Interview: Scilla Huang Sun
As manager of the Julius Baer Luxury Brands fund, Scilla Huang Sun looks the part. With an Hermès scarf around her neck and a Patek Philippe watch on her wrist, the head of equities at Swiss & Global Asset Management shows her commitment to the sector. But there is another aspect to her appearance which, at first sight, may seem irrelevant but which to the evolution of luxury brands is equally critical.
Born in Italy and raised in Switzerland by Taiwanese parents, Ms Huang Sun is uncannily placed to understand perhaps the key evolving trend in the luxury goods market - exports of continental European goods to aspiring consumers in east Asia. Although Japan was long one of the top consumers of luxury goods in the world, it is now growing sluggishly, leaving China and emerging markets to fill the gap.
Ms Huang Sun has spent most of her life in Switzerland, Europe's most internationally neutral country. Although her father, a diplomat, and her mother, a classical pianist, have since retired to Taiwan, she studied economics for eight years in Zurich and, after a subsequent spell with JPMorgan in New York, has remained in the city ever since.
However, Ms Huang Sun has called on her understanding of Asia throughout her career - not only as a luxury brand consumer, but as an investment opportunity in its own right. Her first job after JPMorgan in 1994 was as an Asian equities analyst at Swiss private bank Julius Baer, which she held until 2000. She subsequently brought her understanding of Asian markets to bear when she set up the Luxury Goods Equity fund with Beat Witmann, a well-known investor in Switzerland. In 2008, she moved to her current job at what is now Swiss & Global Asset Management - formerly part of Julius Baer - to be head of equities and manager of the luxury brands fund.
"As a woman, it's a very nice industry, both on the personal side in terms of identifying with luxury goods, but also because it's a very profitable industry to invest in," she says.
"I've always been very passionate about it. As a woman, you tend to be attracted to nice stuff, but I'm buying a bit more now, even knowing high margins are carried. As long as human beings are vain and care for nice products, the industry is going to last."
Although according to house rules Ms Huang Sun cannot accept freebies from premium and luxury brand companies, her performance has more than compensated. By their nature, premium luxury brand companies tend to be higher-margin - they can command a premium for their brand, which requires little capital expenditure. There are exceptions, such as luxury car companies, but even these will typically trade at a premium.
The only issue is that, over a cycle, performance in the sector tends to be more volatile, rising strongly in good times and plummeting in bad. Even at the bottom of the last cycle, however, luxury brands had outperformed general indices over the cycle as a whole.
"If you look at the financial numbers of well managed brands, they are very good. They have high margins, high returns on capital without the high gearing. It is capital-intensive if you open shops, but if you manage it well you can generate enough cash to expand without needing to go to the bank," Ms Huang Sun says.
"There are some sub sectors that are more profitable and capital-intensive than others. Jewellery and watches are more cyclical. You need to expend more capital because of the low turnover of the product. If you look at handbags and shoes, they turn over faster. On the fashion side, you have many brands and margins are lower, but it's a fast-turning product. The car industry is more difficult fundamentally, because you have more capex (capital expenditure) and it’s a complicated value chain. The return on capital for the car industry is low."