From 24/7 Wall St.: No longer the sole domain of avid collectors, luxury collectibles are now considered viable alternative investments. Prices of luxury items, such as classic cars, ancient Chinese ceramic art, and rare coins, have reached record amounts in recent years. Such items can be a good way for wealthy investors to diversify their long-term investment portfolios.
To track the value of popular luxury items, real estate consultancy firm Knight Frank created the Knight Frank Luxury Investment Index (KFLII). This luxury index tracks existing indices that measure the value of nine categories of luxury collectibles, including classic cars, fine art and rare coins. The index aggregates the weighted performance of the nine indices based on their market size and importance rank. To create its index, Knight Frank aggregates the nine existing indices and weights them by value and relative importance.
According to the KFLII, collectibles in some of the categories sold for record amounts last year. For example, a thimble-sized, 1,000-year-old Chinese bowl made during the Northern Song Dynasty that was bought at a garage sale for $3 in 2013 was subsequently sold at a Sotheby’s auction for $2.2 million in March 2013, a record price for the time. Last year, the “Pink Star” diamond was auctioned for $83 million.
Andrew Shirley, Wealth Report editor and head of Rural Property Research at Knight Frank, told 24/7 Wall St. that investors should consider collectible and luxury items as legitimate alternative investments. In the decade ending in the second quarter of 2013, the classic cars category in the KFLII rose by 430%, the most out of any luxury collectible in the index during that time. The considerable returns of rare stamps and coins of 255% and 225%, respectively, would also pique investors’ interests.
“I think people should be into collectibles and luxury items for the enjoyment as well as the prices,” said Shirley. “Whether it’s a classic car or a picture on your wall, you’re going to get real enjoyment from them, especially as the value of those items appreciate.”
However, investors should not treat collectibles the same as traditional investments. Shirley noted that, unlike the Standard & Poor’s 500 Index, the luxury collectible market is not a very liquid one, as prices for most of the items can only be determined through individual sales.
Some categories, such as wine, rose in value, in part, due to heavy demand, especially from China. “The Chinese are massive buyers of wine at the moment,” said Shirley. “Classic cars used to only be collected by people in Europe and the US,” said Shirley. “Now there’s more interest coming from Asia, but there’s still a fairly finite market of classic cars, so you’ve seen the value go up.”
24/7 Wall St. reviewed returns of the nine luxury collectible categories measured by Knight Frank for the period June 2004 to June 2013. Based on reports from auction houses, including Sotheby’s and Christie’s, we identified the most expensive collectible in each category sold at auction. To create its subindex for watches, fine art and jewelry, Knight Frank used individual indices published by Art Market Research. The KFLII incorporated prices in investment-grade wines from the Live-Ex Fine Wine 50 Index, which aggregates 50 wine components from the past 10 vintages of the five Bordeaux First Growths: Haut-Brion, Lafite Rothschild, Latour, Margaux and Mouton Rothschild. The KFLII included data on classic car prices from the Historical Automobile Group International Index, which aggregates price information from its database of more than 100,000 classic car transactions. Knight Frank relied on the Stanley Gibbons GB250 Index and the Stanley Gibbons Rare Coin Index to track the prices of collectible stamps and rare coins.
These are the nine most valuable collectibles, according to 24/7 Wall St.:
> 10-yr. price change: -19% > One-year price change: -3% > Most expensive item sold: The Badminton Cabinet (17th century) > Price at auction: 36 million dollars The antique furniture market measured by the KFLII dropped by 3% in 2013 and by 19% over 10 years, making it the only subindex to lose value. According to the Knight Frank’s report, “furniture continues to lose ground as antique styles decline in popularity with homeowners.” Furniture that was once considered classic such as china hutches and roll top desks have fallen out of favor. For collectors and wealth investors, however, there are still major pieces of antique furniture in the market. The Badminton Cabinet built in England in the 18th century fetched $36 million at a Christie’s auction in 2004, making it the most expensive piece of antique furniture ever sold. Read more at 24/7 Wall St.
> 10-yr. price change: 83% > One-year price change: 4% > Most expensive ever sold: Henry Graves Supercomplication watch (1933) > Price at auction: 11 million dollars The watch market subindex in the KFLII returned 83% in the 10-year period ending June 2013, but it only rose 4% in value for the year ending June 2013. Christie’s and Sotheby’s reported selling half a dozen watches for more than $2 million apiece between June 2012 and June 2013, significantly more than in previous periods. The most expensive watch ever sold at auction was the Henry Graves “supercomplication” watch by Patek Philippe, which sold for $11 million at a Sotheby’s auction in 1999. According to the 2014 World Watch Report by luxury items research firm Digital Luxury Group, global interest in Swiss luxury watches grew in 2013. Demand from China for luxury Swiss watches increased by 59.4%. Read more at 24/7 Wall St.
> 10-yr. price change: 83% > One-year price change: 3% > Most expensive item sold: Meiyintang “Chicken Cup” (16th century) > Price at auction: 36 million dollars Despite recent doubts about the authenticity of Chinese ceramics due to a high volume of forgeries, the Chinese ceramics subindex rose by 83% in the decade ending in 2013. Interest peaked last year, when a 1,000-year-old Chinese bowl made during the Northern Song Dynasty, which was bought at a garage sale for $3, was subsequently sold at a Sotheby’s auction for $2.2 million. Considering the returns and high-value auction sales in 2013, investors may want to consider ceramics seriously. The market for early works of Chinese ceramic art does not appear to be slowing, either. Earlier this month, a Chinese art collector acquired a tiny, 500-year-old Ming dynasty white cup painted with chickens for a record $36 million at a Sotheby’s auction. Read more at 24/7 Wall St.
