alternative asset classes - new statesman alternativ… · ingly popular investment. antiques, race...

AlternativeAsset Classes Investigating in the exceptional

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Only those with diverse portfolios or deep pockets were cushioned from the financial crisis in 2008, and that lesson still rings loudly in investors’ ears. A survey by Natix-is Global Asset Management of 750 high net worth individuals found that nearly two-thirds of those surveyed, who are confi-dent about investing, agree that a tradition-al approach to their portfolios – stocks and bonds – is no longer the most effective way to access returns and manage risk. Some 85 per cent of them would invest in alternative investments if they understood them better.

Indeed, if you look at the Knight Frank Luxury Investment Index (KFLII) which tracks the performance of a theoretical basket of nine selected luxury assets, it has risen 179 per cent over the past ten years, compared to the FTSE’s gain of only 55 per cent as at Quarter 2 of 2013.

Interestingly coins and stamps, which are included in the KFLII, both proved to be less volatile than the index as a whole over the ten-year period. The top invest-ment-grade stamps and coins (such as the ones that feature in the Index) have a histo-ry of stable growth behind them – and The Coutts Luxury Index, launched in January this year, found that since 2005 they have in fact doubled in value. As well as that track record, they are also largely unaffect-ed by swings in other markets, being driven by the needs of collectors rather than the “greed” of investors – and they are outside of the banking system.

Rare stamps and coins are tangible, heri-tage assets which, although they need to be taken care of to retain their value, do not

provide the storage and insurance issues associated with cars, wine and art. The rich and famous have used portable, tangible assets like stamps to protect and grow their wealth for centuries – from the British Roy-al Family, to the Rothschilds and Warren Buffet, to “Bond King” Bill Gross of Pimco. In 2000 Bill Gross put together a collection of rare British stamps worth $2.5m. That collection sold at auction in 2007 for $9.1m prompting his comment: “Four times profit – it’s better than the stock market!”

Further corroboration of market strength comes in the form of the GB200 Rare Coin index. This is an index listed on Bloomberg Professional™ terminals, based on global auction prices listed in the independent Spink & Son “Coins of England and the United Kingdom” catalogue. It tracks the prices of 200 trading British gold and silver coins over the last 12 years and has shown 12.7 per cent compound annual growth.

Likewise, the Stanley Gibbons GB250 rare stamp index, which is also listed on Bloomberg Professional™, has shown annu-al compound growth of 12.85 per cent since 2002. Whilst coins and other collectibles are not subject to regulation by the Finan-cial Conduct Authority, the coin and stamp market prices in the indices are transparent, based on annual printed catalogue data,

which is in turn based on market values from global auction realisations as well as private sales.

There are some important rules when buying alternative investments: First you should only buy from reputable merchants; misrepresentation can be a problem in the field of collectibles, not just through obvi-ous forgery, but by “over-grading” a coin or mis-stating the condition of a stamp; the quality of both of which has a large bearing on their values. Second it is critical to fully understand the market and know what you are buying – that means consulting an ex-pert. Less than 0.001 per cent of stamps are considered investment grade, the rest are collected by enthusiasts. Finallyw, buy the very best you can afford.

Alternative investments in the form of tangible, heritage assets are increasingly being used to spread risk in a diversified portfolio. Stamps and coins are an integral part of history and of socio-economic devel-opment; they offer us insights into histori-cal and political shifts, trade trends and the personalities that ruled. Without the Penny Black, there would probably be no world wide web today.

Is it for everyone? The short answer is no. Alternative investments are for those who want to diversify their portfolios; so-phisticated investors who already have oth-er financial bases covered.

None of us know the future, and there is no guarantee that any investment will go up in value just because it has historically, but spreading your portfolio risk is undoubted-ly the best advice of all.

twitter.com/sgnewsdeskwww.stanleygibbons.com

“Top investment-grade stamps and coins have a history of stable growth”

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CONTENTS

Treasure huntingArt. Wine. Classic cars. Vintage books. These objects hold con-notations of both great value and great sentiment. For centuries, such presitgeous collectables have formed an integral part of wealth management for individuals and estates. But what about their role in today’s investment market?

Alternative assets often serve a dual purpose: as asthetic objects collected for personal pleasure and a strategic asset with the possibil-ity of lucrative long-term returns.

It is estimated that wealthy in-dividuals in the UK hold 9.6 per cent of their total net worth in treasure assets. Elsewhere in the world, this number can rise as high as 18 per cent. The market is

further opening itself up to new customers, with the rise of online auction houses and the flourishing of specialist publications making room for the amateur to research, explore and experiment.

In today’s volatile economy, traditional investments in stocks and bonds may lack the assurance and stability of heritage goods or fine art. It is important, however, to remain aware of the potential pitfalls. The value of such items is often changeable and illiquid by nature – susceptible to damage if improperly stored, or vulnerable to shifting trends and tastes.

This special supplement turns an eye towards a tangible asset class that includes fine wines,

4 Alternative investment strategiesInvesting in the exceptional A buyer’s guide to alternative investments

9 Insight from the art world10 things you need to know about investing in emerging artSaatchi Art’s chief curator shares her insider tips

12 Record breakersThe most expensive art ever sold at auctionPicasso, Van Gogh, Rothko and Bacon top the list

14 Fine wineA taste for vintageNo better investment, says Sotheby’s head of wine

17 Vintage booksCollector’s edition Bonham’s head of books and manscripts explains why supply and demand make rare books such a solid hedge against inflation

20 AutomobilesOld-timer charms Classic cars continue to perform with strength, but it’s the joy of driving that makes for the ultimate return, says HAGI’s Dietrich Hatlapa

22 Record breakersThe most expensive cars ever sold at auctionFerrari, Mercedes-Benz, Bugatti and Shelby Daytona all make the grade

How to buy emerging art A look inside today’s wine market Classic cars: the choice of enthusiasts

emerging art, classic cars and books and manuscripts. Experts from some of the world’s leading auction houses and investment think tanks offer their view on what to look for, where to buy, and how to do your homework.

Articles express the views of the writers and are not intended to be advice. The writers may or may not have an interest in all or any of the investments mentioned.

