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Passion investing.

Summary: For the world's wealthiest, some investments are as much for love as for money, writes Fabiano Vallesi, Strategy & Next Generation Analyst for Bank Julius Baer

Many high net worth individuals (HNWIs) are interested in diversifying their portfolios by investing in collectibles. A collectible is any physical asset that appreciates in value over time due to the fact that it is rare or precious and desired by many. Stamps, coins, fine art, antiques, classic cars and wine are all examples of these collectibles. Some investors cling to collectibles as something of a safe haven - a real asset that has some intrinsic value - but at the same time provides emotional and social enjoyment.

Acquiring treasure can be satisfying and victorious, even giving off a sense of cultural superiority or social distinction.


A rare coin known as the 'Flowing Hair' silver dollar went under the hammer for a record $10 million in January 2013.

In 2012, The Scream by Edward Munch changed hands for $120 million - the highest price ever paid for a painting in an auction. Headlines such as these capture attention and serve to fuel the collectibles market. In fact, over the past decade (2002-2012) the collectibles market has rewarded investors with triple-digit returns. Compared to MSCI World total return (USD) which appreciated 118 per cent over the last 10 years, rare coins went up by 248 per cent, premium wines by 164 per cent, fine art by 226 per cent, stamps by 266 per cent and classic cars by 390 per cent (see chart). Not only this, but the size and value of the collectibles market have grown impressively. Arts Economics, a research and consulting firm focused exclusively on the arts economy, estimates that the global value of total transactions in the fine art market, while still recovering from a $70 billion high in 2007, has grown by more than 93 per cent to $56.8 billion, and traded volumes have increased by over 37 per cent in the last decade.


The positive performance and growth of the global collectibles market in the last decade has coincided with a dramatic increase in the global number of HNWIs, which is estimated to have grown by over 61 per cent, from 6.8 million in 2000 to 11 million in 2012. Much of this growth can be attributed to emerging markets, especially Asia. According to Barclay's Wealth Report 2013, wealthy individuals living in more volatile economies seek safety in real assets. Furthermore, Hurun's Passion Investment Survey 2013 shows that nearly 60 per cent of Chinese millionaires (in $ terms) look to collectibles as an alternative to real estate and stocks. While real estate remains the investment of choice with 76 per cent of respondents, followed by stocks with 65 per cent, transactions of art works began to soar in China in 2010, overtaking the US and accounting for a third of the world's total volume. However, the European Fine Art Foundation reports that the US resumed the lead in 2012 in terms of value traded with $18.9 billion or 33 per cent of the global share, while the Chinese market dropped to $14 billion or 25 per cent.

That said, if passion investments continue to be a part of HNWIs' portfolios, then it is likely that the collectibles markets will continue to grow in line with the global population growth of HNWIs.


Collectibles offer generally low correlation with other assets such as stocks and bonds, and are therefore arguably a good diversification tool. On the flipside, when compared to classic financial assets, the collectibles market is highly fragmented, illiquid, mostly unregulated and little transparent, as much of the market is executed through private transactions. Furthermore, returns can be heavily influenced by economic climate, changing global interest and new trends, while high transaction and holding costs, risk of damage, authenticity and theft need to be dealt with, too.

Funds tend to generate money from investors to build up a collection, making financial gains by lending the collection to exhibitions, and eventually selling the collection for a profit. However, the main dividend is derived from the enjoyment of co-owning such a collection: access to expert know-how and diversification of valuable goods. The downsides are limited liquidity and minimal pay-in amounts (usually $250,000 to $500,000).

In the end you may love the piece of art in your portfolio but the marketplace may not. It is a long-term investment made first for a return of joy and only second for financial gain. While treasure could well be a guaranteed return on investment, remember that passion is not an asset class. Treat collectibles as nice to have, not a must have. They are after all mostly illiquid and volatile. Enter at your own risk!

" ... over the past decade (2002-2012) the collectibles market has rewarded investors with triple-digit returns."

" ... over the last 10 years, rare coins went up by 248 per cent, premium wines by 164 per cent, fine art by 226 per cent, stamps by 266 per cent and classic cars by 390 per cent."


This gold-mounted Bloodstone teapot is part of the Chitra collection of historic and priceless teapots collected by Nirmal Sethia on behalf of the N. Sethia Foundation. The collection is named after Sethia's late wife, Chitra. This Rococo style teapot was once part of the Rothschild Collection. Crafted in Germany around 1820, it's made from a bloodstone mount decorated with gold imagery related to the pursuit of love, including a hunting scene and a depiction of lovers on a boating excursion.

2013 CPI Financial. All rights reserved. 2011 CPI Financial. All rights reserved.

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Date:Nov 5, 2013
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