Luxury stocks investment requirements disclosed by fund manager.

• Sanlam Investments' Hannah Gooch-Peters discusses her reservations about investing in luxury stocks, specifically LVMH.
• To get involved in that part of the market, we would require a greater margin of safety, according to Gooch-Peters.
• One of the world's largest derivatives marketplaces, CME Group, is preferred by the portfolio manager.

Sanlam investments' Hannah Gooch-Peters is unable to purchase luxury stocks due to a decline in Chinese consumer confidence.

The portfolio manager stated that she requires a greater margin of safety before investing in the world's largest luxury group, as per her conversation with CNBC's Silvia Amaro.

"European companies were experiencing significant growth due to the Chinese consumer, but when they made missteps in execution, it created the perfect storm for LVMH and Gooch-Peters, who were trading at exceptionally high valuations for their growth potential."

Over the past six months, L'Oreal and LVMH shares have dropped approximately 20% and 10%, respectively, due to concerns about the Chinese consumer market's strength. Additionally, peers such as Estee Lauder and Hermes, which Gooch-Peters admitted made mistakes in China, have also experienced significant declines.

LVMH's fourth-quarter sales decreased by 3% compared to the same period last year, with revenue in Asia, excluding Japan, declining by 16%. The group's CFO stated that Chinese consumer confidence was at its lowest point during the Covid-19 pandemic at the time.

"Gooch-Peters stated that in order to become more involved in the Chinese consumer market, we need a greater level of confidence in the market's improvement and a larger margin of safety."

Top pick

The portfolio manager likes one of the world's largest derivatives marketplaces.

In June last year, Sanlam Investments acquired shares in the company due to its impressive operating margins and strong balance sheet, as stated by Gooch Peters.

She stated that the U.S.-based company's "cash flow stream is very sustainable and predictable," and investors can rest assured that they won't have to worry about the cost of servicing debt.

In October, CME Group reported record revenues, with CEO Terry Duffy expressing confidence that his company was in a better financial position than its competitor, FMX.

Howard Lutnick, the CEO of BGC Group and Donald Trump's pick for commerce secretary, launched FMX in September.

Gootch-Peters believes that the barriers to entry in the sector are still "extremely high," despite the launch.

CME stands out from its competitors due to its primarily transaction-based approach, leading in interest rates and futures derivatives, and having the largest liquidity pool in the world in U.S. Treasury futures, which contributes to its high barriers to entry.