The wealth report 2014
THE FRUITS OF PASSION
One of the most fascinating areas of luxury spending is on collectable items, such as art and classic cars, which some buyers also consider to be investments.
In the wake of the credit crunch, the media’s focus on these “investments of passion” as an alternative to more mainstream asset classes like equities has grown significantly.
Reflecting this burgeoning interest, we launched the Knight Frank Luxury Investment Index (KFLII) in last year’s Wealth Report to track the performance of selected investments of passion.
Consisting of nine asset classes, the 175% capital growth recorded by our weighted index to the end of Q3 2012 outperformed the majority of more mainstream asset classes over a 10-year period. Several classes came close to, or even exceeded, gold’s stratospheric +400% increase. One year later and KFLII had grown by a further 8%, while gold had lost a quarter of its value.
Best-in-class examples continue to set auction records across most of KFLII’s categories (see panel below), but there is a wide variation across the index. Classic cars once again posted the largest gains, with values up 28% over 12 months, according to the Historic Automobile Group’s (HAGI) Top index, which tracks “exceptional historic automobiles”.
What’s more, HAGI’s Dietrich Hatlapa says it isn’t just the most famous marques that have performed strongly. “One of the biggest movers in our index last year was Japan’s first supercar, a Toyota 2000 GT from the late 1960s.”
Outside the world of supercars, there is also growing interest from collectors in Group B rally cars like early model Audi Quattros, especially those with a race pedigree, Mr Hatlapa points out.
Although price growth might not be in the Ferrari league, the outlook is positive too for the wider classic car market. Specialist insurer Hagerty estimates that there are over 850,000 pre-1972 vehicles in the UK that have hit the bottom of their depreciation cycle.
Despite being one of the least widely collected investments of passion, according to the Attitudes Survey, coins continue to perform strongly, up 10% year on year. Ian Goldbart, Managing Director of leading auctioneer Baldwins, says the market is attracting investors.
“Because it is not actually a very big market, a small amount of extra money can make a large difference. You only need a few keen bidders at an auction and you are likely to see new world records being set.”
The coin market has probably also been undervalued in some parts of the world, compared with other asset classes. “There has always been strong demand for large denomination coins in the US,” says Mr Goldbart, “but we are seeing growing interest in China, where the market has boomed over the past five years, and also India and Russia.” Globally, there is also a very strong market for gold Roman coins. “They are pieces of art in their own right,” he says.
Over 60% of Attitudes Survey respondents said pleasure was their clients’ main motive for spending on collectables, or “investments of passion”
Rare stamp values are also rising, particularly in China, India and key Commonwealth markets. The Stanley Gibbons China 200 rare stamp index rose 36% between 2011 and 2012.
The British market continues to grow, albeit more slowly, says Keith Heddle, Investment Director at Stanley Gibbons. “There was a huge amount of trading in 2011 and 2012; following such a bull run it’s not surprising that things have slowed down slightly.”
Investment demand remains strong, particularly from Hong Kong and Singaporean-based investors, but also from Australia, where investors can add collectables to their pensions via Self- Managed Super Funds (SMSFs). There is also increased interest from potential collectors in Russia, says Mr Heddle.
Despite falling gold prices, the last 12 months have been remarkably strong for many facets of the jewellery market, says Roland Arkell, jewellery columnist for the Antiques Trade Gazette. “Record sums for the best untreated stones, particularly ‘fancy’ diamonds and other coloured stones, underpin the market,” he says, “but natural saltwater pearls, amber, coral and jade are equally buoyant.”
Although the overall art market is slightly down from its 2011 peak, according to figures from Art Market Research, contemporary and post-war works achieved some record auction results last year, proving that buyers are still prepared to pay a premium for the most desirable works.
The sheer range of buyers is helping to drive up prices, says Edward Shipton of art advisory firm 1858 Ltd. “Interest is coming from South America and new markets like Korea. In the first quarter of 2013, Christie’s reported registered buyers from 128 countries.”
Furniture is the only element of KFLII to have lost ground over 10 years. Although key 20th-century pieces are rising in value, changing tastes and a move towards smaller houses have meant less demand for traditional English and French furniture, according to Will Richards, Deputy Chairman at Bloomsbury Auctions.
However, this may be changing. “I think the market has reached a price point where younger collectors are getting interested in the mid-market again. We are also seeing the Chinese beginning to look at English 19th-century furniture.”
Despite the performance of KFLII, most Attitudes Survey respondents said investment was not the prime driver for their clients. Over 60% reported personal pleasure as the main motive.
However, at 22%, the proportion who said investment – for capital growth or as a “safe haven” – was the driver was still significant and well above the 15% collecting for status and the 1% driven by fashion. Asian UHNWIs have the sharpest eye on investment, with a quarter primarily concerned with capital growth. See Databank, p62, for more.
But even those who start collecting purely for investment can often end up becoming passionate, says Mr Goldbart. “People tend to gravitate to one part of the coin portfolios that we assemble for them. Sometimes it’s the history that they get hooked on, or it could be the decorative appearance of the coins.”
But of course, even those who collect purely for passion still don’t want to see the value of their collections fall. As Mr Goldbart puts it, “There is always the hope that things will go up."