Diversifying your portfolio with treasures is ultimately both a financial and a personal choice. As the experts agree, shopping for and collecting within the alternative asset market is hardly worthwhile without passion and enthusiasm. So enjoy the ride. l

The paper in this magazine originates from timber that is sourced from sustainable forests, responsibly managed to strict environmental, social and economic standards. The manufacturing mills have both FSC and PEFC certification and also ISO9001 and ISO14001 accreditation.

First published as a supplement to the New Statesman 11 April – 17 April 2014.© New Statesman Ltd. All rights reserved. Registered as a newspaper in the UK and USA.

This supplement, and other policy reports, can be downloaded from the NS website at newstatesman.com/page/supplements

9 2014

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ALTERNATIVE INVESTMENT STRATEGIES

Crafted: Makers of the Exceptional was an important retrospective and celebration of some of Britain’s most

talented designers. Taking place in the or-nate 17th century mansion that houses the Royal Academy, the exhibition suc-cinctly and skilfully highlighted the link between luxury and expert craftsman-ship. Indeed, at the opening night’s re-ception at the beginning of April were many individuals looking for that choice piece to add to their private collections.

In today’s world of mass production, many of the highest end goods can begin to look the same. It is this, perhaps, that drives the gathering desire for unique bespoke items – not only as something to enjoy in the now, but also as an invest-ment for the future.

It is no secret that art is an increas-ingly popular investment. Antiques, race horses, wine, vintage cars, old books and other alternative asset classes are also gar-nering attention. Coupled with perceived financial gains, there is a growing realisa-tion that turning a hobby into profit can be rewarding in other ways too. This is aside from the emotional benefits of ac-quiring collectibles in and of themselves.

Economic uncertainty has fuelled a desire to look beyond traditional vehicles.

Alternative investments offer individuals somewhere other than banks, with their unattractive low interest rates, to place their hard earned cash. Ongoing stock market volatility and low returns in what were once regarded as safe havens such as bonds, alongside the complete discreding of Ponzi schemes, mean that the cosidera-tion of alternative assets can now be part of a mainstream approach to portfolio management, rather than being consid-ered an esoteric sideline.

The markets for alternative invest-ments rely to some degree on fairy tales. We’ve all heard stories of lucky individu-als who bought a painting for a pittance then sold it for millions years later. Such exponential growth has bought much in-terest in the world of collectibles.

The sums can be eye watering. It is paintings that make colourful headlines and when, in May 2012, an Edvard Munch picture sold for a record USD$120 million at Sotheby’s in New York after a period of bidding lasting just 12 minutes, you could hear the scream of astonishment throughout the art world and beyond. But it isn’t just masterpieces where staggering figures are being realised. Last year a 1954 Mercedes sold for almost $30m, while in March 2014 an antique doll fetched a re-

cord breaking $300,000 at auction.These headline sums look alluring, but

just how easy is investing in alternative assets in reality? How much expertise do you require? Will these treasures hold their value? The reality is that while we certainly don’t all have a Cezanne tucked away in the shed, there are still consider-able returns to be made, although plenty of things to bear in mind.

Simply put, an alternative investment is any asset class other than shares or bonds. Barclays Wealth estimates that wealthy individuals in the UK hold an average of 9.6 per cent of their total net worth in treasure assets although in some countries this share is as high as 18 per cent. Alternative assets offer the oppor-tunity to diversify a portfolio and protect against inflation and currency devalua-tion, generate returns uncorrelated with those in the main financial asset classes and to invest in items of personal interest.

Gaining access to the markets for these alternative assets has become easier, es-pecially as the internet has opened up the auction process. Collectibles now increas-ingly share the characteristics of broader financial markets with market indices and specialist funds. However, alternative in-vestment strategies can be risky.

In an era of uncertainty, investments beyond traditional stocks and bonds are enticing savvy prospectors. The internet, too, is opening up the auction process. So what should every buyer be aware of?

Becky Slack and Ian Allsop

Investing in the exceptional

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Although investing in alternatives is regarded as an effective means of diver-sifying a portfolio, simply holding a pro-portion of wealth in art, for example, is not enough. Investors must also diversify within a single category.

And just because auction houses are thriving, this does not automatically translate into good investment returns. Collectibles markets can be inefficient, opaque and illiquid, and are extremely volatile and risky. The transaction costs associated with investing in treasure can be high, and many investors forget to fac-tor these into their overall financial plan-ning. There are also ongoing costs to con-sider, including insurance, storage and maintenance.

Alternative investments are highly susceptible to fads and fashion, meaning prices can fall as dramatically as they rise. This may not be a concern for collectors who are more interested in the intellectu-al and aesthetic stimulation but illustrates that acquiring such assets primarily for financial benefit requires caution.

Interestingly there is limited evidence that such assets are uncorrelated with broader financial markets. When the fi-nancial crisis hit in 2008 many prices dropped significantly, and then recovered when the markets did in 2010. A study of art prices and the stock exchange go-ing back to 1765 by the academic William Goetzmann found a strong positive rela-tion between the movements of both. This may be because the types of indi-viduals who acquire treasure tend to be those whose large incomes and wealth fall when the stock market is hit.

Art can typically be an illiquid invest-ment. There are many items that fail to sell or that auction houses will not to put forward. Very few artists are commercial-ly successful, resulting in an uncertainty about future values. It is therefore wise to purchase art primarily not as an invest-ment but an aesthetic item. Additionally there can be problems with authenticity.

While it seems appropriate to talk about liquidity in relation to wine invest-ing, as Chris Smith, investment man-

ager for the Wine Investment Fund, says while it’s a good pun, it is actually very important not least for valuations.

“The arena of wine investment has had some less than auspicious moments, and they are usually to do with inaccurate valuations, which results from illiquid stocks, as well as the lack of a universal-ly recognised pricing mechanism. One thing we repeatedly emphasise is having stocks properly valued, which means in-dependently, on a realistic market mid-price basis,” he says.

Indeed valuation can be a key challenge for all alternative assets, despite the emer-gence of indices for some types of treas-ure and an increase in publically available price information. In the art world, for example, the length of time that elapses between a single work coming for auction for a second time can be enormous.

Aside from the effect on valuations of changing trends, classic cars can depreci-ate in value as a result of dents, scratches or rust. The cost of upkeep, maintenance and insurance can also be considerable.

