How passion
investments can be
“Gifts that Keep on giving”

With the holiday season right around the corner, many will be pondering what to gift their loved ones or what they might put on their own Christmas list. Here, we explain how some items could become “gifts that keep on giving” by continuing to rise in value over the years.

It is time once again to grapple with the thorny question of what to buy loved ones for Christmas (or what to put on our own lists!). Many will profess not to want or need anything in particular, but there is no need to panic buy as the clock continues to tick down. In fact, savvy individuals can aim for “gifts that keep on giving” well past the big day itself, by buying presents that are likely to keep rising in value over time and which will help diversify the recipient’s assets.

Diversification is more of a priority than ever today as investors’ nerves begin to jangle over mixed messages from the markets and the possible headwinds facing portfolios. For the time being, equities continue to enjoy their historic eight-year bull run, but fears of a market correction are building, as are worries over volatility, inflation and interest rate rises[i]. Against this backdrop, the wisdom of not “putting all your eggs in one basket” seems particularly apparent, as does the appeal of looking outside of traditional asset classes for at least a portion of one’s wealth.

Alternatives allocations rising

Disappointing (or highly correlated) performance from traditional asset classes have meant that the proportion of overall wealth High and Ultra-High Net Worth Individuals put into alternative investments like real estate, private equity and hedge funds has been rising strongly for a number of years.

What investors may not realise, however, is how strong the performance has been from several types of tangible or “passion” investment recently – and therefore what a great gift items like fine wine, cars, or jewellery could be over the longer term.

Quantitative easing (or the “printing” of money by central banks) has created huge appetite for real assets with rarity value, meaning that it is perfectly possible to come up with a gift for your loved one that “keeps on giving” by rising in value in future years.

Quantitative easing (or the “printing” of money by central banks) has created huge appetite for real assets with rarity value, meaning that it is perfectly possible to come up with a gift for your loved one that “keeps on giving” by rising in value in future years.

Fine wine

You might be surprised to learn that investors poured more funds into wine than any other alternative investment in the year to end-June 2017[ii], and still more so to discover that wine investments were up 25% over the period – the only asset class achieving a double-digit increase.

The key Bordeaux, Burgundy and northern Italian markets have all shown strong growth over the past year or so. Chinese wine-buyers have re-emerged as a force in the market while consumption levels have also risen in the US, the world’s largest wine-drinking nation, helping to fuel price growth of nearly 10% in 2016[iii].

Fine wine is clearly a highly esoteric area, which may make investing in a wine fund may the better option for the amateur (there are also tax complexities to consider here too). However, those wishing to bet on a bottle (or indeed a case) might like to consider the ongoing success of first growth’s second labels: they are now increasingly exceeding the en primeur prices of their parent wines on the secondary market. Since the end of 2003, the Liv-ex index tracking second wines has rocketed a massive 670%.

Classic cars

By most measures, classic cars are the top-performing passion investment of our time, with prices increasing 330% over the past 12 years[iv]. The short-term drop prices underwent last year means they may not be dominating the rankings of tangible investments to the same extent as previously, but they are still in sixth place in terms of value growth: prices rose an average of 2% over the year to June 2017[v].

This year and last saw some exceptional vehicles go under the hammer to make record sales figures, including a $22.5m Aston Martin, a $15.6m McLaren F1 and the highest ever price paid for a Ferrari 250 GT, when a rare 1961 SWB California Spider fetched $18.15m.

However, other auctions featuring less exceptional cars are said to have disappointed slightly, reflecting a new circumspection among buyers and a need for investors to choose their purchases very wisely indeed, particularly lower down the value spectrum.

Jewellery

Jewellery has enjoyed a stellar rise in overall values of 142% over the past decade and saw growth of 4% in the year to June.

Looking deeper into sub-categories reveals that it is specifically blue diamonds which should be a girl’s (and an investor’s) “best friend”. These have risen in value by 5.5%[vi], while other types such as pink diamonds have fallen slightly.

Interestingly, pearls (which are now very much back in fashion) have been by far and away the best performer in the jewellery category, increasing by an incredible 282% over the past ten years.

Rare coins and stamps

While perhaps not top in the glamour stakes, the performance seen from rare coins and stamps makes them more than worthy of consideration. Coins have seen increases in every year since 2005, with prices rising on average 11% every year, while stamps have also risen consistently bar a slight fall in 2016[vii].

While perhaps not top in the glamour stakes, the performance seen from rare coins and stamps makes them more than worthy of consideration.

Explore passion investments with a professional

As the name suggests, the pleasure that they give their owners is one of the key draws to passion investments. Yet, the figures show they might also be a very attractive addition to your or a loved one’s portfolio from a returns perspective too.

Caution is warranted, however. A typical HNWI would usually not want to put any more than a tenth of their wealth into alternative investments, allocating a very much smaller proportion still to passion investments. Luxury assets may have outperformed both gold and high-end London residential property in recent times[viii], yet there have also been quite dramatic falls seen in fine art valuations, for example, and mixed fortunes seen elsewhere.

Clearly, it would be highly unwise to rely on passion investments to meet your big financial goals. But for fun and fulfilment, alongside the potential for attractive returns, they may well be worthy of consideration – particularly if you are struggling to come up with special gift ideas this Christmas.

Clearly, it would be highly unwise to rely on passion investments to meet your big financial goals. But for fun and fulfilment, alongside the potential for attractive returns, they may well be worthy of consideration – particularly if you are struggling to come up with special gift ideas this Christmas.

Professional money managers are well-versed at looking at wealth “in the round” and can offer advice (or source expertise on) any type of asset you have or may be considering adding to your portfolio. Some even have classic car, wine and art experts in-house.

If you have slightly unusual assets and would like to talk to the findaWEALTHMANAGER.com team about the firms who could help, click here. Alternatively, try our smart online tool to see which institutions represent a perfect match for your profile and needs.

[i] These are the four biggest concerns for client portfolios according to an October 2017 survey by Foresight Group
[ii] The Knight Frank “Luxury Investment Index” for 2017
[iii] Coutts’ “Objectives of Desire” Index
[iv] Coutts’ “Objectives of Desire” Index
[v] The Knight Frank “Luxury Investment Index” for 2017
[vi] Fancy Color Research Foundation
[vii] Coutts’ “Objectives of Desire” Index
[viii] The Knight Frank “Luxury Investment Index” for 2017

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