Owning cars, watches or art – directly or via a fund – is an investing option
In 2015 a billionaire set a new record for the most expensive jewel ever sold at auction after buying his seven-year-old daughter a 12.03-carat blue diamond.
Hong Kong property tycoon Joseph Lau paid US$48.4 million at a Sotheby’s auction for the stone, which was found in the Cullinan mine in South Africa in January 2014.
The sale of the so-called Blue Moon stone, renamed the Blue Moon of Josephine by Mr Lau in honour of his daughter, was one in a string of big results for blue diamonds in recent years.
Last November, three blue stones were sold by Sotheby’s, two of which set new records. The Sky Blue Diamond, a fancy vivid blue 8.01-carat stone set in a ring by Cartier, fetched $17.1m; a fancy deep blue diamond sold for a record $13.7m and a fancy light blue diamond fetched a record $2.16m – all in the same sale.
“We often have blue diamonds in our sales,” says David Bennett, worldwide chairman of Sotheby’s International Jewellery Division. “It’s not because they are common. It is just because they make very high prices – it persuades a lot of sellers.”
Needless to say, blue diamonds represent a pretty good investment right now – if you can afford them. But what other, potentially cheaper, tangible investments are out there?
Stamps proved a better investment than shares, property and gold in the year to June 2016, according to collectibles dealer Stanley Gibbons. It tracks an index of the 250 most valuable British stamps, which recorded a 1.2 per cent rise in the 12 months to June, outpacing the FTSE 100, which lost 11 per cent in the time. In fact, in 2008, as markets across the world were tanking because of the global financial crisis, the GB30 Index, which monitors the performance of the top 30 British investment-grade stamps, rose 38.6 per cent.
“Since 2008-09 we have seen a steady stream of investors looking for portfolio diversification,” says Keith Heddle, managing director for investments at Stanley Gibbons. “And they are looking for the protection that tangible heritage, relatively illiquid assets, can afford their portfolio.”
Around 35 to 40 per cent of Stanley Gibbons’ customers are investors. According to Mr Heddle, you need to invest a minimum of £25,000 (Dh114,569) to create a diversified and flexible portfolio.
“We are not talking about stamps you get on a postcard,” says Mr Heddle. “It’s about the rare heritage treasures that are still sought by collectors and sophisticated investors. And therefore it is all about supply and demand economics – when you are dealing with a finite asset which can’t be reproduced ... in a market where people are still coming into the market.”
Mr Heddle says it is hard to predict how much a £50,000 stamp would be worth in five years’ time. “It could be £60,000, £80,000 or even £100,000, but it is unlikely to be worth less. You have a potential for a capital return because of the way the market works – you are buying the best of the best. But it is still very much buy and hold,” he adds.
According to the Deloitte Art & Finance Report 2016, more than three-quarters of wealth managers questioned said art and collectibles should be included as part of a client’s wealth management plan. And the strategy is gaining popularity here.
Salma Shaheem, joint venture partner and Head of Middle Eastern Markets at The Fine Art Group, an art investment and advisory house with a branch in Dubai, has noticed a shift in awareness since she set up in 2012.
“Investment in art growing,” she says. “When I started this shop I was met with a lot of wonder. People who say, ‘Oh I didn’t know’ or ‘art investment, how interesting’. Today the newer contacts all know about art as an investment class. They talk about how you get to enjoy it on your wall and how it gains in value. There is a lot more awareness.”
And what investors are interested in has also changed over the years. While five years ago the Old Masters, European painters who worked in Europe before 1800, were still predominant in art sales, today work by emerging artists is more popular, opening up the investment class to a wider audience.
“There is absolutely the opportunity for people to enter the market at the lower ticket size. Now I am not talking $2,000 or $3,000. I would say if we are talking Eastern art, you would have to start at say $100,000 over two years,” says Ms Shaheem.
“I just did a transaction and it was 100 per cent cash on cash. It was a Middle Eastern work by a female Iranian artist. The work was bought for $10,000 three or four years ago and sold for $20,000.”
Ms Shaheem admits that sort of return does not always happen, but she says there is money to be made.
“We have had instances where a client says ‘I don’t care. I am not big on art. So here’s my money. Send me my net asset value report every three months, thank you very much,’” she says.
Watches are often considered to have investment potential, but many experts caution against going it alone.
“If you ask me to answer in one line, are watches investable? I would say definitely 100 per cent no,” says Dominic Khoo, a cofounder of The Watch Fund, based in Hong Kong.
He claims 99.99 per cent of watches will never provide investors with a return and the only way to make money is by buying a watch that money cannot buy, or by purchasing it at a price others cannot get.
“Most people can’t do this. We can and that’s why we are the largest watch investment vehicle,” says Mr Khoo.
