The financial markets have had to digest some shocks and turmoil during 2015, and as is often the case with many mainstream investors, the anticipation of how markets will react to these events means that fingers get burnt in the short term.
Trying to anticipate when the Fed and the Bank of England will start to raise interest rates has preoccupied investors and analysts for most of the last year, but if you are someone who has diversified their portfolio and embraced some alternative strategies, you may well be more concerned about how classic car prices have held up rather than how a behemoth like Glencore could see its share price fall so sharply.
How have Alternative Investments fared?
The jury is still out on 2015 and the final figures won’t be fully collated of course until the champagne corks have popped and celebrations to welcome in the new year have been and gone.
if you consider an alternative investment as something you can hang on the wall or store in the garage or wine cellar, you will probably be paying close attention to how your investments have fared in comparison to the FTSE 100 index.
The Knight Frank Luxury Investment Index is an excellent barometer for illustrating investor appetite as well as returns on certain luxury investments. The index below covers 2014 and also looks back at how your investment in assets such as art, cars and wine have fared in comparison to if you had put your money in the stock market instead
These figures have been reproduced from the Knight Frank Luxury Investment Index.
Investment 12-month 5-year 10-year
Stamps 3% 34% 195%
Jewellery 0% 39% 163%
Coins 10% 90% 221%
Art 5% 17% 226%
Wine 3% 45% 226%
Cars 25% 111% 469%
Gold – 2% 36% 254%
FTSE 100 9% 59% 51%
These figures make for interesting reading and are based on actual auction price data, demonstrating that the market for luxury alternative investments is proving robust and more than able to provide long-term growth if you choose your investments wisely.
Cars have performed admirably with a 469% return over a ten year period and gold, whilst still proving to be extremely volatile, has still held its own over the period of a decade.
Research is key
As any savvy alternative investor will know, art and collectibles markets are extremely fickle and you have to do some serious research to establish which cars or artist is showing strong growth potential and which wines are the hottest property to add to your cellar collection.
If you take the classic cars market as an example, no smart motoring-enthusiast investor would part with their money before checking resources like the HAGI classic car index and accompanying analysis of those results.
It is far too simplistic to expect every old car that is considered to be a classic, to rise in value and show you a profit. Auction sale prices do however provide you with a good barometer of investor appetite in a particular sector like cars or art for example, and it does give you the chance to spot potential trends that you might be able to take advantage of.
Investing in art
Art markets have performed well in general during 2015 and over the longer term, there have been some very acceptable investment returns to be had.
With art, it is almost inevitable that some markets will become overheated and if you breakdown investments into certain specific categories, you will see that investing in contemporary art is definitely a long-term strategy.
It is probably to be expected that it might take time for investors to appreciate the true value of certain contemporary artists and that is a good reason why this particular market can only manage a general 4% growth over 5 years, which rises rapidly to 233% over a ten-year period.
If you wanted a quick return on your alternative investment in art, European 19th century art would have been the market to choose, with a 20% return over a 12-month period.
The outlook for 2016
The fundamental point to consider about the global investment landscape is that significant wealth is still being created in different parts of the world and particularly so with some emerging economies continuing to expand and some developing economies expected to show signs of recovery.
These economic conditions are creating a new financial landscape and is likely to fuel a growing interest in alternative investments, as new and existing investors seek ways to diversify their portfolio away from just relying on the highs and lows of the global stock markets alone.
This is why luxury alternative investments might be a good bet for 2016.
As more wealth is created in different parts of the globe, this will almost certainly create a growing number of investors who want to acquire some assets that confirm their wealthy status.
Being able to hang a prized painting on your wall or arrive in style in a classic car, or perhaps showing off your extensive wine collection in your cellar, are all becoming attainable targets for a new generation of well-heeled investors who are just experiencing a capitalist culture, maybe for the first time.
If this wealth-creation in countries like China for example continues apace, it could well turn out to be another profitable decade of strong growth performance for luxury alternative investments.
You might therefore decide that 2016 could be a good year for diversifying your portfolio and investing in some of these markets, provided you do your research beforehand of course.