September 6, 2013 12:16 pm

Classic cars geared to top alternative sector

Classic cars have raced ahead in value over the past decade, with returns far outstripping those for other luxury asset classes such as wine, coins and stamps.

Collectable car prices rose 430 per cent in the 10 years to September 2013, beating gold coins, stamps, fine art and fine wine, according to Knight Frank’s luxury investment index. That compares to 55 per cent for the FTSE 100 and a 273 per cent rise in returns over the decade for gold.

Andrew Shirley, editor of The Wealth Report, which produces the index, said the increase in values of luxury items has been driven by wealthy investors’ move into alternative assets in recent years.

More

On this story

IN Investments

“According to the results of our attitudes survey of wealth advisers . . . a significant number of wealthy individuals plan to increase their spending on investments of passion this year,” he said. “It is therefore not too surprising that the value of our luxury investment index has continued to climb as wealthy investors look for tangible assets that they can also enjoy.”

However, he warned that although the index shows very strong overall growth, it would be wrong to assume that investing in any luxury collectable asset class is guaranteed to make investors money in the short term.

“The performance of a number of the asset classes in the index, including art and wine, is actually more volatile than the FTSE 100,” he said. “It is also worth bearing in mind that collectors will need to be buying best-in-class assets to see the kind of growth represented by the index.”

“Relatively few classic cars, for example, will have increased in value by 430 per cent over the past 10 years. Likewise stamps.”

Overall, the Knight Frank Luxury Investment Index has grown by 7 per cent over the past 12 months. This matches the increase in the value of residential property in prime central London over the same period. The FTSE 100 index of UK listed equities performed better, though – rising by 12 per cent.

Over the past year classic cars as an investment came top of the index, returning 28 per cent. The value of fine wine also rose by 3 per cent over the past year, while collectable coins rose by 9 per cent.

Asset classes that performed badly over the past year include art, with values in this sector falling by 6 per cent. Although certain artists retain their cachet and are achieving record results at auction, Mr Shirley said prices reflect the fact that buyers are generally bidding more cautiously and selectively.

AudioVodafone, self-invested pensions and unusual investments

Vodafone's blockbuster deal - what it means for individual shareholders. Why there is less choice these days in self-invested pensions. And the unusual asset classes that have trounced shares, bonds and property

Download mp3 Download

Greg Davies, head of behavioural and quantitative finance at Barclays Wealth, also warned investors to be careful when comparing the returns on these esoteric asset classes with those of more traditional assets. “It is difficult to compare the returns on these indices to those of bonds or equity returns because they don’t tell the full picture. These indices do not tend to be investable as a whole, they only represent a small part of the market in that asset class.”

He added that the returns on asset classes such as cars, stamps, coins or art, for example, don’t account for transaction costs or insurance, which can be significant. “Once the extra costs are added, the returns on these investments tend to come down,” he said.

Mr Davies agreed that the indices include only the very best examples, and for that reason may give the impression that the alternative asset classes are safer than they actually are.

“These indices are based on public auction houses’ prices, and they tend only to accept the best items in these asset classes. This means the indices don’t always give a true prediction of the likely returns.”

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.