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Our views 12 February 2020

Luxuries vs. essentials

By Martin Foden, Head of Credit Research

5 min read

When you think of the power of brands, and their ability to persuade customers to pay prices well in excess of intrinsic value just so they can enjoy reflective benefits, Louis Vuitton and Moet & Chandon wouldn’t be far from your mind.

Interesting then that LVMH, the French parent company for both of these power brands, was recently in the market issuing new bonds. Offering the finery of name recognition, a large market cap and a seductive point-in-time rating of single A, the company was able to raise unsecured long-term finance at yields more akin to the most secured, but perhaps less glamourous, covered and securitised bonds.

It may not get the pulse racing, but when fickle investors are clamouring for more superficial characteristics to provide short-term portfolio veneer, we instead favour the more fundamental and established truths of corporate bond investing. Bond risk is highly specific and skewed and what we find most seductive is buying bonds with tangible and protective features that will sustain whatever the current fashions in bond markets.  

Buying below intrinsic value? That really is a brand proposition we can get behind.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.