Timeless classic: Vacheron Constantin’s haute horlogerie engravings on display at Crafted: Makers of the Exceptional

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ALTERNATIVE INVESTMENT STRATEGIES

When it comes to haute couture, hor-logerie and jewellery, there are a number of rules buyers must consider. These in-clude the legitimacy and credibility of the maker and the brand name, and the quality and condition of the object, be it antique or new.

It is also important to consider how complicated the piece is and whether it is part of a series, says Julien Marchenoir, brand equity and heritage director at the watch makers Vacheron Constantin. He also advises buyers of watches to consider who the item was commissioned by as “the provenance can very much add to the value of a piece”.

Purchasing items direct from a brand’s own boutique can be one of the best places to source assets such as watches and jew-ellery. Not only does it enable the buyer to view and compare current collections, but it also provides reassurance that they are buying the genuine item. And when

buying watches it can ensure that the item comes complete with a guarantee.

“Often when people go to non-accred-ited dealers they can find their watch isn’t covered when it comes to repair work and maintenance. This ultimately will affect the value of the watch,” says Marchenoir.

“Much like an expensive car, if you do not keep it well maintained and serviced, it will affect the value and performance over time.

Finally, markets can be affected by be-haviourial biases. Collectibles can have a large emotional component and financial motivations for holding treasure can en-compass a range of different underlying

Markets for alternative investments rely to some

degree on fairy tales

preferences. Individuals buying treasure for financial reasons do not always do so in the anticipation that the item will pro-vide a financial return from a rise in val-ue, but because it has a permanent value.

The enjoyment motivation means some would argue that collectibles should form part of an individual’s per-sonal holdings rather than as a separate asset class within an investment port-folio. The more that collectors say they acquire assets for financial reasons, the less enjoyment they tend to derive from them. Therefore, the high degree of emo-tional value that some investors attach to their treasures can bring positive benefits other than purely financial ones.

However you approach collectibles one caveat remains traditional. Always seek appropriate professional advice. To that there really is no alternative. lBecky Slack and Ian Allsop are freelance writers

AUCTIONEERING ON THE DAY OF THE AUCTIONPrices achieved at auction for similar items can vary

enormously and be influenced by a range of factors,

including the skill of the auctioneer, the interaction

between bidders and the sale price of previous lots.

Even the weather on the day can make a difference.

Research has found that sunny days result in higher

prices. However, auctions have been a successful

method of buying and selling collectibles for centuries

and a good test of the market at local, national and

international level. There are some basic rules to apply

however, to ensure you get the best value out of the

process (and not just keeping your arms still lest you

accidentally bid for something).

Excellent guidance is available from RICS, but as a summary:

Allow time to examine things carefully. Check for

damage and restoration and decide upon your maximum

bid. If you can visit the venue prior to the auction, the

view day is your chance to have a good look at lots you

are interested in.

Buy a catalogue, read the description and estimate and

then ask questions. Auctioneers and valuers are more

than happy to share their expertise and knowledge.

Ask for a condition report.

Make your first bid clearly and definitely when the

auctioneer looks in your direction, and then be as subtle

as you like once he’s noticed you.

If you can’t attend the sale you can leave a

commission bid. Fill out the relevant form clearly noting

all the details required, including the maximum price

you are prepared to pay. The auctioneer will then try to

buy the lot for you as inexpensively as possible taking

into account other commission bids, other bidders in the

room and any reserve price.

Advances in technology mean that some auctioneers

can enable you to place bids on lots via the internet and

you may even be able to bid live at the auction through

the internet.

If you are bidding in the room, do not get carried

away and bid above your pre-determined limit. If you

are bidding on the telephone wait for clear instructions

on when to bid and the increment expected. If you are

bidding online keep up with the speed of the sale via the

auction video or audio, if provided.

If you are selling, an auctioneer is your appointed

agent and your representative to the buyer. They should

offer impartial, confidential, professional advice based

on their knowledge and expertise. The surveyor will

usually provide free pre-sale estimates.

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THE ART MARKET

For centuries now, people have been collecting art and recognising the great financial rewards to be gained

from supporting new artists. Works by emerging artists have the potential to in-crease in value, leading in turn to future gains. They are also much more affordable than household names, and much easier to access.

You don’t need deep pockets to dis-cover the next Gerhard Richter or Damien Hirst: prices for works by emerging art-ists are reasonable, and by acquiring their work you’ll enjoy the art you own as well as the promise of a sound investment.

Here are some guidelines worth bearing in mind when collecting works by emerg-ing artists and setting out to discover the future stars of the art world.

1. Falling in love

There are no guarantees about investing in art, so the first criteria should be that you

love the work you buy – it may be on your walls for a while. If you are smitten by a work, proceed with your purchase with confidence. It’s worth investing in your happiness too.

2. How deep are my pockets?

Establish your budget and stick to it. By focusing on emerging artists you can ac-quire beautiful works at reasonable prices and find works within a range of budgets. Research the full variety of what is avail-able within your budget – for example, for the same price you might be able to buy a painting or a limited edition photograph.

3. Do your homework

Conducting some research can help you make informed decisions about what you are buying. You can do this by going to lots of exhibitions and thus expanding the range of visual material you are exposed to. Also, do plenty of background read-

ing: art magazines and the arts sections of newspapers are a good way to get a feel for what’s going on in the art world.

4. Discover fresh talent

Make a beeline for degree shows at art colleges, where young artists exhibit the fruits of their BA and MA studies. This will alert you to new trends among emerg-ing artists. It’s also a great way to get your finger on the pulse of what’s up-and-com-ing. If that’s too time consuming for you, keep a look out for survey shows of recent graduates, such as The Future Can Wait and New Sensations, both held during London Freize week.

5. Explore the world of art online

If you are new to buying art, going to commercial galleries can be an intimidat-ing experience. The internet, by contast, offers a respite – making art much more widely accessible and enabling anyone the

You don’t need deep pockets to discover the next Damien Hirst. The emerging art market makes for an affordable and accessible alternative to the mainstream, if you know your way around

by Rebecca Wilson

10 things you need to know about investing in emerging art

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chance to discover all kinds of art from around the world. Most online galleries have a returns policy so you can try the works out at home.

