With Interest rates at record lows, many are now seeking to secure their financial future and pension fund by investing in alternative commodities such as wine, precious metals, gem stones and classic cars. Bearing in mind all investments can go down as well as up, we take a look at what is currently on trend with London investors, together with top tips for new investors and a few cautionary tales of past booms and their inevitable busts!
Fine Wine is a relative new comer to the mainstream investment offering, however, it has reputedly been one of the highest performing asset classes of the past 20 years. According to the FT, this trend began in the mid-1980s, when prices for fine wine began to rise in earnest. One factor behind this was the success of wine critics such as Robert Parker at predicting which of the top châteaux in Bordeaux would produce the best wine in a vintage. More collectors sought out the limited number of wines most highly regarded by these critics, boosting their value. A bull market in stocks and bonds in the decade or so that followed also helped spur interest in alternative assets.
If you have a taste for investing in wine, you must first understand how France’s premium wine market operates. The annual highlight of the wine merchant’s calendar is the en primeur market in Bordeaux, the closest thing the wine world has to a futures market. Every spring, the best of the region’s winemakers provide merchants with a chance to acquire their product early, before it even enters the bottle. The châteaux offer limited en primeur allocations to the market only through authorised French distributors known as négociants, who in turn offer the wine to other merchants around the world. Usually after about two years the wine is delivered.
A cautionary tale: 2011
Bordeaux en primeur had proved itself a reliable way to invest in wine until 2011, when demand fell away sharply at the front end of several average vintages. The Brexit vote of 2015 further compounded the problem, with a weak sterling making wine more expensive for UK buyers. On a positive note however, Bordeaux 2016 en primeur tastings have seen record attendance, with some producers saying it is the best vintage of their career…. Only time will tell if the markets agree and respond accordingly.
Cautionary tips for those considering buying wine for profit rather than pleasure.
- Ensure those you choose to invest through have specific criteria, against which wines are bought and sold and the associated costs are clear and transparent.
- Avoid unsolicited invitations to invest and make sure any company or individual you choose to invest through have a real office or place of business you can visit and independently verify.
- Make sure the wine you buy is held in a government-approved “bonded” warehouse and is fully insured against loss or damage.
- Always keep it real: it is riskier to invest in wines produced outside the top châteaux of Bordeaux, but of course these investments also offer the potential for high returns!
Bullion and Rare Diamonds
Buying bullion and rare diamonds for investment – what could possibly go wrong!
Bullion is gold bars, silver bars, and other bars or ingots of precious metal. The word bullion originates from the French Minister of Finance under Louis XIII, Claude de Bullion. The value of bullion is typically determined by the value of its precious metals content, which is defined by its purity and mass. You can buy gold bullion both as a physical asset from a dealer and via gold exchange-traded funds (ETF). Gold is considered a fairly safe investment, however, its trading value can be volatile. For example, in 2011 gold was trading at around $1,780 /oz., where as today it is nearer $1,250/oz.
The most important characteristics to consider when buying diamonds are the four C’s; cut, colour, clarity and carat. Diamond expert Antony Vanderpump gives his insight into the rare diamond market:
“A tin of beans and a penknife! That’s probably all you would wish for if you were washed up on a deserted island, but for those of us who live in the civilised world there are other priorities. In these days of low interest rates and zero returns, the smart money is looking at alternative investment opportunities. One opportunity stands head and shoulders above all the others, the rare diamond market. Sure, you need to have good advice and a trustworthy source, but the return on investment can be eye watering. Take for example the sale in 2015 of the worlds most expensive blue diamond. The now named “Blue moon of Josephine” is a whopping 12.03ct fancy vivid flawless diamond that achieved £33million when sold to a Hong Kong property magnet as a gift for his daughter!
Clearly, not everybody can run to this sort of cash, but knowledge of the diamond trade, which can be secretive at best, can offer amazing returns. There are a few (unregulated) diamond investment businesses that have sprung up recently, some of which have made the headlines for the wrong reasons. The main issue with investing in rare coloured diamonds is the “exit strategy”; you need to be totally confident that the stone you choose to sink you hard earned cash into is saleable and profitable. There is no crystal ball that we as diamond traders can consult, but years of watching trends has given us an insight into what is good and what is not. The first rule to procuring an investment stone is the certificate, and there is only one certificate the trade recommend, GIA (Gemmological Institute of America). All other certificates are second-class and, in most cases, no use when selling the diamond. The second rule is trust your diamond expert; he will be responsible for selling your stone and his knowledge will be based on this key issue. I would never recommend buying a diamond on the Internet, as diamonds must be visually inspected.
Coloured diamonds can start from just a few hundred pounds, but the biggest returns will always be on the larger more expensive stones. It is important to set a budget and ask your expert to find a stone within it. Rarity of colour (red, blue, green etc.) will affect the value of the stone, the secondary details of size and clarity will then adjust the price, but, always have in mind that if the stone is too obscure in shape and colour, you will limit the pool of customers when you come to sell your investment”.
Many investment analysts are talking up the potential of classic cars currently. This market is primarily being driven (pardon the pun!) by our obsession with celebrity culture, so cars driven by our idols and heroes or featured in iconic movies are top of the investor wish list.
According to website thisisthemoney.co.uk, buying the best model you can find – even if you pay over the odds – is usually the best advice. But there are people who have bought with their heart, or even on a whim, who have made money.
There are lucky people who bought cars such as Dinos, built by Ferrari, for 40 or 50 grand and spent £100,000 having them brought up to top condition, and they are still sitting on a profit.
Like the Art market, the classic car market is often affected by appearance, image, scarcity, history and condition as much as the mechanical aspects of the car and sometimes whether it is any good to drive. Prices can go down, so the best advice is to buy a car you really want and regard any rise in value as a bonus. An added advantage of a car you will drive is that it will be exempt from capital gains tax, which currently only applies to vehicles deemed purchased solely for investment.
A cautionary tale: the 1980’s boom
The classic and exotic car market boomed famously in 1988, only to fall to Earth in the early 1990s with some prices collapsing by as much as 40 per cent. Cars like the Ferrari F40, which cost £193,000 new in 1988, saw their values reach nearly £1million – but 27 years later even the best are fetching only about £800,000. This time, so the theory goes, it is different. This time the price rises are not a bubble financed by borrowing because people are spending ‘real’ money; and with growing interest from emerging markets such as India there are potentially more buyers after the same number of cars…. As with the 2016 Bordeaux en primeur, only time will tell how accurate this speculation is.
Published in Aspect County Magazine May 2017