Steve McQueen is the undisputed “king of cool” and, when it comes to classic motorcycles, anything the American actor so much as brushed against has a premium price tag attached to it, writes Deirdre Hipwell, retail editor and mergers & acquisitions editor at the Times.
Yes. Collectible motorbikes are now a thing and revving sharply at the heels of the well-established classic car market. After all, an investor with a need for speed can not only buy and store about five motorcycles in the space occupied by one vintage car but still feel the wind in the hair when taking one out for a spin.
Heady stuff – and according to Bonham Auction House, a leading auctioneer of fine art, jewellery and classic vehicles, pretty savvy investment-wise too, as currently the price of vintage motorbikes keeps rising.
Ben Walker, international director of Bonhams collectors’ motorcycles department, says: “It is fascinating to see how the values have increased since the machines were new. Knowing what we know now – the percentage increase in value and how difficult it is to acquire these machines – it would be great to step back in time and buy them when new.”
It would indeed. It is also a reminder to any private investor to be open-minded when it comes to designing a diversified, well-balanced investment portfolio. While property remains the most dominant asset class in many investors’ portfolios, often rightly so, it has sometimes been to the detriment of investing in other, sometimes emerging, asset classes.
Casting the net wider
Jo Bateson, the London head of private client advisory at KPMG, says that wealthy investors are “increasingly casting the net a bit wider and looking for different asset classes, such as expensive cars or art work”. In the past decade alone the investment rationale for buying art has become an increasingly important purchase motivation.
Philip Hoffman, from the Fine Art Group, which offers advisory services and finance options for investors in the sector, says: “Art is increasingly used as a value store for wealth preservation, while offering long-term protection against inflation.
“The most notable difference between the art market and traditional investments, such as equities and property, is that it doesn’t correlate so closely with geopolitics. Shortly after the vote for Brexit, the London auction houses experienced a very successful season while the property and financial markets were still struggling months later.”
However, there can be pitfalls for the inexperienced investor – like property, art can be illiquid and hard to sell at the wrong time. “When you know what you are doing, and really understand the market, or are working with someone who does, art can offer very good returns.
Take Albert Oehlen [a German contemporary artist] – one would pay £100,000 for his work 10 years ago but now his works reach over £1m,” explains Hoffman. “When investing in art, you should focus on artists with a secondary market as these will be the most liquid, and focus at the top end of the market.”
A vintage return
For investors who do not have the rarefied appetite to take on the world of art, there are many other asset classes to choose from. Fine wine is a popular investment and accessible to those who can either purchase shares in vineyards or collect wine themselves.
KPMG’s Bateson says investing in forestry and farm land is an enduringly popular diversification tool as it is offers income and capital appreciation potential as well as certain tax exemptions. Racehorses are another asset that may be expensive to own but backing a winner will result in tax-exempt prize earnings.
“There are loads of schemes out there for private investors, even ones for investing in shipwreck discoveries,” says Bateson. “It is a collective investment scheme where money is invested into finding shipwrecks and sunken treasure with the earnings from any discovery shared [among the investors]. I had a client who did make some money investing in a scheme like this, but not a lot.”
Even once old-fashioned and stuffy Georgian furniture is making an investment comeback. Last year, the Office for National Statistics pinned a 0.3% rise in retail sales in October mostly on strong growth in auction houses and antique dealers. Experts said this was driven partly by the popularity of “brown furniture”, such as Georgian chests of drawers, dining tables and antique dressers.
The four tests
Russ Mould, an investment director at wealth manager AJ Bell, says that any investment, regardless of what the asset class is, must past four tests: “Does it fit with the overall portfolio strategy (capital growth, income or capital preservation)? Does it fit with the desired target return? Does it fit with the portfolio’s planned time horizon? And does it fit with the portfolio builder’s appetite for risk?” he explains.
“And risk, in an investment context, is best defined as the willingness and ability to suffer losses in pursuit of the overall portfolio plan.”