6. Invest intelligently to save time and money

Where you buy a work of art can help you keep your costs down. Brick and mortar galleries, for instance, take a 50 per cent commission, which means that works ac-quired from galleries are double the price set by artists. Online galleries, with fewer overheads, are able to keep prices lower, which is ideal for passing on the savings to collectors. Buying from degree shows, before artists get snapped up by galler-ies, is yet another way to save money and invest wisely.

7. Frontier markets

Explore what’s going on in emerging markets such as South Korea, Brazil, Ja-pan, China, and India. These countries are growing art hubs, with many of their most exciting artists yet to be discovered by western galleries.

8. Buying photography

Prices for photographs are often lower than for paintings or sculpture, and can therefore make an ideal entry point when begining to collect art. If you are thinking about buying a photograph, you must find out how many prints are in the edition and what kind of print it is.

9. Hidden costs

When you buy a work you will have to pay for the cost of shipping the work to you, so remember to factor this into your budget. If you are buying a photograph, find out whether the work comes mounted or framed – as this may be another extra cost.

10. Avoiding forgeries

Shopping in the emerging market can ac-tually help you to avoid forgeries. Some collectors have lost millions buying forged versions of artworks by well-known art-ists. If you focus on buying works by emerging artists, the chances of this hap-pening are extremely unlikely. This kind of assurance in the market means you can stride ahead with confidence in what you are buying. lRebecca Wilson is chief curator of Saatchi Art, a world-leading online gallery www.saatchiart.com

Andrew Salgado,

“Enjoy the Silence

(Blue)” (2014)

Miguel Laino, “The

Long Arm of the Law

of the Jungle” (2014)

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RECORD BREAKERS

1) The Triptych, Three Paintings of Lucian FreudArtist: Francis Bacon Year sold: 2013Price: £89 millionWhere: Christie’s, New YorkOne iconic British artist capturing another on canvas, this painting has a spe-cial place in art history. The work, which was sold at Christie’s in New York, went quickly after ferocious bidding.

2) The ScreamArtist: Edvard MunchYear sold: 2012Price: £76.3 millionWhere: Sotheby’s, New York“The Scream” may well be the most rec-ognised piece of art in the world, so it’s no surprise that it took just twelve minutes for the 1985 pastel to sell. This version included a poem on the frame.

3) Nude, Green, Leaves and Bust Painter: Pablo PicassoYear sold: 2010Price: £66 millionWhere: Christie’s, New York A seminal work by the artist, it is said that Picasso painted this sensual portrait of his muse Marie-Thérèse Walter in a single day. In 2011 the anonymous owner loaned the work to the Tate for public display.

4) Walking Man IArtist: Alberto GiacomettiYear sold: 2010

Price: £60 millionWhere: Sotheby’s, LondonProof that sculpture holds its own on the market, this piece by the Swiss sculpture sold for an incredible amount when put up for auction by Sotheby’s in August 2010. The work went for more than four times the original asking price.

5) Garçon à la PipeArtist: Pablo PicassoYear sold: 2004 Price: £58 millionWhere: Sotheby’s, New YorkPicasso painted “Boy with a pipe” when he was just 24 years old and living in the Montmartre district of Paris. It depicts a young man crowned with a rose garland.

6) Dora Maar au ChatArtist: Pablo Picasso Year sold: 2006 Price: £57 millionWhere: Sotheby’s, New YorkA vibrant painting of the artist’s Croatian mistress Dora Maar holding her cat, this 1941 work was, at the time, the second most expensive ever sold at action.

7) Orange, Red, YellowArtist: Mark Rothko Year sold: 2012Price: £53.8 millonWhere: Christie’s, New YorkThis 1961 abstract commanded a high fee in 2012 which was, for a time, the highest price ever paid for a piece of post-war art.

8) 1976 Triptych Artist: Francis BaconYear sold: 2008Price: £52 millionWhere: Sotheby’s, New YorkCritically regarded as one of his best, Bacon’s 1976 Triptych is now owned by Chelsea Football Club owner Roman Abramovich, who brought at the height of the buying market in May 2008. The sale proved the recession had made little dent in this asset’s pulling power.

9) Portrait of Dr Gachet Artist: Vincent Van GoghYear sold: 2006Price: £49.7 millionWhere: Kobayashi Gallery, TokyoDepicting his physician Dr Gachet, who cared for Van Gogh in his last few months, this portrait bears all of the lush brushtrokes and vivid colours that ex-emplify one of the 20th century’s most enigmatic artists.

10) Bal du moulin de la GaletteArtist: Pierre-Auguste Renoir Year sold: 1990Price GBP 2014: £47 millon Where: Sotheby’s, New York

One of the most recognisable works of Impressionist art, Renoir’s “Dance at Le moulin de la Galette” sold for a record amount in 1990 at Sotheby’s in New York. 14 years later, it still remains among the highest prices ever fetched.

Most expensive art sold at auction

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Armit Wines Fine Wine Market Report April 2014

Armit Wines Fine Wine Market ReportIn a shrinking world with ever-faster dissemination of information, the Fine Wine market is no longer wood-panelled, red-faced, snoozy and operated by telex. Today an educated, global audience is hunting down the very greatest wines. As economies develop and wealth is created, the finite production of the best vineyards has come under increasing pressure, leading to an interesting investment scenario. When this is combined with increased volatility in many traditional investment arenas, it is perhaps not surprising that fine wine is attracting many new enquiries as a viable alternative investment.

Armit Wines was born in London in 1988 and from its inception, the ability of the company to advise its clients on how best to navigate the fine wine market, be it for drinking, collecting or for investing, has been one of its most noted strengths. Over 25 years later, the company has grown into one of the major fine wine distributors in the UK, with exclusive relationships with some of the world’s most noted producers and has expanded into the Far East, with a team in Hong Kong looking after the needs of clients in the expanding markets of the region. Where is the market today?The great châteaux of Bordeaux have traditionally dominated the fine wine scene and certainly for investment purposes, it has until comparatively recently, been unusual to hear mention of anything else. The shift away from Bordeaux is reflective of the end of a bull-run for the region’s finest wines, with prices heading steadily south since mid-2011. At the same time,

