Low interest rates, compound returns and volatility in traditional financial markets have played a big part in attracting investors to alternative assets. Aside from investors’ passion for individual types of asset – most commonly property – the biggest allure for investing in ‘esoteric treasures’ as opposed to equities and bonds remains the potential for returns that are uncorrelated to wider markets.
While investing in property may be the most mainstream alternative to traditional asset classes, investors are now also turning to antiques, stamps and coins in order to provide financial security should more conventional investments fail, according to Profit and Pleasure, a Wealth Insight report from Barclays Wealth.
Those surveyed said that their ‘treasure’ assets comprise of 9.6 per cent of their total net worth, 4 per cent of which is in coins.
Vikram Mansharamani, a lecturer at Yale University and author of Boombustology, says: “In times when paper wealth is seen more risky, investors are drawn to real, tangible assets.”
In particular, the growing price of gold and silver in the past decade has attracted a large number of commodities investors to the gold and silver rare coins market.
Sales of US rare coins are thought to total around $10bn (£6.4bn) a year, with global sales estimated to be in the region of $100bn, according to Paul Fraser Collectibles.
Based on their returns over the past 10 years to July 18, it’s clear to see why. If you invested in the FTSE 100 in 2002 you would have made a 58.8 per cent return on your investment. However, had you invested in rare coins instead, you could have made quadruple that, with the return of 248.4 per cent, according to the Stanley Gibbons Group.
Top end
Investors can harvest the biggest gains at the top end of the sector, according to Dan Wade, head writer at Paul Fraser Collectibles. He says that the world’s largest rare coins sector is the US, with an estimated 50m enthusiasts.
“Of the US coins, it is these top-end items that have enjoyed the most appreciation in recent years. This is because US investors continue to focus on the finest condition “key date coins” – those rarest and subsequently most desirable specimens,” says Mr Wade.
In the US a 1792 Judd-1 US one cent coin sold for $1.15m in April. It had last sold in 1974 for $105,000, representing a rise in value of 6.5 per cent a year. The Garrett 1795 Jefferson Head cent sold for $184,000 in March. It had previously changed hands for $7,500 in November 1979 – an 11 per cent per year return.
Also, in the UK the first Scottish coin ever minted, from the 12th century, sold for £8,400 in June, 140 per cent above its high estimate of £3,500.
Coin World’s Classic US Rarities Key Date Investment index, which tracks 82 top grade coins, shows that the value of leading gold coins grew by 8 per cent in 2011, far beyond copper (1.96 per cent) and silver coins (0.05 per cent). The index, overall, is up from $7.72m in 2005 to $13.7m in 2011 – a gain of 12.14 per cent per year.
A leading example of a “key date”, according to Mr Wade, is the 1893 San Francisco Morgan silver dollar. Of the 100,000 struck only 4,500 remaining examples are known, making it the rarest Morgan dollar around. He says that leading examples can surpass the $500,000 mark.
Access to markets
Buying and selling treasure assets such as rare coins is becoming increasingly straightforward, according to the Barclays Wealth report. In the internet era, investors can now purchase coins and have them shipped from a global range of locations.
“Collectibles now increasingly share the characteristics of broader financial markets,” the report adds. “There are market indices and specialist funds, which enable individuals to invest in art, wine or other treasure assets indirectly. There are even asset-backed financing products that enable collectors to borrow against their treasure assets.”
Mr Wade urges investors to be careful when investing in funds, however, as one or two have received some negative press in the past due to the nefarious practices of certain executives.
One of the most notorious cases is that of Thomas Noe, which was labelled ‘coingate’. In 2006, a court found Mr Noe guilty of a number of crimes, including theft, money laundering, forgery and corrupt activity. Most significantly for the rare coin market, the court also found him guilty of participating in a pattern of corruption in his management of rare coin investments.
Collectibles are also typically illiquid – or hard to trade – so it can take a while to withdraw money from a coin fund or sell a coin at a reasonable price. They also incur high costs when they are traded, stored, insured or appraised, according to Barclays Wealth.
Growing wealth
But in spite of this, the collectibles market has also been given a boost by the growth in global wealth – particularly in Asia. According to the 2012 World Wealth Report, produced by Capgemini and Royal Bank of Canada Wealth Management, the Asia-Pacific region has more high-net worth individuals than any other region.
Supporting this research, the Barclays’ treasure assets report suggests 17 per cent of high net worth individuals’ wealth in China is devoted to treasure assets, including rare coins – far higher than the 10 per cent global average. Hong Kong is another key market, with investors claiming to have 14 per cent of their portfolio in collectibles, particularly rare coins.
The number of buyers from India is also growing, according to Mr Wade, who says that the gold coin market there is currently worth $2.1bn. “It’s the Bric [Brazil, Russia, India and China] nations where we’ve seen the biggest surge of late,” he says.
Those surveyed by Barclays in China, India, Singapore and Saudi Arabia said that they were investing in collectibles mainly to “show off to their peers”.
In the developed market, specifically the UK, the growth in the rare coins market has mainly come from the baby boomer generation.
Mr Wade claims that those born between 1946 and 1964 own roughly 80 per cent of global wealth and are retiring at an ever-increasing rate.
“With the money and spare time to return to the passions of their youth or to develop new interests, this demographic will boost the rare coins market,” he adds.
Barclays disagrees. In spite of the bank’s report showing that the number of investors investing their wealth in coins has increased 2 percentage points to 23 per cent compared with five years ago, it warns that if a sustained economic recovery was to take hold and broader financial markets were to recover, then they could once again prove to be a better investment than treasure assets.
However, if they remain a small and very long-term part of an investment portfolio, the hedge they offer against pitfalls in other markets may still be attractive for investors.
Simona Stankovska is features writer at Investment Adviser
