With markets continuing to fall on hard times, perhaps investors should consider so-called hard assets as a better place for their wealth in the year ahead. From wine to classic cars and the recent resurgence in vinyl record collecting, investors could even have some money in a kitchen cupboard, parked in the garage or collecting dust in the attic.
Play it again
In today’s digital age, it seems counter-intuitive to recommend investing in a format many would consider resigned to the history books. But, despite the popularity of streaming services such as Spotify and MP3 digital downloads, collecting physical music is growing ever more attractive.
Rewind to the 1990s and interest in vinyl records was at an all-time low. Phil Barton, owner of Soho-based record store Sister Ray, believes this was down to several factors, including the fact that the proliferation of free music downloads in the early 2000s – often via pirated sites – hit retailers hard, even those as large as HMV. The general belief was that CDs – which had already displaced vinyl as the most popular format – were overpriced and that somewhere on the internet music could be found for free.
The phenomenon is actually much broader, helped along by popular initiatives such as Record Store Day. Vinyl enthusiasts have grown nostalgic for the aesthetic; the feel of a physical record, the artwork on the album cover and the sound – which is considered by many to be far superior to a digital remaster. But don’t be fooled: taking your parents’ old vinyl records out of storage doesn’t always mean you’re sitting on a gold mine. The residual value left in a record collection is still dependent on several factors, including the condition of the discs and sleeves, the pressing quality and its rarity. For example, my own copy of Haim’s Forever four-track EP – the prelude to their 2012 debut album Days are Gone – is probably worth close to £100, given its limited availability. But my original 1963 mono pressing of With the Beatles – inherited from my aunt – isn’t worth much thanks to her ample scribbling on the back. Let’s just say it’s clear George Harrison was her favourite.
Mr Barton says it’s the “heavyweights” that still demand the best prices: “It tends to be guitar-based music – The Beatles, The Rolling Stones, Pink Floyd, Bowie, Led Zeppelin”. But “every genre has its collectables” and “buying at the right time locks in the value”. Case in point: the copy of the White Album by the Beatles “that you think is worth $790,000 because Ringo auctioned one for charity” is probably worth “no more than £50 tops”. It’s “all to do with matrix numbers” – initial pressings are worth more – and “the overall condition”. As Mr Barton points out, the White Album was numbered, and Ringo had number one. But a White album with a number below 1,000 could still be worth £10,000 or more.
Online marketplace Discogs acts as the best bridge between the online and analogue world. Not just a web-based marketplace for record collectors to buy and sell records, the company is determined to create “the biggest and most comprehensive” online music database. Discogs claims more than 438,000 people have contributed “some piece of knowledge” to help build up a catalogue of more than 10,600,000 recordings across 6,000,000 artists. And when it comes to the marketplace, more than 23m available items are categorised per the database, so users can be fully confident in what they’re buying or selling. But be warned: Mr Barton says collecting vinyl, solely for profit, is a “soulless activity”.
Drink up the returns
The idea of investing in wine is nothing new. But research from Sarasin & Partners suggests that fine wines continue to be “a stable, low-risk investment”. However, analysts there admit that difficulty in understanding how wine is priced, a lack of data, as well as few publicly traded vehicles, makes accessing this market difficult. These investments arguably have a finite lifespan as well, and don’t produce income while investors hold on to the bottle.
That said, value still clearly exists in this market. Last year, Decanter magazine said auction house Christie’s highest-selling lot was a 12-bottle case of Domaine de la Romanée-Conti’s Romanée-Conti 1988, sold in London’s September ‘Fine and Rare Wines’ auction for £198,000. In second place was the Château Cheval-Blanc 1947, a 12-bottle case of which sold for £168,000 at the ‘Finest and Rarest’ London auction in December 2017. Eight out of Christie’s top 10 sellers last year were from Burgundy, although which label sold best in which region still varied considerably.
Andrew Gordon, managing director of Cambridgeshire-based wine service company Private Cellar, says Burgundy wines have been exceedingly popular for the past 10 years at least, but the product is complex and only a small number are growing in value. Instead, he sees more demand for wines from smaller growers as trends have started to lean towards ‘exclusive’ or ‘limited’ products. “There’s always a flight to the top,” he says.
Mr Gordon also warns that the industry has changed considerably since he first got involved more than 30 years ago, and much of that is down to the internet. In his view, new wine investors now have many tools at their disposal to help them make “informed” decisions when it comes to selecting bottles or cases. Websites such as wine-searcher.com trawl every wine list in the world pretty much weekly and compile prices for customers to compare. But face-to-face advice is still to be prized, says Mr Gordon. “Your best bet is to find someone who has already had some success investing in wine.”
A good source of additional knowledge is Knight Frank’s Luxury Investment Index (KFLII) which, in 2017, revealed wine was trumped by fine art as the best performing asset class. Although the value of the Knight Frank Fine Wine Icons Index rose by 11 per cent, this paled in comparison to its 2016 growth rate of 24 per cent. Art’s performance was arguably skewed by two very high-profile sales, however, one of which was Christie’s sale of Salvator Mundi by Leonardo Da Vinci for $450m (£353m), smashing previous estimates of $179m. The second sale, Untitled by Jean-Michel Basquiat, was made via Sotheby’s to Japanese collector Yusaku Maezawa for $110.5m.
Driving growth
Other categories might not have topped the KFLII, but several still notched up impressive records. Classic cars are one of the best performing asset classes in the KFLII over the past 10 years. In 2017, there were a number of high-profile auctions, with Bonhams selling a 1995 McLaren F1 for $15.6m, while Sotheby’s fetched $18m for a 1959 Ferrari 250GT California Spider LWB. But it was a 1956 Aston Martin DBR1 – once raced by driver Stirling Moss – that set a new record when it was successfully auctioned by Sotheby’s for $22.5m.
The Historic Automobile Group International’s HAGI Top Index – a market-cap-weighted index made up of 50 constituents (or cars) – is used by industry experts to track this alternative asset class. It is calculated by multiplying the number of surviving cars that are known to exist of any one model by the average price of that car. For this reason, it can be used as a tool to monitor the price development for any single automobile or an entire collection. As of last December, the fifth largest constituent in the index was the Ferrari Dine 246 with an index weighting of 4.9 per cent. Mapping the index performance against UK equities lent further evidence to the claim that classic car values have risen strongly over the past 10 to 20 years.
But one of the biggest downsides of classic car investment is the associated cost. Given the complexity of classic models, not to mention the rarity of spare parts, it’s often considered a good idea to turn to a professional when it comes to their upkeep. This, of course, costs money and at best probably preserves the value rather than adding to it beyond the normal indexed performance of the asset. That said, the performance of classic car values has been relatively reliable since the early-2000s (despite being notoriously volatile in the 1980s and early 1990s), and even survived the downturn caused by the 2008 global financial crisis largely unscathed.
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