other regions have finally got their message across about their improved quality and have also invested in their brand awareness, in so-doing creating new demand. Allied to less volatile pricing policies than seen in Bordeaux, the wines of regions such as Burgundy, Champagne, Piedmont, Tuscany and California are now gaining market share from Bordeaux and enjoying their deserved moment in the sun. Tuscany: Leading the way have been the “Super Tuscans”, wines inspired by Bordeaux but with a distinctly Italian edge and consistent recipients of critical acclaim. Sassicaia, Ornellaia, Masseto and Solaia are the big four but others are now coming onto the radar, such as Antinori’s Guado Al Tasso and Tignanello and Tua Rita’s Redigaffi and Giusto di Notri. Burgundy: Top Burgundies have had another fruitful year with demand for these small scale estates continuing to increase and enormously outstrip supply. This is a complicated area in which to invest because of the tiny scale and restricted allocations but returns can be handsome for those who put in the effort. Champagne: No region in France is stronger in marketing than Champagne and the last twelve months have seen highly successful releases of luxury cuvées such as Dom Pérignon 2004 and Taittinger’s Comtes de Champagne 2004. With a typical fast turnaround given consumption patterns, despite the large productions, Champagne is very much “back” in vogue and its finest wines should certainly feature in any investment portfolio.

Piedmont: Italy’s answer to Burgundy in many ways, this beautiful corner of Italy has always appealed to its loyal markets in countries such as Switzerland, Germany, Italy and the US but there are now clear signs that demand is spreading much more widely. California: With the US economy resurgent and a number of high quality vintages in recent years, California’s wines are capturing attention again, particularly those with truly international, rather than just local appeal. The FutureAt the time of writing, the picture for Bordeaux looks little improved with the 2013 En Primeur campaign unlikely to provide a fillip to the market. The Liv-ex 100, the major index, has declined every month for the last twelve months, with little suggestion of an event that will reverse the trend. Markets, however, rarely move in one direction ad infinitum, so the big question is when to strike. With every month, the risk drops and the chance of returns improve. What really needs to happen is for Bordeaux to rediscover its appeal to consumers. Perhaps the next time that you are sitting at a dinner table and someone talks positively about Bordeaux might be the sign that you need!

In the meantime, our advice is to continue to diversify. The five regions above provide compelling opportunities and new releases will be coming to the market in the months ahead.

To discuss these, or indeed any other aspect of your wine portfolio, be it for investment or for pleasure, please contact our team on +44 207 908 0660 or visit www.armitwines.co.uk

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FINE WINE

The collector who sold his treasure trove of legendary wines today at Sotheby’s in London would cer-

tainly attest to the benefits of investing in wine: his seven decade collection of top Bordeaux, Burgundy and Rhône simply “walked out of the door”.

Such a collection is exemplary of the wine market – a market with a taste for mature products of impeccable origin and provenance. Investing in wine appeals to those who wish to take advantage of the fact that someone else had financed the cellaring of these classic wines until they were ready to drink (in fact, in 23 years at Sotheby’s, I have known only one wine investor who did not drink).

The usual ground rules apply to investing in wine as to other “commodi-ties” – buying the right stock at the right time and at the right price. But there are added riders where wine is concerned as it is a living, agricultural product that can lose its value if kept in unfavourable, or overly warm conditions.

The issue of authenticity is also a giv-en, and therefore requires sourcing with care from suppliers with a proven track record. “Investment wines” as a category are also, by definition, relatively youthful specimens – buying old wines defeats the purpose as they have already achieved their highest gains in price.

The greatest element of change in wine investing, I believe, is the widening of categories that are suitable for this par-ticular pursuit. The blue chip area was, and remains, the top classified growths of Bordeaux, where for the most part there is that magic combination that makes a market: quality and quantity.

The organisation of the specialised Bordeaux market begins with the fren-zied en primeur campaign, where wine is sold while it is still in barrel, before sometimes being traded on paper with

varying degrees of rapidity, according to the perception and judgement of the vin-tage. There usually follows a period of years where the wine lies dormant, and then interest picks up as a vintage reaches drinkability and bottles are opened, cre-ating a platform for further trading and a real secondary market.

But other categories – such as Burgun-dy, Rhône, Italian, Californian and Span-ish wines – are also joining the picture.

Burgundy has never, and can never, fulfil the top role in the same way as

In today’s luxury market, wine remains both a financially accessible and personally enriching choice for buyers, with new categories of “investment wines” on the rise

Serena Sutcliffe

A modern taste for vintage

Hermitage, La Chapelle 1961 Paul Jaboulet Aîné

The market has a taste for mature products of

impeccable origin

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Bordeaux, simply because the quantities made at top level are so small. However, it is bonanza time now for those who did manage to acquire some of these exciting wines from growers who have holdings in these relatively tiny plots. Demand for great Burgundy has burgeoned, and those who can desist from drinking them

themselves have the option of selling them on for exotic prices.

Following in Burgundy’s wake, the most prestigious estates from both the North and the South Rhône are now ea-gerly lapped up. This has evolved quite quickly and it has been particularly sur-prising to see how Asian buyers, in our three auction centres of London, New Romanée Conti 1996 Domaine de la Romanée

York and Hong Kong, have awakened to the pleasing potential of great Rhônes, both as superb wines in their own right and as “safe” future investments. The one, logically, follows the other.

A handful of template Californian wineries have ploughed their own fur-row and are increasingly taking their place on the world wine stage, together with a similarly tight selection in Italy. A few iconic Spanish wines are, too, peer-ing over the parapet.

Today’s luxury market is holding its own and wine is a part of that, remain-ing far more financially accessible than, for example, property in a capital city of international renown. We cannot buy the over-the-top yacht, but we can splash out on cases of wine which we shall later sell, or enrich our lives by drinking. Show me an investment that can better that. lSerena Sutcliffe MW is a leading inter-national wine authority and Sotheby’s worldwide head of wine

Wine is a living product that will lose its value in unfavourable conditions

Momentum Wines | Explosive GrowthOne of the most important recent trends in the wine market is a shift towards the likes of Masseto, Sassicaia and Opus One; estates that barely registered on the investment map two years ago but which today are enjoying explosive growth in both demand and prices. So why are so many investors still missing out? The reason wine investment commentary cites is the Liv-ex 50 Liv-Ex 100. Trouble is, the 50 represents only left-bank Bordeaux, which is sluggish, and the 100 is heavily weighted towards it. Consequently, the observer is lulled in to thinking there’s not much going on.That couldn’t be further from the truth, as demonstrated by the graph below documenting the recent performance of Masseto. The bottom line is this: in pockets the market is flying, but you need specialist advice to capitalise. How to Exit ProfitablyWhile watching wine increase in value on paper is one thing, it is quite another to actually turn this movement into cold hard cash. This is where Amphora Portfolio Management outstrips the competition. We constantly seek the best global prices for our clients, and it is the key reason people use our services. Amphora is not a merchant. We don’t sell you wine. Rather, we manage a process to generate you a return using wine as the denominator.

