Gen Z is redefining the luxury playbook. Logos are so last season, digital culture is on the rise, sustainability is a given, and affordable prestige is as strong as heritage, found Reuters in a survey. That’s where two ETFs doubling down on the luxury theme -- KraneShares Global Luxury Index ETF (NYSE:KLXY) and Themes European Luxury ETF (NASDAQ:FINE)-- present a colorful test case: which model is most apt to harvest the next generation of consumer dollars?

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Performance Snapshot

KLXY debuted in September 2023 with a global luxury mandate. Its total return into the year so far is around 11.5% (including dividends) based on source.

FINE, which debuted three months later, has a more concentrated European luxury mandate. Its total return YTD has been flat, and over the last year it lost around 3.6%%, including dividends.

Being niche ETFs, the both funds are relatively small. However, so far, KLXY has ridden the luxury storm better, most probably due to its wider basket giving exposure to brands that are changing more obviously to meet Gen Z’s needs. KLXY currently has almost $2 million in net assets whereas FINE manages a little over $660,000.

Holdings & Structure Differences

KLXY contains world luxury heavyweights: LVMH Moet Hennessy Louis Vuitton SE (OTCPK: LVMUY), Hermès, Kering, L’Oréal, Tapestry, and so forth. The ETF is skewed towards companies with good global reach and diversified product offerings, such as beauty, accessories, fashion.

FINE’s 25–30 European holdings are LVMH Moet Hennessy Louis Vuitton SE (OTCPK: LVMUY), Kering SA (OTCPK: PPRUY), LVMH peers, and watchmakers (The Swatch Group SA (OTCPK: SWGAY)), automakers (Porsche Automobil Holding SE (OTCPK: POAHY)), hospitality (InterContinental Hotels Group PLC (NYSE: IHG)), and apparel houses. Top positions each comprise ~4-5% of the fund. Geographic exposure is greatly Europe.

The Gen Z Gauge: Who’s Better Positioned?

With what we know about Gen Z, namely, logo fatigue, demand for sustainability, platform discovery, mixing and matching affordable luxury), here are some wagers:

KLXY’s strength is agility. Since it features beauty brands, international luxury players with digital-first strategies, and non-European exposure, it could be helped by brands that are more agile in marketing, influencer partnerships, and piercing other markets beyond Europe.

FINE’s advantage lies in heritage and craftsmanship. For those betting that Gen Z will, in the long run, revert to classic luxury when the novelty wears off, FINE’s exposure to European stalwarts could be a winner. But the risk is that if those heritage brands cannot modernize fast enough, they will be skipped over.

Conclusion

For the moment, KLXY is leading. Its positive returns indicate that worldwide luxury brands are performing better at evolving, or may be less afflicted by the inertia that plagues some European incumbents. FINE, while laden with prestige, is experiencing growing pains as Gen Z’s values pressure luxury houses to change or go out of style.

For investors: if you feel younger consumers will reward hybrid luxury models, sustainability, and innovation, KLXY might present a more robust route. If you feel heritage and old-world craftsmanship, will come back in vigor once trends level out, FINE can be a value play, but at higher risk.

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