturns and inflation. The firm also highlights a growing customer base for global luxury bands, set to reach 500 million people by 2030 from 400 million in 2022.
“We believe the global luxury sector may present a long-term growth opportunity due to companies’ resilient pricing power, strong profitability, and high barriers to entry inherent to global luxury companies," said Derek Yan, CFA, Senior Investment Strategist at KraneShares.
“We believe the luxury market is one of the most resilient sectors, especially in economic downturns and inflationary periods. Brand value, consumer loyalty, and innovation play pivotal roles in driving demand and commanding premium pricing,” said Jonathan Krane, Founder and CEO of KraneShares.
“KLXY provides investors a compelling solution to gain direct exposure to the significant growth opportunity offered by the global luxury market,” Krane added.
The global luxury ETF could benefit from Chinese consumers getting their savings off the sidelines if the Chinese government launches the right stimulus effort. That places KLXY in conversation with the firm’s other China-focused strategies. KLXY itself offers exposure to firms based in nations including Switzerland, Japan, and France.
Understanding the Global Luxury ETF KLXY
So how does the strategy invest? KLXY tracks its market cap-weighted index to measure firms classified by the FactSet Revere Business Industry Classification System as business and leisure, premium ware and apparel, luxury goods, and premium goods industries. The index screens for firms with a minimum free float market cap of $2 billion, a minimum average daily trading volume of $2 billion over the last month and six-month period, and are listed in a “developed country” as defined by Solactive AG.
The strategy assigns weights of 10%, 9%, 8%, 7%, and 6% to its top five ranked securities with all others weighted at 4.5%. The global luxury ETF may also invest up to 20% of its assets in instruments not included in the index. As of August 23rd, the index included 46 securities of firms with caps ranging from $1.9 billion to $470.6 billion. KLXY will charge a 69 basis point (bps) fee. For investors looking to a resilient, global industry, the global luxury ETF may be one to watch.
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