Masseto Vintage Growth% of increased growth since 2012

00

06 07 08 09

01 02 03 04 05As can be seen here each vintage of Masseto has grown significantly in the last two years alone.

58%

21% 75% 96% 52%

30% 63% 26% 39% 50%

AMPHORA PORTFOLIO MANAGEMENT5 Fitzroy Square

LondonW1T 5HH

020 7148 [email protected]

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BOOKS AND MANUSCRIPTS

Like art, the market for rare books is driven by basic economic factors. At the simplest level this is supply and

demand. Just as they’re not making any more land, they’re not making any more Gutenberg Bibles. On that simple princi-ple, the value of books should increase with inflation. However, rising global wealth and literacy should also mean more book collectors and an increasing demand for rare books. In addtion to that, each year some copies are destroyed by floods, fires, pests, or good old wear and tear, hence re-ducing supply. Rare book prices should, therefore, rise above and beyond inflation.

Unfortunately, quantitative analysis of book prices is difficult. Data has been gathered and analysed for big-ticket works like the Shakespeare First Folio, but few studies have looked at the total market. A study by the website Americana Ex-

change shows that rare books purchased between 1991 and 1995 achieved a 106 per cent return when sold in worldwide auc-tion rooms in 2008 (versus 53 per cent in-flation based on the UK Composite Price Index); material purchased between 1996 to 1998 had a 44 per cent increase (infla-tion was 36 per cent), and there was a 6 per cent advance for material purchased between 1999 and 2002 (inflation was 26 per cent). The takeaway from this could be that the longer the holding period, the bet-ter books perform as an inflation hedge; an investment that provides protection against a decreasing value of currency.

If books provide such an inflation hedge,

on the flip side they correlate surprisingly closely with the stock market. The irra-tional exuberance on Wall Street in the spring of 1929, for instance, also perme-ated the auction rooms. Books sold from the library of American theatre com-poser Jerome Kern fetched prices at that time which in some cases have not been equalled today, even in nominal terms, let alone adjusted for inflation. Similarly,

by some metrics, 2008 was the worst year financially for rare books since the Great Depression. It makes sense: we rein in discretionary spending during a down-turn, but splash out on collectibles when our stock portfolios look healthy. Equally importantly, sellers wait for a boom before offering the best from their libraries, just as companies launch IPOs in bull markets.

The impact of digital publications in the

The demand for rare books may mirror the boom and bust of the stock market, but they provide long-term returns and there are very few pitfalls to avoid when buying one

by Matthew Haley

Collector’s edition

Library lust:

a page from

Charles Dickens’

A Christmas Carol, from the library of

Jerome Kern

Books are an investment in your brain as much as

your portfolio

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BOOKS AND MANUSCRIPTS

A rare breed of bookThe Birds of America is a volume of anatomically precise,

life-sized drawings made by the naturalist and artist John James Audubon (1785-1851). Renowned as a colourful char-acter of artistic brilliance and adventurous spirit, Audubon set himself the ambitious task of cataloguing the 700 or so regularly occurring species of North American birds. Throughout his travels in the eastern and central regions of the United States, Audubon came close to achieving his goal – successfully producing the 435 prints that comprise the full edition.

Audubon’s prints were made from engraved plates that he finished by hand with watercolours. He found publish-ers first in Edinburgh and then London, where the book was published in batches, by subscription, over the period from 1827 to 1838. The work became an enormous success, chiming rightly with Europe’s thirst for romanticism and playing on Audubon’s “frontiersman” image. Famed for their great size, the book’s pages measure an astonishing 39 x 29 inches (100cm by 67cm).

The work has hardly lost its appeal and is viewed today as one of the most seminal works of natural history ever produced. Fewer than 200 complete sets were made and of these only 119 are known to survive. In 2010 a full copy was auctioned by Christie’s for £7.3 million, setting a then world record for the most expensive book at auction.

This first edition engraving, seen here on the right, de-picts the North American wild turkey and was chosen by Audubon as the first image for his masterpiece. Audubon noted in his journal on December 4 1826 that the ambitious composition was chosen, in part, to “prove the necessity of the size of the work”. New Statesman

books market is of course worth address-ing. Mercifully, e-books have made little dent in bibliomaniacs’ fetishistic desire for old paper. Far more cataclysmic for the market has been the advent of rare book price comparison sites like AbeBooks and viaLibri, which allow collectors to search for and compare prices of books held in the stock of multiple booksellers. Where once you had to trawl bookshop after bookshop in search of the elusive Dick-ens first edition, now several copies are available at your fingertips – providing a more efficient market and commensu-rately lower prices (for the more common first editions, at least). This should benefit those building collections today, but has hurt some who collected during the pre-internet era.

It is a brave book buyer who pursues a contrarian strategy, picking up unrecog-nized and unloved books in the hope their value will eventually be reflected by the market. I would venture to say that more

reliable returns have been achieved by those trading on momentum and focusing on traditionally highly-prized works: the Shakespeare First Folio, Audubon’s Birds of America, Newton’s Principia, Darwin’s Origin of Species, James Joyce’s Ulysses. Of course, past performance is not always a guide to future return, and a first edition of a contemporary novel bought in 2014

might later be acknowledged as the 21st century Ulysses, generating a far greater upside than Joyce’s masterpiece. It could be the equivalent of buying Apple stock on the eve of the iPhone launch.

Fortunately, there are relatively few pitfalls to avoid when buying rare books. Authenticiy is rarely a concern, as suc-

cessfully forging a printed book is almost impossible (although a few determined characters have achieved it). This is un-doubtedly a comfort to buyers. That said, an author’s signatures or hand-written in-scriptions in books should be treated with far greater scrutiny. Most collectors prize “original condition”, which constitutes the following requirements: that the bind-ing is that in which a book was originally issued, or at least a binding of the period, that the text is complete with no pages or illustrations missing, and that there are no significant restorations. The intelligent investor in rare books will buy one mag-nificent book instead of ten second-rate, incomplete or shabby volumes.