Investors provide the fund with a minimum of $250,000 in return for a private portfolio of watches they get to keep as double collateral. It currently has around 60 investors with about $40m in assets.
“Let’s say someone gives us $1m. We would give them five to 10 watches worth a total retail price of about $2m. They keep these watches and can go to a retailer to check out the price and see whether these watches are stolen, broken, fake, or whatever. Once they have confirmed [they are genuine] they bring the watches back and lock them up. But they have to agree in the contract that we sign that we have to sell these watches within a year.”
The worst return the fund has had, which has been operating officially for four years, was 11 per cent, and the best 216 per cent,” says Mr Khoo.
“The person invested $250,000 and made 54 per cent absolute in three months. They sold immediately. But I can’t expect that to happen again. If you come into this expecting 20 or 30 per cent net annualised and double collateral I think you would be very happy.”
For those who prefer to physically own their investment, Tariq Malik, cofounder of Momentum, a vintage watch shop based in Dubai International Financial Centre says you can make money by buying the right watch.
“A watch is worth something if you can liquidate it. If someone is offering you a watch [once] owned by the Shah of Iran, if it is not sellable it is not worth anything. You have to be able to liquidate it,” says Mr Malik, adding that investors should consider vintage Rolex watches.
“They have even overtaken Patek Philippe in results. Documentation, which is the box and papers, any certification, any history of the watch is very appreciated. If you buy good quality you have a lot of buyers on the market now.”
The value of the classic car market outpaced all other luxury assets, including art, watches, jewellery and stamps to increase by 17 per cent in 2015, according to the Knight Frank Luxury Investment Index.
However, Bonhams UK and other industry experts have warned that growth in the market is slowing. So it is more important than ever to get the advice of an expert to maximise your investment.
Matthew Perry, an investment banker with a lifetime interest in motorsport, is one such man in the know. He advises collectors and investors and says as with any investment you need to know what your budget it is.
“Then identify opportunities within that budget and if it is relatively small then obviously you have a smaller selection of vehicles to choose from. It doesn’t mean you cannot achieve strong percentage upside, I have bought cars for less than US$10k and made more than 100 per cent, but to do this you need to know your cars and the market,” says Briton Mr Perry, who also advocates buying what you like.
“Aesthetics are important, beauty sells as does a prestigious marque or brand, even more so if the car is a rare, original example in good condition,” he says, advising that an expert, such as a car club, can offer more guidance.
For those looking for an alternative route into the market, Mr Perry launched The Tangible Collectible Car Fund in the last quarter of 2016. He claims only a handful of such funds exist worldwide.
“The way the fund works, there is a pool of cash and the underlying assets are classic collectible cars. That money is invested solely in cars,” says Hong Kong-based Mr Perry, who has won several motorsport championships.
“At the moment the portfolio holds cars from the 1950s through to the 1970s. But it could quite equally invest into a modern-day car if I felt the price was right, it was the right rarity etc.”
The minimum investment in the fund is $100,000, but for that investors can expect an annual return of 20 to 25 per cent, according to Mr Perry. The fund has around 10 investors and is holding seven cars, one of which is a 1966 Maserati Mistral. Mr Perry declined to reveal the rest but said they are all rare.
“The fund could hold one car. It could hold 20 cars. It is very much how the opportunities present themselves at any one time. Typically I wouldn’t be investing 50 per cent of the fund in one car,” adds Mr Perry.
q&a make an informed choice on gems
There is money to be made in jewellery for investors, but you have to be careful about what you buy. Here, David Bennett, the worldwide chairman of Sotheby’s International Jewellery Division, offers his tips on making money in gems:
Is there really a difference between an investor and a collector?
There is a big difference. An investor is someone speculating that the prices will go up so they buy something just to put in the bank. A collector is somebody who is very keen about jewellery, probably is very educated about it and forming a collection of great pieces from the past.
So it is just not about money for collectors?
If someone has decided to invest in jewellery, what should they look for?
I think there are two guiding factors. The first one is do not buy something because it is cheap. Buy something because you like it. If you like it when you come to sell it, it is very likely that someone else will like it in my experience. The second is do not always go for the biggest or most impressive. Quality is the supreme guiding image. Those are the two rules; buy quality and buy something you like.
What about the type of gem?
There isn’t a simple answer to that, I’m afraid. If you are someone who is not in the jewellery business, you need to take as much advice as possible. Insist on certificates. Only buy stones that haven’t been treated, that haven’t been enhanced in any way. Emeralds are commonly oiled, for example.
What about certification?
You should insist on a GIA certificate for all white diamonds and coloured diamonds, because ultimately when you come to sell it people will expect that. If you are buying an antique jewel make sure it hasn’t been adapted or changed in any way. You need to take advice and ask as many questions as possible.
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Updated: January 27, 2017 04:00 AM