First class returns for alternative investments

Date: Tuesday, October 7, 2008
Author: John Greenwood, Telegraph.co.uk

The FTSE100 may have hit a four-year low but fine wine, art and stamps are holding their value – at least for now.

Three weeks after the Lehman Brothers bankruptcy triggered panic across the world of finance most investment asset classes have taken a hit. But anyone who has recently put their cash into some bottles of vintage Bordeaux, a Penny Black or perhaps a series of Andy Warhol prints will still be able to get virtually all their money back. Whether they will a year from now, however, remains to be seen.

So far experts and valuers across most of the types of collectibles that have become investments for the adventurous report that September's doom and gloom is yet to fully hit their markets

Fine art experts report some softening of prices, but wine buffs say so far markets are holding steady. Stamp dealers on the other hand are positively bullish about the prospects for their sector.

Rare stamps

You may think that stamp collecting is for enthusiasts only, but £5bn worth of these collectibles are traded every year. What's more, top-end stamps have the sort of investment track record that most City fund managers would die for.

Take the GB Rarities Index for example. This is a basket of 30 of some of the most sought after stamps in the world and it has the perhaps unique distinction of having risen every year for the last 50 years, putting in an average return of 10 per cent a year. Even the worst performing stamp in the index is up 108 per cent over the last 10 years. "At a time when people are looking to protect their wealth, GB Rarities is as strong an investment as you will find," says Mike Hall, chief executive of Stanley Gibbons, a company that has been dealing in stamps for over 150 years. "Over half a century the GB Rarities index has never once fallen in value.

The value of collectible stamps of all classes has proved remarkably resilient to fluctuations in the broader economy over the years. The SG 100 index is a broader basket of collectable stamps, and is verified by Bloomberg each year. It has risen 245 per cent over the 10 years in which it has been in existence, outpacing the FTSE All Share and UK house prices and never showing a year on year fall in value over that period.

Hall says you have to go back to the early 1980s to find a time when the broader stamp market actually fell, although top value stamps kept on rising in value during that period.

Stanley Gibbons is so confident about the upward potential of rare stamps that it offers investors the opportunity to get some exposure to the sector while guaranteeing their capital. It offers guaranteed minimum return contracts that promise to refund your capital plus between 4 and 6 per cent a year interest if the stamps you buy do not make you money. For example, if you are prepared to tie up your cash for a minimum £5,000 for five years, it will give you back £6,500 if your portfolio of stamps is worth less than that figure. "We have not seen any fall in prices in this or any other downturn in the last 20 years," says Hall.

The success of stamps at holding their value reflects in part why collectible, art and wine included, tend to react to the broader market more slowly than other assets. Collectors by their very nature tend to be passionate to the point of obsession about the things they collect, whether it is rare stamps, coin, fine art or vintage plonk. While an investor will fall out of love with a share very quickly if it falls in value by 30 per cent in a day, a collector's desire to own the things he treasures remains undimmed regardless of how little money he has.

"People will put off buying a sofa if they have no money, but stamp collectors will spend whatever they have to get the stamps they want," says Hall.

Art

Damien Hirst's record-breaking £111m of sales at Sotheby's took place on the very days Wall Street investment banks were going down. But art expert Robert Read, fine art underwriter at Hiscox Home Insurance says this should not be taken as meaning the art market is booming.

"The Hirst sale felt more like the last hurrah than reflecting the broader market. Other sales in September have sold less than expected," says Read, who believes where the broader economy goes today, art will follow eventually. "There is usually a time lag of between 18 and 24 months before prices in the art market really reflect falls in the stockmarket," he says.

This is a view in part shared by New York-based expert Jonathan Binstock, of the art advisory arm of Citi Private Bank Advisers. "In the mid-market range, from £100,000 to £500,000 my sense of things is that there has been a softening and discounts are easier to find. I also hear that some galleries are closing. But I do feel confident about high-end works. The individuals who buy them have the cash to pay these prices."

Both Binstock and Read say how sales take off at the Frieze Art Fair in London on 16 – 19 October will indicate which way the market is going, particularly for low to medium value art.

Fine wine

Experts in the wine market say the year since the credit crunch kicked in has not had a negative effect on the prices of fine wines. In fact the reverse has been the case, with the London International Vintner's Exchange's index of top 100 wines up 9.1 per cent over the year.

Dealers say that to date September's meltdown is yet to filter through to falling prices, although the signs of a change in sentiment are starting to appear, with some investors and collectors starting to offload stock.

"Last week I sold the most expensive bottle of wine I have ever sold," says Jason Yapp of Yapp Brothers, a wine merchant. "But on the other hand brokers I speak to are reporting lots of City brokers selling first growth Bordeaux."

As with art and antiques, top class wines are a finite resource and rising demand from the Far East and Russia has helped to boost prices in recent years say experts. "The abolition of import duty in Hong Kong has led to a massive demand for top end wines that has offset diminishing domestic sales," says Yapp.

Paula Golding, managing director of Premier Cru, a fine wine investment company reminds investors that the wine market crashed in 1997 after the Asian currency crisis with some investors seeing their portfolios falling 30 per cent. But to date she reports no early signs of falling prices. "We are not seeing a falling market yet," she says. Premier Cru's wine fund has risen in overall value by 3.54 per cent in the last three weeks, although performance is not uniform across the board. "Mouton Rothschild 2006 is up but Leoville-Las-Cases 2003 is down," she says, pointing to the cyclical nature of wine as an investment "The wine market is a bit like the housing market," says Golding. "As long as you haven't got to sell in a downturn you will be OK."