But all of this ignores the immeasurable intellectual pleasure of book collecting. An investment in rare books is an invest-ment in your brain, as much as in your portfolio. lMatthew Haley is head of books and manuscripts at Bonhams

The longer the holding period, the better books perform against inflation

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AUTOMOBILES

Is a classic car a worthwhile invest-ment? The answer to this question depends on how you define “worth-

while”. Returns should not be measured only in financial performance, but also in the enjoyment and pleasure that come with ownership.

In an age of computers and hi-tech gadgets, the classic car fulfils a desire for old-fashioned mechanical craftsman-ship. For many owners, the car transports them into history – to the motorcars of their memories, or an era of bygone machinery. A classic car is also an entry ticket to the open road, to nature, or to so-cial gatherings of likeminded enthusiasts.

Investing in a vintage automobile is not recommended for those who cannot de-velop this sort of passion for classic cars. Anyone interested should first take time and explore. A love of modern cars is sim-ply not comparable, as owning an old car may require hard work in terms of main-tenance, storage or restoration.

It is therefore recommended that the novice attend classic car events and speak to existing collectors, members of clas-

sic car clubs, independent experts, se-lected dealers and auctioneers. There are a multitude of wonderful events where knowledge can be found. In the UK, some worthy examples include the Goodwood Festival of Speed, the Goodwood Revival and the Beaulieu Autojumble.

The classic car market is global and non-elitist. Car enthusiasts come from across the world, making for an exciting mix of personalities from all social and cultural backgrounds. Most classic car owners do so for pleasure, with investment reasons coming secondary.

Even if pleasure is your primary con-cern, classic cars will almost certainly see their value appreciate. At the Historic Automobile Group International (HAGI) we use rigorous financial methodology, of the sort usually associated with more traditional investments, to track the value of this alternative asset, which continues to perform with strength. Our classic car Top Index, for example, rose by 135.05 per cent between the ends of 2008 and 2013.

Those looking to join this market must consider some basic requirements.

First, it is important to assess the clas-sic car specialist infrastructure in the area where the car is to be kept. Are the right sort of maintenance facilities near to hand? Proper storage is essential too. If possible, your car’s storage space should be climate controlled.

Before making a purchase, buyers should also ensure that the classic car in question has a high degree of originality. In the best case scenario, its entire his-tory since production should be known. Documentation is as important as the car itself; unknown periods during its own-ership point to potential problems.

Furthermore, it is vital that an inde-pendent, recognised classic automobile

The value of investing in a classic automobile is more than purely monetary. It’s the joy of driving that makes for the ultimate return

Dietrich Hatlapa

Old-timer charms

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specialist be consulted to inspect and study the vehicle as well as its paperwork and accessories prior to purchase. It is an unfortunate truth that many classic cars have been compromised by incor-rect workmanship, or the use of inferior parts and materials during repairs, main-tenance and restoration. Without a clear, unbiased appraisal, it can be difficult to tell if a car has been repaired to the correct standard during its lifetime. A common mistake made by new owners is taking advise from so-called “experts”, who are in fact car traders with a vested interest. The right service will come at a cost, but it is money well spent.

Finding such an expert can be done through classic car clubs or independ-ent publications. Classic car magazines, books and websites carry huge amounts of information, right down to specific models. Journalists and experts have tested and described almost every types of car and have issued detailed buyers’ reports, alongside price guides, for each model. Treat these as a valuable resource.

It is also worth noting that over the last two decades many heritage motor manufacturers – such as Aston Martin Mercedes-Benz, Jaguar, Bentley, Porsche and Ferrari, to name a few – have formed in-house classic departments which pro-

vide a wide range of services for owners. These services include authentication, restoration, maintenance and, in some cases, the sale of their own classic mod-els. Contacting these departments can be highly useful.

Finally, to maximise the return of a classic car investment it is advisable to look after the car and to maintain it well. And above all, classic cars need to be driven. Enjoyment is indeed the ultimate form of return. lDietrich Hatlapa is the founder of HAGI, an independent investment research house and think tank specialising in the rare classic motorcar sector

Romance of the road: classic cars have the power to transport us into an era of memory

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RECORD BREAKERS

1) 1954 Mercedes-Benz W196Year Sold: 2013Price: £17.8 million Where: Bonhams, Glorious GoodwoodDriven by F1 racing legend Juan Manuel Fangio as he rode to victory in the 1954 German and Swiss Grand Prix, this clas-sic has a special place in motorsport.

2) 1967 Ferrari 275 GTB/4 NART SpiderYear Sold: 2013Price: £16.5 millionWhere: Gooding & Company, Monterey, California Despite being from the Ferrari family this car has a distinct North American feel. It featured in the 1968 classic the Thomas Crown Affair and is now owned by fash-ion billionaire Lawrence Stroll.

3) 1957 Ferrari 250 Testa Rossa PrototypeYear Sold: 2011 Price: £9.8 millionWhere: Gooding & Company, Monterey, California This car’s price tag comes mainly from the innovative and revolutionary tech-nology it sported, including pontoon bodywork and a V12 engine.

4) 1957 Ferrari 250 Testa RossaDate sold: May 2009Price: £7.3 millionWhere: RM Auctions, Maranello, ItalyAnother vehicle from Testa Rossa family, these models were known as supreme racing cars – lightweight and reliable. Only 19 cars of this model were ever made by Ferrari, but it became a car for many champion drivers.

5) 1961 Ferrari 250 GT SWB California Spider Year Sold: 2008 Price: £6.5 million Where: RM Auctions, Maranello, ItalyThis innovative soft top Ferrari is styl-ish and eye-catching with its gloss black

finish. It was previously owned by Hol-lywood actor James Coburn and is now in the hands of DJ Chris Evans.

6) 1931 Duesenberg Model J Long- Wheelbase CoupeYear sold: 2011Price: £6.05 millionWhere: Gooding & Company, Monterey, California When built in 1928 it was billed as the world’s finest motor car, and can certainly claim to be one of the more extravagant. This model’s chrome and brushed alu-minum features are synonymous with the gregarious design style the defined the 1930s.

