Rare musical instruments appreciated by 16.4% in 2016, while classic cars saw the largest fall at 10.4%, according to Coutts’ latest index of luxury collectibles.
Collectibles can be touched and moved. They're characterised by limited supply, and their value depends on whether people want to own them. Well-to-do families have almost 10% of their wealth locked up in luxury collectibles on average, including art, wine, stamps, antiques, diamonds and cars, according to a 2012 Barclays survey.
When equity markets are sluggish and volatile, and bond markets offer poor value, investors tend to turn to alternative investment opportunities.
Some investors argue that collectibles can be used to diversify portfolios and protect against inflation. However, experts recommend that collectibles should only form a small part of an already diversified portfolio.
The Coutts index captures the price return in local currency (net of holding costs) of a range of collectibles including art, fine wine and rare stamps, classical cars, rugs and carpets, watches and musical instruments.
Rare instruments took the top spot, but it’s worth pointing out that the rarer and more valuable instruments tend to sell less frequently. For example, an Antonio Stradivari violin from 1684 sold in March this year for £1,920,000, but had last been on sale in 1984 when it fetched £91,800.
So the average return of the asset class can vary from year to year, depending on sale volumes. That’s why on an annual basis (since 2005) rare instruments have only returned 2.3% per year.
Jewellery took the second place with a return of 11.6% in 2016, and an annual average of 8.6% a year on average.
While classic cars were the big loser of 2016, they have nevertheless returned 14.2% annually on average.
Commenting on the index, Mohammad Kamal Syed, managing director at Coutts, says: "After increasing rapidly in 2013 and 2014, price returns for classic cars fell in both 2015 and 2016. Moreover, this reflected falling auction prices for nearly all models in the index. Prices at the very top end of the market remain robust.
"2016 saw the highest ever price paid for a Ferrari 250 GT, with a rare 1961 SWB California Spider barn-find fetching US$18.15 million. More recently, a new world record price was set in August 2017 for a British Automobile (1950s Aston Martin DBR1 at $22.55 million). The most coveted cars continue to go up, and the gap between the very best and average only widens."
Meanwhile, fine wine returned 9.6% in 2016, with an average annual return of 8.8% since 2005.
The chateaux that consistently hold their value are predominantly the first growths from Bordeaux as well as notable wineries from Burgundy, according to Coutts.
However, it’s important to remember that wine investments are usually held for about eight to 10 years, and sales commissions are higher than those on stocks and shares.
Coins returned 5.3% in 2016 and an impressive 11.3% per year on average since 2005. In 2016, coin auctions have been breaking price records in Hong Kong, according to Keith Heddle, managing director at Stanley Gibbons. Islamic coins are in demand too, as regional powers in the Emirates vie for prominence.
Sheikhs from Abu Dhabi and Bahrain are trying to outbid each other in a race to build museums with the biggest collections of Islamic coins, stamps and art.
When it comes to art genres, Impressionist and modern art shed 7.9% in 2016, Old Masters and 19th century art lost 4.3%, post-war and contemporary art depreciated in value by 6.1% and traditional Chinese works of art lost 5.8%.
On an annual basis, however, impressionist and modern art has returned 1.5% post-war, and contemporary art has returned 4.6%, traditional Chinese art returned 6.2% and only the Old Masters have lost 4.8%.
Rugs and carpets depreciated by 3% in value in 2016. The absence of strong demand has largely been driven by changes in fashion as wood, marble and stone have become more popular floor coverings.
Christophe Spaenjers, assistant professor of finance at HEC Paris, who has compiled a price index of collectibles over the last 100 years, says that some collectibles can do well in periods of high inflation.
In the 1970s returns were high on stamps and diamonds, which are the best candidates for hedging against inflation according to Spaenjers, because they are easier to buy and store than art or wine.
Generally, however, he would not recommend buying collectibles purely for returns; investors should put the pleasure of owning a rarity first.
This article was written for our sister magazine Money Observer.