8
THE ASSET CLASS
PASSION ASSETS
Since the recent financial crisis,
the demand for more diversified
investments has been fuelled by volatile
markets and record-low interest rates
and this has led to intensified interest
in many physical assets that have
intrinsic value, particularly where supply
is limited. In turn this has created an
upsurge in the value of many so-called
alternative investments, including
passion assets which encompass
tangible items that are not financial
assets, which are not securitised, with
no income stream to which traditional
valuation techniques can be applied. In
essence, they are essentially high-value
luxury items – the primary purpose
of which is enjoyment. Examples of
passion assets include: antiques,
furniture, Chinese ceramics, vintage
watches, jewellery, fine wine, fine art,
rare coins, rare stamps and classic cars.
Some investment professionals view
investments of passion as problematic
within a traditional portfolio as they
are subject to fashion, taste, supply
and other esoteric market forces that
make them difficult to value: they are
not fungible (individual units are not
capable of mutual substitution in the
way that say a barrel of oil or a gold bar
is - each asset has to be valued
individually). But just because items are
hard to value doesn’t mean that they
don’t have value
6
, a unique quality and
the benefit of being a real asset whose
value will not disappear overnight in the
same way as equity in a failed company.
Coutts private bank certainly recognises
the value of passion assets, and
assesses the market worth in its Objects
of Desire Index; “We understand that
wealthy individuals own and acquire
passion investments primarily because
they are attractive assets, inspirational
and have emotional attachment.
However, their investment performance
is difficult to ignore. The Index,
which includes 15 passion assets
across two broad categories; trophy
property and alternative investments,
which are broken down into fine art,
collectibles and precious items, rose
by 2.8% during the first six months
of 2013 and rose by 77% from the
beginning of 2005 to mid 2013”
7
.
In the Coutts Index, fine wine falls into
the collectibles category, along with
Stamps & Coins, Classic Cars, Rugs &
Carpets and Rare Musical Instruments.
Fine Wine and Classic Cars both
The strong performance demonstrated by the Coutts findings are backed up by the
Knight Frank Luxury Investment Index, with fine wine experiencing a 234% growth in
the ten years from Q4 2004 to Q4 2014.
COUTTS OBJECTS OF DESIRE INDEX
(
2005-2013)
KNIGHT FRANK LUXURY INVESTMENT INDEX PERFORMANCE
(2004-2014)
Fine wine
Classic cars
Coins
Stamps
Rare musical instruments
Rugs and carpets
2005 2006 2007 2008 2009 2010 2011 2012 2013
400
350
300
250
200
150
100
50
Furniture
Watches
Chinese
ceramics
Coloured
diamonds
Jewelery
Stamps
Coins
Wine
Art
Classic
cars
Source: The Knight Frank Luxury Investment Index
9
500%
400%
300%
200%
100%
0%
12 month performance
5 years performance
10 years performance
4
-9
49
-25
68
-28
9
2
2
3
13
7
15
16
46
73
34
34
92
38
61
140
69
167
195
195
232
234
252
487
