Global luxury lifestyle brand Michael Kors (NYSE:KORS) went public back in December at $20 a share. In a little more than two months, the stock is up 113.5%. Investors are clamoring for a piece of the Hong Kong-based company — and virtually every other luxury brand.
Michael Kors’ stock currently trades at a forward April 2013 P-E of 45 — that’s nosebleed country, in my opinion. Instead of risking buying too high, why not pick up the following ETF alternatives? Not only will you be in the lap of luxury, you’ll own a more diversified portfolio that protects your downside should anything happen to the economy. It’s a win/win.
Investors who follow ETFs more than casually might remember the now-defunct Claymore/Robb Report Global Luxury Index ETF. It got its start in July 2007, and by the time it was shuttered in September 2010, it had amassed just $17 million in assets. The fund invested in luxury brands such as Hermes, BMW, Gucci, Brioni, Cartier and others. While gone for more than a year now, fear not, because you can still own all of the companies behind these brands in just three easy steps.
Eight of the top 10 holdings in the Claymore fund at the time of its liquidation are stocks held in the SPDR S&P International Consumer Discretionary Sector ETF (NYSE:IPD). Investing in consumer discretionary stocks outside the U.S., the top three countries represented are Japan at 32.7% of the portfolio, U.K. at 13.09% and France at 11.39%.
Of the eight stocks in the top 10 from the original Claymore fund, four are in the IPD’s top 10: Daimler AG, LVMH Moet Hennessy, BMW and Richemont. For those of you who don’t recognize Richemont, it owns Cartier and many other luxury brands. Each of the holdings has a weighting close to 2% or more, making it a reasonably close fit. In addition, lovers of Lexus cars will be happy to hear that Toyota (NYSE:TM) is the top holding at 7.01%.
The remaining two stocks from the Claymore fund’s top 10 holdings are Pernod Ricard (PINK:PDRDY), maker of Absolute Vodka and Chivas Regal Scotch, and Shiseido Company (PINK:SSDOY), the Japanese maker of skin-care products.
Although both can be purchased over the counter, their volumes tend to be pretty light, making them very illiquid. For this reason, you might want to look at the SPDR S&P International Consumer Staples Sector ETF (NYSE:IPS), which, like the IPD, is focused on non-U.S. stocks. Pernod Ricard’s weighting is 1.68%, while Shisheido’s is 0.85%. Both weightings are much lower compared with the Claymore fund, but on the upside, you get Diageo (NYSE:DEO) at 4.71% and L’Oréal (PINK:LRLCY) at 2.18%.
Lastly, for Michael Kors, the ETF alternative is the First Trust US IPO Index Fund (NYSE:FPX), which replicates the IPOX-100 US Index, a group of 100 companies representing the best-performing and most liquid IPOs of the IPOX Global Composite Index.
With an expense ratio of 0.60%, it’s an excellent way to participate in the IPO market. Michael Kors is currently the sixth-largest holding, at 3.06% of the fund. Since its inception in April 2006 through the end of January, FPX has delivered an annual return of 5.13%, compared with 2.61% for the Russell 3000. Surprisingly, despite good performance, its net assets are just $16.8 million.
The bottom line: If you invested $100,000 on Feb. 27, 2009, in the three ETFs mentioned above, you would have just under $201,000 today, for an annualized return of 26.2% — 60 basis points higher than the S&P 500. Given the state of the economy over this period, it shows you can own luxury and do well. You just have to be smart about it.