Cashing in on collectibles

Buying stocks and shares can fetch a pretty penny for an investor, but what about items that people collect for fun and also appreciate in value over the years? Collecting might start as a hobby but can even become a worthy investment vehicle for the passionate soul.

Investors have found themselves rocked by the volatile stock market during the Covid-19 pandemic.

But tangible assets - wine, cars and watches - have performed reassuringly well over the past 12 months to mid-2021, according to a Knight Frank luxury investment report.

Wine has even risen in value during these pandemic times. The Knight Frank Fine Wine Icons Index, compiled for the report by wine collection management platform and trading community Wine Owners, has risen 13 per cent.

Wine Owners founder Nick Martin said: "Wine is doing really well, not going crazy, but growing nicely. There are no signs of over-exuberance."

For example, red wines such as Bordeaux have been doing well this year, he said, whereas Burgundy has been taking a breather.

Rare and collectible cars are also growing in value, with indexes in an all-time-high territory, the report said.

Some of this year's standout auction sales include a McLaren F1 that fetched almost US$20 million (S$27.3 million), as well as the record US$2.9 million purchase of a US-Spec Ferrari F40.

Besides those with race pedigree, others are also raking in big bucks among younger buyers, with a Lamborghini Countach achieving US$720,000.

So what makes a wine bottle more than a good tipple, and become a worthy investment instead?

It's about rarity and the limited nature of the item, collectors say.

But besides these traditional collectible items, appetite is growing for other assets, such as street art.

There is a sexy appeal in the rough grit, yet raw emotions in street art like Banksy's that casts the urban environment in a new light, while offering biting social commentary and satire.

"Mainstream investors are only just beginning to fully cotton on to the financial potential of contemporary street art, and artists' prices are rising accordingly," said Ms Luci Stephens, an art specialist at leading gallery group Clarendon Fine Art.

According to the Knight Frank Luxury Investment Index, wine has taken the top spot this year, jumping some 13 per cent in value in the 12 months to June. The index compiles a weighted average of the 10 asset classes it tracks.

Watches came second on the index, appreciating 5 per cent, while cars grew in value by 4 per cent.

But over the last decade, rare whisky took the top spot, jumping a whopping 483 per cent in value.

These trends are more or less in line with what Singapore collectors invest in, which are watches first, followed by art and wine, and jewellery, said Mr Andrew Shirley, editor of the Knight Frank Wealth Report.

Indeed, Singapore has no shortage of serious collectors. Although their items are not the more common types of investments like stocks and shares, some have managed to turn their wines, artworks and even sneakers into little pots of gold.

But such alternative investments are also not without risk, and are certainly not for the faint-hearted, experts say. "From a financial angle, valuation can be subjective - value is literally in the eyes of the beholder," National University of Singapore business professor Lawrence Loh noted.

Unlike shares, these items are also not traded on a regulated market, but often between buyers, sellers and intermediaries, he added. This means if things go awry, there is little option to seek recourse apart from litigation.

Agreeing, DBS head of financial planning literacy Lorna Tan said that there is no authority stabilising prices or protecting consumers of collectibles.

Ms Tan Siew Lee, OCBC's head of wealth management Singapore, pointed out that one of the major risks of collectibles is their lack of liquidity. "There is no price transparency, which increases the risk for new investors who may not be familiar with these collectibles," she said.

"The demand for collectibles can be small, so hunting for a good deal or even selling the item may take a long time. Given that it is an unregulated market, it poses a risk to investors looking to ensure that the collectible item is authentic."

Collectors have to also be prepared to shell out more on maintenance and insurance to protect their assets, added Ms Tan Siew Lee.

DBS' Ms Lorna Tan added: "Perhaps it is prudent to view collectibles more as a hobby than solely for financial gain.

"By doing so, investors collect the items out of passion and enjoyment while they grow in their relationships with other collectors and people with common interests. So, even if the items don't appreciate much in value, they still bring you joy."