Bordeaux wines and Birkin bags: where the rich are putting their money

Lux­u­ry hand­bags, fine wines and even train­ers, first edi­tion comics and Poke­mon cards have become the must-have col­lectibles for high-net-worth indi­vid­u­als (HNWIs).

Rocked by the coro­n­avirus cri­sis, which has wiped bil­lions off the val­ue of glob­al economies and finan­cial mar­kets, wealthy investors are now sim­ply look­ing to pro­tect their assets and diver­si­fy their port­fo­lios.

As a result, HNWIs are increas­ing­ly turn­ing to tan­gi­ble invest­ments such as Bor­deaux wines and Her­mès Birkin bags, enabled by tech­no­log­i­cal advances such as online auc­tions giv­ing them greater access to a wider range of asset class­es, as well as grow­ing inter­est from a younger audi­ence.

Design­er jew­ellery and watch­es have been anoth­er much sought-after line, with exclu­sive time­pieces gar­ner­ing a ten-year wait­ing list and a mar­ket val­ue dou­ble that of the retail price from day one.

“In a time when investors are seek­ing to expand their invest­ments, art, wine and design­er items present an oppor­tu­ni­ty where not only does it promise a pos­si­ble high return, but it com­bines with their per­son­al pas­sion,” says Kareem Rathore, part­ner at Hox­ton Cap­i­tal Man­age­ment. “Exclu­sive sup­plies of one-of-a-kind col­lectibles and rare oppor­tu­ni­ties all add to the allure of this audi­ence.”

Yet, at the same time, more tra­di­tion­al invest­ments like rare whisky have reced­ed in pop­u­lar­i­ty.

So what is dri­ving this change in invest­ment behav­iour and strat­e­gy? Which invest­ments hold their val­ue best and what kind of returns can be achieved?

The impact of social media

Much of the change in invest­ment behav­iour is being dri­ven by social media influ­encers. Investors see a prod­uct they like trend­ing or being pro­mot­ed by a celebri­ty on Twit­ter or Insta­gram and buy it.  

“There is this increas­ing search for tan­gi­ble assets going back to the finan­cial cri­sis of 2007–8 when equi­ties went down and investors switched their focus to fine art, clas­sic cars and the like,” says Andrew Shirley, edi­tor of Knight Frank’s The Wealth Report. “Added to that was the liq­uid­i­ty pro­vid­ed by quan­ti­ta­tive eas­ing, which has enabled them to make many of these pur­chas­es.”

Design­er hand­bags, par­tic­u­lar­ly lim­it­ed edi­tions, were by far the most pop­u­lar invest­ments over the last year, with Her­mès bag returns ris­ing 17 per cent, accord­ing to Knight Frank. Fuelled by an appetite for rel­a­tive­ly afford­able lux­u­ry pick-me-ups dur­ing the pan­dem­ic, par­tic­u­lar­ly from col­lec­tors in Asia, investors have flocked to buy these essen­tial sta­tus sym­bols.

Hand­bags hold their val­ue too, with the 2018 Her­mès 35 Birkin bag, which sold for $11,900 retail, now fetch­ing between $20,000 and $21,000 at resale. That’s a 75 per cent cap­i­tal appre­ci­a­tion over three years.

Train­ers have also soared in pop­u­lar­i­ty, with an auto­graphed pair of Michael Jordan’s bas­ket­ball shoes fetch­ing $560,000 at auc­tion last year. The mar­ket has the poten­tial to reach $30 bil­lion in val­ue by 2030, Cowen Equi­ty Research esti­mates.

“There has been a dra­mat­ic increase in the inter­est in the mar­ket for lux­u­ry hand­bags and con­tem­po­rary streetwear,” says Rachel Koff­sky, Christie’s inter­na­tion­al senior spe­cial­ist, hand­bags and acces­sories. “That along with the rise of resale sites, social media and famous col­lec­tors, as well as ded­i­cat­ed hand­bag and fash­ion muse­ums and exhi­bi­tions across the globe, has helped dri­ve this mar­ket.”

