Three Luxury Sector ETFs Worth Watching as Premium Markets Face Headwinds

The high-end consumer goods market is entering a challenging phase as purchasing power weakens across developed economies. While 2021-2022 saw remarkable growth trajectories in luxury spending, recent indicators point to a significant deceleration entering 2024.

Market Momentum Slows for Premium Brands

Recent performance metrics tell a cautionary tale. The S&P Global Luxury Index has declined 4.36% over the past twelve months through mid-January 2024, while simultaneously, the broader S&P 500 Index surged ahead with a 21.69% gain—a notably divergent path that underscores sector-specific weakness. Month-to-date performance paints an even grimmer picture, with luxury equities sliding 6.62% since calendar year-start.

Demand headwinds are evident in real-world company performance. Burberry (BURBY), the iconic British luxury brand, reported December 2023 sales deceleration across most geographies. The Americas particularly struggled, registering a 15% comparable store sales decline in Q3 2023. Share prices have responded severely, dropping 44.91% from late July 2023 levels—a stark reflection of margin compression and demand destruction.

Bentley, the ultra-premium automotive manufacturer under Volkswagen’s umbrella, mirrors this pessimism. The carmaker disclosed an 11% vehicle sales contraction, with regional weakness spread unevenly: Americas down 9%, China retreating 18%, and Europe sliding 15%.

Structural Challenges Compound Near-Term Outlook

According to Bain & Company research, personal luxury goods at constant currency grew just 8% through 2023’s opening months following China’s reopening—marginally above inflation rates and a significant pullback from the prior three-year 20% average. Citi and Bain forecasters project 4-6% growth going forward, barely offsetting embedded inflation pressures.

Supply-side constraints add complexity. Companies grapple with surplus inventory, elevated debt burdens, and rising operational expenses. Wage pressures and rent increases further compress profitability in an environment where pricing power remains limited.

Geopolitical friction—particularly Middle Eastern tensions and Red Sea shipping disruptions—has constrained global commerce. Container traffic through critical maritime routes collapsed from 500,000 daily containers in November 2023 to roughly 200,000, eroding logistics efficiency and adding cost drag across supply chains.

The sector faces a projected 1.9% compound annual growth rate through 2028, according to Statista projections, suggesting structural headwinds rather than cyclical softness.

Three ETF Options for Luxury Sector Exposure

For investors seeking pure-play exposure to luxury brand recovery, three distinct ETF vehicles merit consideration:

Tema Luxury ETF (LUX) employs active management, curating a 29-security portfolio weighted toward the premium market. The fund maintains $7.4 million in assets under management with a 0.75% annual expense ratio. Its 73.43% large-cap allocation suggests a quality-focused approach. Since mid-December 2023, the fund has depreciated 5.21%.

KraneShares Global Luxury Index ETF (KLXY) tracks the Solactive Global Luxury Index through 46 holdings. With $3 million in assets and a 0.69% annual fee, this vehicle provides broad diversification. The 79.14% large-cap weighting reflects mainstream luxury exposure. Performance has declined 7.14% since mid-December.

Roundhill S&P Global Luxury ETF (LUXX) replicates the S&P Global Luxury Index across 79 constituents, offering the broadest exposure of the three. At $1.2 million assets, this lower-cost option charges 0.45% annually and maintains the highest large-cap concentration at 84.59%—potentially providing relative downside cushioning. The fund has retreated 8.33% from mid-December levels.

Each vehicle reflects differing philosophies regarding concentration, cost efficiency, and market breadth, allowing investors to calibrate luxury brand exposure to individual conviction levels.

The diverging trajectories between luxury equities and broad market indices suggest sector-specific pressures will persist through near-term cycles, warranting careful position-sizing for those maintaining exposure to premium consumer demand.