|A Different Class|
Classic cars have been one of the best-performing investments of the past decade, with an average return of 456 percent.
If market volatility or poor returns are proving frustrating, it could be the right time to consider alternative investments. Fine art, wine, classic cars and bloodstock are some of the options available to investors, but they are not for the faint-hearted or ill-informed. In spite of the potential for sky-high returns, they require a high minimum-investment level and are subject to less regulation than mainstream investments. Never has the classic warning ‘caveat emptor’ resonated so loudly.
The art of investing
The formation of art clubs for investment purposes is not a new phenomenon. In 1974, the British Rail pension fund started investing in art and built up a portfolio of more than 2,500 works. In the 21st century, a number of private art funds have been launched. These are managed by professional art managers or art advisory firms, whose mandate is to deliver a return on the acquisition and disposal of works.
For the private consumer in the UK, some protection is afforded by the Sale of Goods Act 1979 (soon to be replaced by provisions contained in the Consumer Rights Act 2015). Some terms will be implied into the purchase contract unless expressly excluded. The seller warrants title, but not the attribution. As long as contracts are made on a handshake, it’s a case of ‘buyer beware’.
Raise a glass
Wine is not a new prospect for those seeking to diversify their portfolio. However, in recent years, it has increasingly become an attractive alternative investment class. A wine vintage has a finite production and this generally leads to demand exceeding supply. Provided that the selected vintage is not from a bad harvest year, prices should invariably rise as more is drunk and as the quality improves.
The wine trade is unregulated, and investing in wine should be treated with caution. An investor should deal with a reputable merchant to avoid investing in fake wines. Nevertheless, the best-performing wines can produce a mouth-watering annual growth rate of up to 20 percent.
Wine is a mid- to long-term investment, and those seeking short-term gains are likely to be disappointed.
Of course, many investors in wine are passionate about the product itself and its advantages as an alternative investment class are an additional benefit. What better way to check on the progress of your investment than by enjoying a sample bottle or two?
A vintage investment
Classic cars are associated with luxury, excitement and a bygone era, and, as a result, attract some of the most passionate collectors. There is method in the madness, as classic cars have been one of the best-performing investments of the past decade, with an average return of 456 per cent, according to the Historic Automobile Group International.
The classic car market has shown resilience, as quality collectible cars are in high demand and prices are firm. The value of vintage cars is based on a number of factors, including their condition and rarity, as well as race history and cultural significance.
A passionate collector who is determined to complete a collection, or desperate to fulfil a childhood fantasy, may pay more than double the market value for a piece. Equally, they may be reluctant to let go of a car, and never see any money made from it.
The hot favourite
There are many ways of investing in the breeding of racehorses. For example, investors can invest in foals, broodmares (female horses for breeding), stallions, a stallion share, a whole breeding operation such as a stud farm, or horses that are still racing.
To invest in bloodstock is to invest in something which may fall victim to fate, which is not listed and which is certainly not regulated. It is a world of evocative and sometimes mystifying terminology – yearlings, fillies, pinhooks, breeze-ups and black-types, for example.
It is a global market, encompassing Australia, the US, Europe, Japan and Hong Kong. The horse-breeding and racing industry in Australia alone is worth some AUD5 billion and employs around 200,000 people.
How investors enter the market will depend on their time horizon, appetite for risk, the level of return desired and whether they want to actively trade assets or take a more passive approach.
As an investor will frequently be buying an expensive asset, they will need to do their due diligence and understand their legal protection, whether buying at auction or privately.
Exciting, alluring and potentially extremely profitable, all of these alternative investment options are proving increasingly popular among more adventurous investors, who are just as keen to indulge their passions as they are to diversify their portfolios.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on May.14, 2015