Tema ETFs founder and CEO Maurits Pot told VettaFi that luxury is a booming sector. Luxury stocks are at all-time highs and are resilient. However, he said that this sector “cannot be accessed well through an indexed approach.”
“You can’t rely on an indexed approach, given the disparity of returns between luxury companies,” Pot said. “Luxury is changing quite fast. In luxury there’s a huge dispersion between winners and losers, and an index can’t capture that.”
So, investing in luxury “requires an active approach,” he added.
This is where the newly launched Tema Luxury ETF (NYSE Arca: LUX) comes into play. The active ETF invests in companies operating in the luxury industry. The universe of luxury spans fashion items, accessories, automobiles, hospitality, and beauty.
Another issue with existing luxury index funds, according to Pot, is that they often include consumer products along with luxury brands.
“The existing luxury index funds conflate luxury with consumer,” Pot said, adding that you can often find companies like Nike, Apple, or Marriot in other indexed luxury ETFs. “These are good companies, but they’re not luxury.”
“Consumer has different drivers,” he added.
Pot added that, because of the aspirational nature of the brands, luxury “is very defensive” and can weather inflationary storms. That’s because the sector has strong pricing power. After all, the more aspirational the product, the more pricing power it has.
“Luxury is now at a junction where it’s proving resilient and defensive in a challenging environment,” he added.
Luxury is a business defined by “strong growth, high profitability, and high returns,” Pot said. “But unlike technology, most luxury companies are fairly valued.”
Returning Manufacturing to the U.S.
American reshoring is the process of returning manufacturing to the U.S. It is driven by supply chain insecurity, deglobalization, and geopolitical tensions.
RSHO seeks to provide long-term growth by investing in companies that stand to benefit from manufacturing moving back to U.S. shores. The fund predominantly targets companies that span sectors such as industrials, transport, infrastructure, materials, and semiconductors.
Reshoring involves three kinds of companies: manufacturers that bring production back, facilitators that help “build” this industrial base, and beneficiaries that benefit from this trend.
“These are companies that are going to benefit from this multi-decade trend [of] deglobalization,” Pot said.
Pot described reshoring as “a multi-year megatrend” that “has accelerated in the last 24 months because of political pressures… and supply chain insecurity.” He added that reshoring is “a big theme with increasing federal support.”
And like with luxury, Pot said investors can’t just buy general industrials exposure. The trend requires deep analysis to identify true reshoring firms. Plus, there are many under-the-radar medium-sized companies that will be huge reshoring winners. This is why the fund is also actively managed and uses a bottom-up research process to select its holdings.
Active Risk Management
In addition to being actively managed, Pot described Tema’s debut funds as also being “risk-managed.”
“For us, investment management starts with risk management,” he said. “The foundation of our asset management approach is in risk management.”
For Tema, this means “identifying the right risks, managing those risks, and prioritizing those risks. That is a key exercise.”
LUX and RSHO are just the beginning for Tema. The firm plans to launch a whole suite of institutional-grade actively managed thematic ETF.
“We’re not trying to time the market here,” Pot said. “We think these are long-term structural trends.”
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