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, high-profile investors are turning to fine wines, classic cars and jewels, research and index data show.
Even legendary bond investor and ex-Pimco boss Bill Gross said last week he now favoured real assets like land and gold 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 4.5 percent. It is up 13.8 percent so far this year, compared with 6.9 percent for the S&P 500 and 8.9 percent for the FTSE 100.
“As a physical asset, 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 fine wine index has shown returns of around 10.5 percent 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, della Casa said.
CARS ON A ROLL
While the KLFII index rose just 5 percent over the year to the end of March, the lowest annual increase since the first quarter of 2010, returns on classic cars jumped 17 percent, coins generated 6 percent while jewellery delivered 4 percent.
But over a five-year period, cars, coins and jewellery returned 161 percent, 73 percent and 63 percent respectively, eclipsing Britain’s FTSE-100 stock index, which was up 15 percent since the start of 2011.
Investor interest in classic cars helped the HAGI Top Index rise more than 500 percent 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 2.2 percent since January – HAGI’s Dietrich Hatlapa said lower interest rates and monetary policy easing would support demand.
“People are taking the time to find the best examples. The spread between mediocre cars and very good cars has really opened up quite significantly… and for those, record prices are still being paid.”
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 5 percent in the second quarter of 2016.
For all the mainstream interest in investments once regarded as the preserve of the ultra-rich, they lack liquidity and market depth.
The three main U.S. car auctions in 2015 saw vehicles worth a total of between $1 and $1.5 billion sold. While there are hundreds of smaller auctions globally and many cars sold off-market, this is still a long way from the trillions traded daily in stocks and bonds.
And 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.”
Gold, another so-called safe haven from top-of-the cycle bonds and expensive stocks, is also enjoying a purple patch, BlackRock research shows.
With returns up 23.2 percent in the year to July 29, gold has returned almost twice as much as higher-risk emerging market dollar bonds and non-U.S. Developed market bonds, and almost five times a 3.1 percent return on U.S. large caps, it said.
Analysts at Unigestion describe the gold price rise as a “classic” market response to stress triggered by Britain’s shock decision to quit the European Union and fears of negative rates but it was difficult to predict how long these circumstances supporting a rush into gold might last.