High-Conviction Fund Managers Reallocate in Luxury Sector Amid Shifting Market Sentiment

The luxury sector, long a bellwether for global wealth and consumer confidence, is undergoing a period of recalibration in 2025. High-conviction fund managers, who traditionally bet big on industry leaders like LVMH, Richemont, and Kering, are now navigating a landscape marked by economic uncertainty, shifting consumer priorities, and divergent regional performance. Their strategic reallocations reflect a broader rethinking of value in an industry where once-unshakable brands now face headwinds from macroeconomic volatility and generational shifts in spending behavior.

A Sector in Transition

The luxury sector's slowdown is no longer a whisper but a clarion call. According to a report by Bain & Company, global luxury sales growth has moderated to single digits amid “economic turbulence, geopolitical tensions, and a reevaluation of the sector's traditional value proposition”Luxury confronts slowdown amid economic headwinds and market disruptions^[3]. Younger consumers, particularly Gen Z, are increasingly prioritizing sustainability, utility, and digital engagement over the aspirational allure of logos and heritageLuxury confronts slowdown amid economic headwinds and market disruptions^[3]. This has forced brands to pivot: LVMH, for instance, has refocused on “core brand identities and product quality” to rekindle emotional connections with customersLuxury confronts slowdown amid economic headwinds and market disruptions^[3].

Yet not all segments are created equal. While tangible goods like handbags and apparel face stagnation, experiential luxury—cruises, private jets, and high-end travel—continues to outperformLuxury confronts slowdown amid economic headwinds and market disruptions^[3]. This divergence has prompted fund managers to tilt portfolios toward subsectors with stronger fundamentals. For example, Richemont's 4% revenue growth in Q1 2025, driven by an 8% rise in its jewelry division, has attracted renewed interest, even as its watchmaking arm slumped by 13%Luxury confronts slowdown amid economic headwinds and market disruptions^[3]. Conversely, Kering's 14% revenue decline, fueled by Gucci's 25% slump, has led to reduced exposure from managers wary of overleveraged brandsLuxury confronts slowdown amid economic headwinds and market disruptions^[3].

Strategic Reallocation: Quality Over Momentum

High-conviction managers are increasingly favoring “quality names with strong momentum,” as Flavio Cereda, Investment Director of the Luxury Brands strategy, recently notedAsset management 2025: The great convergence^[1]. This approach prioritizes brands with resilient cash flows, diversified regional footprints, and clear differentiation in a crowded market. LVMH, despite its 3% revenue decline in Q1 2025, remains a focal point due to its dominance in high-margin segments like perfumes and its aggressive restructuring of the watch divisionLuxury confronts slowdown amid economic headwinds and market disruptions^[3]. The appointment of Frederic Arnault to oversee LVMH's watch brands, for instance, signals a strategic bet on long-term recovery in a segment that still commands 15% of the company's revenueLuxury confronts slowdown amid economic headwinds and market disruptions^[3].

Meanwhile, managers are cautiously increasing exposure to China, where luxury demand is stabilizing. After a -5% contraction in 2024, the region is projected to return to 0% growth in 2025, driven by pent-up demand and policy-driven tourismAsset management 2025: The great convergence^[1]. This has led to a modest rotation into Asian-focused luxury equities, though managers remain wary of trade policy risks and currency volatilityAsset management 2025: The great convergence^[1]. European markets, by contrast, are seen as “relatively flat,” with tourist-driven demand and price differentials providing only marginal supportAsset management 2025: The great convergence^[1].

The Great Convergence in Asset Management

Beyond stock selection, the broader asset management industry is witnessing a “great convergence” between traditional and alternative assetsAsset management 2025: The great convergence^[1]. High-conviction managers are expanding into private credit, infrastructure, and even luxury real estate to diversify income streams and hedge against equity market volatility. This shift aligns with the growing demand from ultra-high-net-worth individuals (UHNWIs) for bespoke, illiquid assets that offer both capital appreciation and exclusivityLuxury confronts slowdown amid economic headwinds and market disruptions^[3]. For example, luxury real estate in emerging markets—where regulatory environments are favorable and growth rates are robust—is becoming a key component of diversified portfoliosLuxury confronts slowdown amid economic headwinds and market disruptions^[3].

This trend is also reshaping fee structures and competitive dynamics. As passive strategies erode margins, managers are leveraging multi-asset platforms and scalable solutions to justify active managementAsset management 2025: The great convergence^[1]. The result is a more fragmented but innovative landscape, where firms that can blend traditional luxury sector expertise with alternative asset allocations are gaining an edgeAsset management 2025: The great convergence^[1].

Conclusion: Navigating Uncertainty with Discipline

For investors, the key takeaway is clear: strategic portfolios must balance short-term volatility with long-term capital market assumptions. As the luxury sector transitions from a “growth-at-all-costs” model to one focused on resilience and reinvention, high-conviction managers are doubling down on disciplined, constant-weighting strategiesBest Asset Allocation Strategies For Investors In 2025 (+Examples)^[2]. This means maintaining target allocations across equities, fixed income, and alternatives while prioritizing brands with strong balance sheets and clear value propositionsBest Asset Allocation Strategies For Investors In 2025 (+Examples)^[2].

The coming months will test the sector's mettle. But for those who can separate noise from signal—whether it's LVMH's leadership shakeup or China's tentative rebound—the luxury sector still holds promise for those willing to bet on quality, not just hype.