The fundamental aim of investing is to gather returns. While investors typically look at fixed income and equities to diversify risks and gain higher yields, alternative investments such as wine, art and classic cars also attract many.
Investors tend to prefer these assets because their intrinsic value cannot be eroded by inflation fluctuations. Others look at them as a means to diversify or to fulfil a personal passion.
However, many have warned that while these forms of investments – often referred to as collectibles – may provide enjoyment to some as a means to diversify, they can also be risky for those who are not avid followers of trends in the field. While it can be satisfying to show off your collected treasures today, you need to assess whether their value will appreciate in time.
Collectibles include fine wines, artwork, comic books, jewellery and classic cars among other things. While there is a bigger market for things like wines and art, other collectibles are also a part of this sector.
Graph 1 shows the distribution of investments of passion worldwide in 2014, by region.
In the Middle East and Africa, 13.2 per cent of these investments were allocated to art, more than three percentage points below the global figure of 16.9 per cent.
“The most dramatic trend over the past decade has been the emergence of the (former) third world consumer,” says Philip Staveley, partner at Amphora Portfolio Management Wine Investment. “As emerging economies develop and produce millionaires and billionaires, these newly rich aspire towards western luxury products, whether this be Rolex watches, Lamborghinis, or indeed, fine wine,” he says. Analysts have said that this starts as a lifestyle but individuals then look at these collectibles as a form of investment.
Investing in art
According to a report from Deloitte on art and finance, buyers worldwide are increasingly acquiring collectibles from an investment viewpoint, which will most likely increase the need and demand for professional and wealth management services relating to the management and planning, preservation, leverage and enhancement of these assets.
The report sees the combination of art and wealth management as an area with the strongest interest, boosted by a rapid rise in the value of art and the increasing accumulation of collectible wealth. However, it points out that the art investment fund market is still a niche sector and although a few models have emerged, it is still too soon to talk about a fully-fledged market.
According to the report, the art investment market is worth about $1.3bn (£846m). Art investment funds are typically structured like hedge funds and pool investor capital to buy and sell art and are managed by a professional fund manager. These are also marketed extensively to high net worth individuals. The strategy of these funds is to deliver returns through the appreciation and ultimate sale of the asset. Sometimes the artwork is stored in an independent warehouse or can be loaned to a museum for display.