When we talk about alternative assets, the first thought is usually hedge funds, managed futures funds or other financial products to diversify a conventional portfolio. But other alternative asset classes seeing a rise amid volatile markets are physical assets: from gold bullion to collectibles.
Objects of desire
So strong is the worldwide growth in these alternative assets that UK financial institution Coutts recently started an "Objects of Desire" index. Coutts’ research has found that what it terms "passion assets" have risen 77% since 2005, outperforming the broader equity markets.
Classic cars have returned the most, rising by 257%. Classic watches are up 176%. Jewels returned 146%, while China’s growing wealth resulted in booming demand for traditional Chinese works of art, which rose by 163% between 2005 and June 2013.
Collectibles and SMSFs
In Australia, many self-managed super funds hold art and other collectibles. They are recognised as appropriate investments by the government, and subject to stringent rules to ensure their purpose as investments rather than lifestyle assets.
Artwork continues to be one of the key assets invested in, but the rules allow a wide range of assets as diverse as rare manuscripts, wine, coins and even social and sporting club memberships. In 2012 around 2% of SMSFs owned artwork or collectibles, with an average investment of around $70,000 according to ATO statistics.
Unique character of "passion assets"
The nature of these alternative, "passion assets" varies from conventional assets in several key ways.
Alternative assets in 2014
So what can we expect to see in Australia’s alternative assets market in 2014? At least for fine art, the feeling is that the market has bottomed out and it's beginning to head upwards again after a turbulent two to three year period.
Auctioneers expect increasing buyer confidence, seen from the second half of 2013, to continue as a modestly upward trend.
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