Fine wine is anoth­er asset class that enjoyed strong growth in 2020, up 13 per cent, as reflect­ed in the Fine Wine Icons Index. Remain­ing sta­ble through­out the pan­dem­ic, the wine mar­ket has drawn in investors as prices have held firm.

A reces­sion-proof invest­ment, fine wine has con­sis­tent­ly out­per­formed the S&P 500 Index in recent decades. Because of its low cor­re­la­tion to the glob­al stock mar­ket, its val­ue is unaf­fect­ed by volatil­i­ty, instead being dic­tat­ed by sup­ply and demand.

“Fine wine is inher­ent­ly scarce, which allows for greater price appre­ci­a­tion than many oth­er assets,” says Antho­ny Zhang, chief exec­u­tive of fine wine invest­ing plat­form Vinovest. “It also offers tax-effi­cient diver­si­fi­ca­tion, as investors gen­er­al­ly don’t have to pay tax­es unless they take per­son­al deliv­ery of the wine.”

The biggest sin­gle cost for look­ing after fine wine is stor­age. Suf­fi­cient cel­lar space and cli­mate-con­trolled envi­ron­ments are required to main­tain the wine’s flavour and val­ue, and ensure it doesn’t mature too ear­ly. 

The classic car renaissance

Anoth­er area expe­ri­enc­ing a renais­sance is clas­sic cars, which climbed 6 per cent, with Fer­raris among the most sought-after mod­els. Over a ten-year peri­od, clas­sic cars as a cat­e­go­ry has leapt 193 per cent, offer­ing a strong risk-reward for investors.

By con­trast, the top end of the fine art mar­ket has waned in pop­u­lar­i­ty with phys­i­cal auc­tions shut­ting down due to the COVID cri­sis and no paint­ing sell­ing for more than $100 mil­lion for the first time in years. As a whole, the AMR All-Art Index tum­bled 11 per cent in 2020.

“The vol­ume of all sales that were pub­licly auc­tioned at Sotheby’s and Christie’s was down 26 and 46 per cent on 2019, respec­tive­ly,” says AMR’s Sebas­t­ian Duthy. “The prob­lem was com­pound­ed by the slow­ing of the sup­ply of qual­i­ty works as con­sign­ers who could afford to wait pre­ferred to sit it out at home.”

Whisky’s 3.5 per cent decline was main­ly due to the volatil­i­ty of ultra-rare top-end whisky as an invest­ment. That said, a hand-paint­ed bot­tle of The Macallan stored for six decades in an ex-sher­ry oak cask recent­ly sold for an auc­tion record of £1.2 mil­lion.

The biggest issue with pro­tect­ing alter­na­tive invest­ments such as these is the secu­ri­ty costs asso­ci­at­ed. Then there is the spe­cial­ist insur­ance cov­er­age, which can run to the tens or even hun­dreds of thou­sands.

“Depend­ing on where your invest­ment is locat­ed, you have to fac­tor in pro­tec­tion against nat­ur­al cat­a­stro­phes, such as wild­fires, earth­quakes and hur­ri­canes, tran­sit and humid­i­ty con­trols,” says Gin­ny Hunter, senior vice pres­i­dent at Marsh McLen­nan Agency Pri­vate Client Ser­vices. “You also have to part­ner with a spe­cial­ist bro­ker and insur­er who real­ly under­stand the asset class and can pro­vide broad and flex­i­ble cov­er­age.”

Among invest­ments to watch for in the future is jew­ellery, notably dia­monds. A dwin­dling nat­ur­al resource, they are a high­ly val­ued asset.

“No new dia­mond mines have been found for decades,” says dia­mond expert Hen­ry Pruw­er. “And with lab­o­ra­to­ry-grown dia­monds increas­ing in cir­cu­la­tion, cer­ti­fied nat­ur­al dia­monds have a spe­cial appeal to purists and investors alike.”