As part of our Guide to Financial Gifts for Christmas, Mohammad Kamal Syed , Head of Strategic Solutions at Coutts looks at the investment potential of alternatives.
Wealthy individuals are putting passion into their investment portfolios – the days when they were only filled with cash, bonds and shares are long gone. Today, alternative assets such as property, classic cars, Chinese artefacts and fine wine play an increasingly vital role in contributing to the overall value of someone’s wealth.
Since the financial crisis, volatile markets and record-low interest rates have increased demand for more diverse investments and driven interest in many physical assets that have intrinsic value, particularly where supply is limited. This has pushed up the prices of many so-called alternative investments.
Passion investments returned 77% from 2005 to 2014, outperforming shares, according to the first edition of The Coutts Index: Objects of Desire. Of all the alternative investments, classic cars have returned the most since 2005, rising by 257%, outpacing all other investments by more than 80 percentage points. Classic watches have also proved they can stand the test of time, rising by 176% from 2005.
Jewels returned 146% in comparison, while the standout performer in the fine art space is the traditional Chinese works of arts sector, which rose by 163%.
But while many alternatives have provided fairly spectacular returns, there is more to investing in these assets than price appreciation. For many people, profit is furthest from their mind.
The benefit is more than just profit. Owners can bond with like-minded people in an elite network, with assets offering escapism and a chance to re-enact history.
Passion assets can be used by parents as a subtle way to connect with their children on family financial matters – taking them on a classic car rally in a rare convertible driving across the South of France is more appealing than work experience in an office. Over the past decade, classic cars have been the standout performer. But other alternatives that have been in high demand include diamonds and jewellery, particularly those commissioned by a luxury brand, with provenance and a history of famous owners. History has a value – it can’t be replicated.
Rarity is also a valuable characteristic of passion investments. After all, if you have huge amounts of wealth you can always commission another superyacht, but you can’t buy another Treskilling Yellow, one of the world’s rarest stamps. This gives added kudos for those who own a one-of-its-kind item, be it a Chinese vase, a pink diamond or a stamp. It is why price appreciation is often viewed as an added bonus but this view is beginning to turn.
Values have risen so significantly that many collectors are now questioning whether it is time to take some profits from their assets. Not that this presents much of an issue for those with genuine passion investments. In fact, it might prove more challenging for them to remain detached enough to recognise the investment potential in their passion, and to sell when the time is right.
The Constituents of the Coutts Index
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