If catering to well-heeled Americans is profitable, doing the same for wealthy people around the globe may be even more so. As economies develop, the number of rich people soars, and they have the same expensive tastes as Americans do. The next big frontier for many of these luxury retailers is emerging countries, where growth is faster and the number of affluent people is growing even faster, said Andrew Peck, manager of the Baron Asset fund. There are opportunities ahead for them in markets like China and India, where many new millionaires are being created every day. He expects Wynn and Tiffany to benefit from those opportunities, along with a retailer not in Mr. Levkovichs index, Polo Ralph Lauren.
John Buckingham, chief investment officer of Al Frank Asset Management, recently recommended Nordstrom and Callaway Golf. He cautioned against depending on them and other Living Large stocks to hold their value if weakness persists in the economy and stock market, however. Much of their sales come from so-called aspirational buyers, those who hope to be affluent one day but are not yet in that category. The already affluent can afford cruises and top-name accessories when times are tough; the would-be affluent cannot. He noted that some of the index companies, notably Coach, Tiffany and Nordstrom, have recently reported earnings lower than analysts estimates, a result of aspirational buyers slowing their purchases.
Mr. Pecks quibble is with the selection of companies from disparate industries to create an index that purports to track a single phenomenon. Their share prices may be driven by myriad factors other than the appeal of their products and services to affluent consumers, he said. Still, the index makes intuitive sense to me, within reason, he said. As a result of gains on Wall Street and a reduction of the top tax rate, the rich are getting richer. They are going to continue to be able to afford luxuries.
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