Fidelity European Trust PLC (LON:FEV), under the expert guidance of co-portfolio manager Marcel Stötzel, continues to navigate the luxury goods market with finesse and precision. Marcel’s insights into the sector highlight the dynamic strategies that Fidelity employs to secure growth and stability for its investors.
One of the standout tactics in Fidelity’s playbook is their focus on companies with strong pricing power. Marcel Stötzel emphasises, “We continue to favour companies with strong pricing power which will be well-placed to grow in an uncertain market environment.” This approach is particularly relevant in the luxury goods sector, where brands with the ability to adjust prices without losing demand hold a significant advantage.
While the upcoming Paris Olympics might seem like a boon for French luxury brands such as LVMH, Hermès, and Cartier, Marcel offers a more nuanced perspective. Contrary to popular belief, the overall effect of the Olympics on France’s luxury goods market could be neutral or even negative. He explains, “The target audience for the Olympics skews lower down the income distribution in comparison with higher-end consumers who would be expected to spend the most on luxury products.” This demographic shift, coupled with increased hotel and flight costs, suggests that luxury spending may not see the expected boost during the games.
Another critical factor is the changing preferences of Chinese luxury shoppers. Pre-COVID, Chinese tourists significantly boosted luxury goods demand in Europe. However, post-pandemic, many Chinese tourists now prefer destinations closer to home, such as Japan, where the yen’s weakness makes shopping more attractive. Marcel notes, “Any significant gains for French luxury houses from Chinese buyers at the Olympics are unlikely,” highlighting the shift in Chinese consumer behaviour towards domestic luxury purchases.
Despite these challenges, Fidelity European Trust PLC remains bullish on the luxury sector’s long-term potential. The trust has strategically used the recent stock price weakness to add to its holdings in companies with robust pricing power. Marcel explains, “Over the last two years we have been working hard to identify pricing power winners; or those firms which can mitigate the effects of inflationary pressures through increased pricing.” This strategic focus ensures that Fidelity’s investments are well-positioned to deliver sustainable dividend growth, a cornerstone of their investment philosophy.
Italian luxury brands might benefit relatively from the dynamics affecting French luxury houses, especially with Italy recently lowering its tax-free shopping threshold to encourage tourist spending. However, Fidelity’s strategy currently does not include these Italian names due to other fundamental considerations.
Marcel also touches on the broader economic context, noting that while aspirational consumer demand globally remains weak, the wealthiest consumer segment is resilient. “The luxury sector has had a tough time of it over the last 18 months,” he says. Yet, the trust remains confident in the companies they hold, expecting these firms to outperform regional indices over time, thanks to their strong pricing power and ability to protect dividend growth.
On a Final Note
Fidelity European Trust PLC’s strategy in the luxury goods market exemplifies their commitment to identifying and investing in companies with strong pricing power and resilience. Marcel Stötzel’s insights provide a comprehensive understanding of the sector’s challenges and opportunities, ensuring that the trust remains a reliable choice for investors seeking long-term growth in European luxury stocks.
Important information
The value of investments and the income from them can go down as well as up, so you may get back less than you invest . Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments are subject to currency fluctuations. Fidelity European Trust PLC uses financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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