Luxury handbags, fine wines and even trainers, first edition comics and Pokemon cards have become the must-have collectibles for high-net-worth individuals (HNWIs).
Rocked by the coronavirus crisis, which has wiped billions off the value of global economies and financial markets, wealthy investors are now simply looking to protect their assets and diversify their portfolios.
As a result, HNWIs are increasingly turning to tangible investments such as Bordeaux wines and Hermès Birkin bags, enabled by technological advances such as online auctions giving them greater access to a wider range of asset classes, as well as growing interest from a younger audience.
Designer jewellery and watches have been another much sought-after line, with exclusive timepieces garnering a ten-year waiting list and a market value double that of the retail price from day one.
“In a time when investors are seeking to expand their investments, art, wine and designer items present an opportunity where not only does it promise a possible high return, but it combines with their personal passion,” says Kareem Rathore, partner at Hoxton Capital Management. “Exclusive supplies of one-of-a-kind collectibles and rare opportunities all add to the allure of this audience.”
Yet, at the same time, more traditional investments like rare whisky have receded in popularity.
So what is driving this change in investment behaviour and strategy? Which investments hold their value best and what kind of returns can be achieved?
The impact of social media
Much of the change in investment behaviour is being driven by social media influencers. Investors see a product they like trending or being promoted by a celebrity on Twitter or Instagram and buy it.
“There is this increasing search for tangible assets going back to the financial crisis of 2007-8 when equities went down and investors switched their focus to fine art, classic cars and the like,” says Andrew Shirley, editor of Knight Frank’s The Wealth Report. “Added to that was the liquidity provided by quantitative easing, which has enabled them to make many of these purchases.”
Designer handbags, particularly limited editions, were by far the most popular investments over the last year, with Hermès bag returns rising 17 per cent, according to Knight Frank. Fuelled by an appetite for relatively affordable luxury pick-me-ups during the pandemic, particularly from collectors in Asia, investors have flocked to buy these essential status symbols.
Handbags hold their value too, with the 2018 Hermès 35 Birkin bag, which sold for $11,900 retail, now fetching between $20,000 and $21,000 at resale. That’s a 75 per cent capital appreciation over three years.
Trainers have also soared in popularity, with an autographed pair of Michael Jordan’s basketball shoes fetching $560,000 at auction last year. The market has the potential to reach $30 billion in value by 2030, Cowen Equity Research estimates.
“There has been a dramatic increase in the interest in the market for luxury handbags and contemporary streetwear,” says Rachel Koffsky, Christie’s international senior specialist, handbags and accessories. “That along with the rise of resale sites, social media and famous collectors, as well as dedicated handbag and fashion museums and exhibitions across the globe, has helped drive this market.”
Fine wine is another asset class that enjoyed strong growth in 2020, up 13 per cent, as reflected in the Fine Wine Icons Index. Remaining stable throughout the pandemic, the wine market has drawn in investors as prices have held firm.
A recession-proof investment, fine wine has consistently outperformed the S&P 500 Index in recent decades. Because of its low correlation to the global stock market, its value is unaffected by volatility, instead being dictated by supply and demand.
“Fine wine is inherently scarce, which allows for greater price appreciation than many other assets,” says Anthony Zhang, chief executive of fine wine investing platform Vinovest. “It also offers tax-efficient diversification, as investors generally don’t have to pay taxes unless they take personal delivery of the wine.”
The biggest single cost for looking after fine wine is storage. Sufficient cellar space and climate-controlled environments are required to maintain the wine’s flavour and value, and ensure it doesn’t mature too early.
The classic car renaissance
Another area experiencing a renaissance is classic cars, which climbed 6 per cent, with Ferraris among the most sought-after models. Over a ten-year period, classic cars as a category has leapt 193 per cent, offering a strong risk-reward for investors.
By contrast, the top end of the fine art market has waned in popularity with physical auctions shutting down due to the COVID crisis and no painting selling for more than $100 million for the first time in years. As a whole, the AMR All-Art Index tumbled 11 per cent in 2020.
“The volume of all sales that were publicly auctioned at Sotheby’s and Christie’s was down 26 and 46 per cent on 2019, respectively,” says AMR’s Sebastian Duthy. “The problem was compounded by the slowing of the supply of quality works as consigners who could afford to wait preferred to sit it out at home.”
Whisky’s 3.5 per cent decline was mainly due to the volatility of ultra-rare top-end whisky as an investment. That said, a hand-painted bottle of The Macallan stored for six decades in an ex-sherry oak cask recently sold for an auction record of £1.2 million.
The biggest issue with protecting alternative investments such as these is the security costs associated. Then there is the specialist insurance coverage, which can run to the tens or even hundreds of thousands.
“Depending on where your investment is located, you have to factor in protection against natural catastrophes, such as wildfires, earthquakes and hurricanes, transit and humidity controls,” says Ginny Hunter, senior vice president at Marsh McLennan Agency Private Client Services. “You also have to partner with a specialist broker and insurer who really understand the asset class and can provide broad and flexible coverage.”
Among investments to watch for in the future is jewellery, notably diamonds. A dwindling natural resource, they are a highly valued asset.
“No new diamond mines have been found for decades,” says diamond expert Henry Pruwer. “And with laboratory-grown diamonds increasing in circulation, certified natural diamonds have a special appeal to purists and investors alike.”