> 10-yr. price change: 146% > One-year price change: 2% > Most expensive item sold: “Pink Star” diamond (1999) > Price at auction: 83 million dollars The jewelry subindex rose 51% over the five years ending in June 2013, more than the subindexes of all but a few collectibles. Articles of jewelry often consist of precious metals, such as gold, and gems. While the jewelry market is less volatile than many other collectibles, the price of particular gems can vary widely due to supply constraints and import bans. For example, the price of rubies dropped in the 1990s after the discovery of a large deposit in Myanmar, but it has since risen again, especially after the added pressure of the recently renewed U.S. ban on imports from Myanmar. Despite limited gemstone supply, the market for luxury jewelry is still thriving. The current record sale is for a 59.6-carat diamond known as the “Pink Star,” which sold for $83 million last year. In February, Sotheby’s had to acquire the diamond when the winning bidder was unable to pay. Read more at 24/7 Wall St.
> 10-yr. price change: 182% > One-year price change: 3% > Most expensive item sold: Domaine de la Romanee-Conti (1978), 12 bottles > Price at auction: 476,280 dollars Prices of investment-grade wine with a documented history of price appreciation tend to be more volatile than most other luxury collectibles, second only to art. This is due primarily to the higher likelihood that tastes will change within the art and wine worlds. While the wine subindex increased only by 3% last year, it increased by 182% over the decade ending in mid-2013. Interest in wine may have increased last year due to a report by Morgan Stanley predicting a global wine shortage, although the argument has since been widely criticized. In fact, despite an overall reduction in vine acreage over the past decade or so, the International Organization of Vine and Wine reported higher production last year, particularly in Spain, France and Portugal. By far, most investment-grade wine comes from the Bordeaux region of France. However, it was a wine from Burgundy that set a new record. Twelve bottles of 1978 Domaine de la Romanee-Conti were sold for $476,280 at a Christie’s auction last year. Read more at 24/7 Wall St.
> 10-yr. price change: 183% > One-year price change: -6% > Most expensive item sold: “Three Studies of Lucian Freud” (1969) > Price at auction: 143 million dollars Fine art continues to be the most volatile luxury collectible measured by the KFLII, largely because of its subjective nature. While the art subindex fell 6% last year, prices are up 183% over a 10-year period, more than all but a handful of collectibles. The current record holder is Francis Bacon’s “Three Studies of Lucian Freud,” which sold for $143 million last year. In the contemporary art market, investors buy and sell works by so-called Flip Art artists, who mass produce their art often using cheap techniques. Because potentially hundreds of copies of the same piece are produced by the artist, investors can acquire multiple works and buy and sell them through online markets like Artnet, much like they would shares in a public company. Read more at 24/7 Wall St.
> 10-yr. price change: 225% > One-year price change: 9% > Most expensive item sold: Flowing Hair U.S. silver dollar (1794) > Price at auction: 10 million dollars The subindex for rare coins rose 9% for the year ending June 2013. Only the cars subindex rose more over that time. Two sales last year were high points for numismatists everywhere. The first, the Flowing Hair silver dollar, may have been the first metal U.S. dollar coin ever minted. The coin sold at an auction in January 2013 for a record $10 million. In November, a 102-year-old St. Louis man sold a rare U.S. coin collection for a staggering $23 million at an auction run by Heritage Auctions in New York City. Interest in coin collecting may have been stimulated last year by falling gold prices, as investors began seeking additional sources for returns. Interest is also increasing as the economy begins to recover from the recession that began in 2008, Michael Fuljenz, president, Universal Coin & Bullion, told Kitco, a metals news site. Optimism may be warranted: The index has returned more than 225% over 10 years. Read more at 24/7 Wall St.
> 10-yr. price change: 255% > One-year price change: 7% > Most expensive item sold: Swedish Treskilling Yellow (1857) > Price at auction: 2.1 million dollars While stamp collecting is centuries old, buying rare stamps as an investment is a relatively new behavior among wealthy investors, according to a recent New York Times article. In 2010, the world’s most expensive stamp — the Swedish Treskilling Yellow — sold for more than $2 million. According to Knight Frank’s Shirley, “Stamps are getting more publicity and more people are writing about them, helping to push up value,” and attract more investors to the market. This June, however, all records are expected to be broken when a one-cent magenta stamp issued by Britain’s former colonial government in Guiana will be auctioned off. The value of stamps rose 255% in the 10 years ending in June 2013, more than all luxury items except for cars and coins.” Read more at 24/7 Wall St.
> 10-yr. price change: 430% > One-year price change: 28% > Most expensive item sold: Ferrari 275 GTB/4 NART Spider (1967) > Price at auction: 27.5 million dollars The car category measured by the KFLII rose by 28% in 2013 and by 430% in the 10 years ending June 2013. Both gains were greater than any other subindex over those periods. The market for classic cars does not seem to be slowing either. Two cars sold in different auctions set records in 2013. In July, a 1954 Mercedes-Benz Formula One racer sold at auction for $26.5 million, the highest price paid for a classic car at the time. However, the record was broken one month later, when a rare 1967 Ferrari 275 GTB/4 NART Spider sold for $27.5 million. The Ferrari was believed to have been purchased for between $8,000 and $14,000 in 1967. Read more at 24/7 Wall St.