7) 1931 Bugatti Royale Kellner CoupeYear Sold: November 1987 Price: £5.85 millionWhere: Christie’s at the Royal Albert Hall, London This fifteen-foot coupe was noted for its sizable front end, built to hold an enor-mous 12.7-litre engine originally de-signed for an aircraft. It remains one of the world’s largest and most sought-after automobiles.

8) 1937 Mercedes-Benz 540K Special RoadsterYear Sold: 2011Price: £5.8 million Where: Gooding & Company, Monterey, CaliforniaIt is widely rumoured that there are only three examples of this Mercedes remain-ing in existence. Previous owners include F1 supremo Bernie Ecclestone.

9) 1962 Ferrari 330 TRI/LM Testa RossaYear Sold: 2007Price: £5.5 millionWhere: RM Auctions, Maranello, ItalyAnother classic Ferrari Testa Rossa, this model boasted a unique chassis while still carrying signature power and smooth-ness under the bonnet.

10) 1965 Shelby Daytona Cobra CoupeYear Sold: 2009 Price: £4.3 million Where: Gooding & Company, Monterey, CaliforniaThis car won the 24-hour Daytona Chal-lenge in 1965. It become the only Ameri-can model to beat Ferrari in a world racing championship in Europe.

Most expensive cars sold at auction

Speed freak: Fangio’s 1954 Mercedes-Benz W196

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Antique furniture is generally extremely robust and practical for everyday use, whether it’s a Georgian chest of drawers, a Regency sofa table or a Queen Anne walnut desk. Bought wisely, it can also be a great investment. Modern furniture usually has no re-sale value, but even a humble Victorian dining chair can be put to auction. The best quality pieces

are always in demand, their value riding out changes in fashion or market swings. There are good opportunities to buy at auction if

a piece, bidding on it and having it restored. It’s more straightforward to buy from a dealer, but their mark-ups can make it challenging to purchase as an investment.

Less traditional businesses like Broughton Restorations aim to offer better value with no high street premises or sales staff, and tighter margins. There are few shortcuts to our work – a good restorer enhances value by using the methods and materials of the original cabinet-maker. In this way, furniture will retain its value for our lifetimes and long after that.

23 ad comp.indd 4 08/04/2014 12:57:04

Real wealth in your hands

In uncertain times, physical gold offers about as much certainty as you can get. And, as the headlines tell us, uncertainty is all around, as the meltdown in the Eurozone shows no sign of resolution and global markets plummet again.

The expectation of an imminent world banking collapse may be a minority view, but it is increasingly held. On a national scale it has happened many times before, for example, in Germany, Russia and Argentina.

For private investors it poses the oldest question in the world – where is their money really safe? And growing numbers are choos-ing the oldest answer: physical gold.

“In Germany and Austria, where economic collapse and hyper-inflation happened within living memory, holding gold bars and coins is fairly common, and it’s always been seen as a safe haven for wealth in India,” says Rob Halliday-Stein, managing director of Bullion-ByPost, the UK’s market leading supplier of physical gold.

“We’re offering investors the ultimate insurance. It gives people physical control and ownership over part of their wealth. It’s quite different from handing over money to a fund manager – or even, these days, leaving it all in a bank account.”

The price of gold tends to rise as inves-tors in other markets get the jitters, says Halliday-Stein: “If you visit the BullionByPost website – www.bullionbypost.co.uk – you can see that the gold price began rising sharply in August 2007, just as news of the banking crisis started to break. It’s more than doubled in the last three years, and more than trebled in the last five.”

As the buying power of savings is eroded by low interest rates and high inflation, and currencies are devalued by repeated rounds of “quantitative easing”, owning physical gold may be a way of preserving the value of your money, says Halliday-Stein.

However, as he is careful to point out, this does not necessarily mean that physical gold is a good speculative investment. The gold price tends to fall back as economic conditions improve, and can even do so as they worsen – as happened in September last year.

Anyone wishing to speculate short-term on

the gold price can consider exchange-traded funds (ETFs) or contracts for difference (CFDs) which track the price of gold. But this kind of “paper gold” is of no value if the fund owner goes bust or the banking system fails, says Halliday-Stein.

Ultimate security comes from having a bar or two, or a purse of sovereigns, in your bank deposit box or under the bed.

“It makes sense to hold at least five to ten per cent of your liquid wealth in physical gold for the long term,” says Halliday-Stein. “It performs a very useful function as an asset of last resort as part of a balanced portfolio.”

BullionByPost’s typical customers are not billionaires, but small to medium investors. They have savings – Halliday-Stein does not advise borrowing to buy gold – but can range from owners of businesses to modestly wealthy retirees.

“For most people 100g gold bars, costing around £3,600, are the best investment,” says Halliday-Stein. “Even if you wanted to buy several kilos we would recommend 100g bars. The price is slightly higher than kilo bars but this size makes them much more flexible when you sell them.”

For smaller units, coins are very popular, with a sovereign (containing 7.3g of gold) costing around £270. The premium – the price you pay above the global “spot” price of gold – is a few per cent higher, but because they are British legal tender, sovereigns the larger Britannia coins are exempt from capital gains tax, making them very attractive to wealthy investors.

BullionByPost will buy the gold back at 98 per cent of the global spot price but, of course, buyers are free to sell it anywhere. Movement of gold is unrestricted in the EU and to many other countries.

Despite being about 50 times cheaper than gold, silver is less suitable for this kind of “insurance” investment, says Halliday-Stein. It attracts VAT – unlike gold, which is exempt – is much bulkier to store, and the volatile price makes it a more speculative buy.

“Don’t think, ‘I’m not rich enough to buy gold so I’ll buy silver’,” says Halliday-Stein. “In uncertain times, gold offers about as much certainty as you can get.”

Protecting your portfolio with physical gold could be the ultimate insurance for turbulent times

Based in the Jewellery Quarter of Birmingham, BullionByPost offers free, fully insured, next-day delivery as standard on its full range of gold and silver bars and coins. The company is a Royal Mint authorised distributor and only sells London Bullion Market Association approved bars.

We also offer a high security, insured, fully allocated storage solution managed by Brink’s.

More infowww.bullionbypost.co.uk/allocated-storage

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