Fast cars and fine wines seen as safer bets in turbulent markets
Published 12/08/2016 | 02:30
Alternative investments such as a Ferrari 335 S Scaglietti, a rare blue diamond or a case of Romanee-Conti Grand Cru wine from Burgundy are going mainstream as investors grapple with ultra-low interest rates and volatile stocks.
Spooked by the end of a 30-year bond bull run and bouts of money printing which have pushed stock values out of kilter with economic reality, investors are turning to fine wines, classic cars and jewels.
Even legendary bond investor and ex-Pimco boss Bill Gross said last week he favours real assets like land over more traditional investment classes.
This growing interest saw rare coins, collectible jewellery and classic cars join fine wine among the top performers in the year to end-March, the latest Knight Frank Luxury Investment Index (KFLII) showed.
And fine wine saw its largest positive monthly movement since 2010 in July with the Liv-ex Fine Wine Investables index, which tracks around 200 Bordeaux red wines from 24 leading producers, up by 4.5pc. It is up 13.8pc so far this year, compared with 6.9pc for the S&P 500 and 8.9pc for the FTSE 100.
"Fine wine tends to perform well in periods of uncertainty and is also not linked to the prices of other assets in most circumstances," said Andrew della Casa, Founding Director of The Wine Investment Fund.
Since its launch in 1988, the index has shown returns of around 10.5pc per year, although falls between 2011 and 2014 have pushed the index below its long-term trend return level, creating an attractive entry point for first-time investors, Mr della Casa said. While the KLFII index rose just 5pc over the year to the end of March, the lowest annual increase since the first quarter of 2010, returns on classic cars jumped 17pc, coins generated 6pc and jewellery delivered 4pc.
But over a five-year period, cars, coins and jewellery returned 161pc, 73pc and 63pc respectively, eclipsing Britain's FTSE-100 index, which was up 15pc since the start of 2011.
Investor interest in classic cars helped the HAGI Top Index rise more than 500pc in 10 years, encouraging many to restore a rusting chassis to its former glory. While that has led to some dampening in demand in the year to date - the index is up 2.2pc since January - HAGI's Dietrich Hatlapa said lower interest rates and monetary policy easing would support demand.
Specialist funds offering a stake in rare diamonds, meanwhile, have continued to catch the eye of investors seeking ways to hedge against currency, stock and bond market risk, with the Sciens Coloured Diamond Fund II up by about 5pc in the second quarter of 2016.
For all the mainstream interest in investments once regarded as the preserve of the rich, they lack liquidity and market depth. The three main US car auctions in 2015 saw vehicles worth a total of $1bn-$1.5bn sold. While there are hundreds of smaller auctions globally and many cars sold off-market, this is a long way from the trillions traded daily in stocks and bonds.
With future demand tough to call, Andrew Shirley, author of the Knight Frank Wealth Report, strikes a note of caution. "You should still only be buying the investments of passion that you will enjoy owning and will give you pleasure even if their value goes down - there is certainly no guarantee that values will continue to rise.
"There is an argument that such investments add diversity to portfolios, provide a hedge against inflation, and unlike equity-based investments, offer a degree of tangibility but like gold they tend not to generate any income and can also be illiquid, and subject to changes in taste and fashion."
Meanwhile, analysts at Unigestion describe the recent gold price rise as a "classic" market response to stress triggered by Brexit. (Reuters)