He says these four tests or questions are particularly pertinent when investing in “areas like cars, art, cryptos, horseflesh, wine and guns” as they all require research and specialist knowledge, and good advice, especially when it comes to tax.
Mould says as a general rule of thumb private investors should never invest in something they do not understand. “Ultimately, ask yourself this: ‘How daft would I feel losing money in these assets now, if something goes wrong, given that I don’t know much about them?’ Once you have answered that question, then take it from there,” he says.
Constantly questioning the wisdom of investing in a certain asset class is wise as market dynamics can change quickly. A recent report from Knight Frank showed that while the classic car market remained a key alternative asset class, prices have slipped by 1% in the 12 months to the end of the first quarter of 2018 as speculative investors have left the market.
Knight Frank said that the most active buyers [of classic cars] were the “really knowledgeable collectors and enthusiasts who know what they are doing and exactly what they want”. The property consultant’s Luxury Investment Index also showed that art now topped its index with annual growth of 21%, having been almost at the bottom of the rankings this time last year.
Coutts, the wealth manager and banker to the Queen, says it always advises its clients to invest in a diversified portfolio of assets, not just property, although it is currently “not an advocate of gold at current levels and see the risks associated with cryptocurrencies as too significant”.
It says that for many investors buying units in property funds makes sense as part of a diversified portfolio of assets such as equities and bonds, adding: “The yields [on property funds] remain attractive compared to, say, government bonds and they provide good diversification benefits if you have a longer-term horizon. There is always a liquidity risk with these funds, which is why managing position size and being diversified is important.”
Past its prime
George Toumbev, head of lending propositions at Coutts, adds that property, particularly prime residential houses in London, has and will likely remain the preferred asset class for the wealthy. However, he says it is a somewhat less attractive investment now than it might have been a few years ago. “If you bought a house [in prime London] you once could get returns of between 15% and 20% but now the gravy train is over because capital appreciation is going backwards,” he says.
“It is an interesting inflexion point in the market at the moment, because if you are not going to get the return [on buying a prime property] you used to, then you have to think about a diversified portfolio and what percentage of property you will need [in that portfolio].”
Toumbev says some wealthy investors are considering property investments which may not have been on their radar before, such as buying rental properties in regional towns. “Before the name of the game was capital appreciation, but now it is all about yield,” he says.
“Yields in London are falling but outside London they can still be quite healthy, as in university towns, where you can buy a house, at a cheaper price than in London, and fill it with students paying reasonable rents.”
However, recent punitive changes to stamp duty regulations for buy-to-let investors mean some housing landlords are switching out of the residential market to commercial investments. George Walker, a partner at Allsop, says: “Tax changes on buy-to-let properties have gone against portfolio investors and many have switched to the commercial property market. We are seeing more of these types of investors on the auction room floors.”
Cashing in
Recent changes to pension regulations also mean some retirees are now opting to cash in their pension pots upfront and are also heading to commercial auction room. Allsop’s Walker points to one investor who bought an office building, which yielded him 10%, with his pension pot.
“That is a great deal more yield than either pension or annuity, or to use his words, ‘It is three times the return, which makes a huge difference, even over only a five-year period’,” he explains. “There will be more risk attached but he is happy with that as he is getting a bit of yield in the property asset. Property is always on the wish list for investors.”
Stephen McCarthy, founder and managing director of online auctioneer BidX1, says digital sales are helping make property investment a reality for many new investors. The firm has sold €1.3bn of property in online auctions since 2015 and finds that many of its buyers are new to the real estate world.
“They are attracted by the transparency and accessibility of digital auctions, which is actually democratising the auctions process,” he says.
And Steve McQueen-style motorcycles? They are not on everyone’s wish list, but as a “wasting asset” in the eyes of Her Majesty’s Revenue and Customs – which means no capital gains tax to pay on profits – they may be worth a spin at a time when finding investments with attractive returns is harder than ever.
