Market crisis: Invest in art and wine instead

By JO THORNHILL
Updated: 18:30, 15 October 2008

Crashing stock markets, collapsing house prices, bankrupt banks – it’s enough to drive you to drink.

And that is what many investors are doing as they look for alternative ways to make money in these difficult times.

According to the Liv-ex 100 Fine Wine index, returns from fine wine are almost 10% for the year so far.

‘We have had a significant increase in interest from potential investors in recent months, perhaps due to the uncertainty in other investment markets,’ says Rob Chase, fine wine manager at Adnams, the brewer and fine wine trader.

‘Demand for the highest quality wines remains strong and I see no reason, even in a time of global economic downturn, for that to go away.

‘If investors do their research, take advice and purchase well, there are good returns to be made.’

Wine should be viewed as an investment of at least five years. There is a small range of funds that track the market for investors who just want exposure without buying stock or getting the chance to drink it.

Those who want to become more directly involved should make sure they use reputable and established fine wine brokers.

The Bunch Code of Practice is an industry standard to which a handful of wine dealers subscribe. They include Adnams, Berry Bros & Rudd, Corney & Barrow, Laytons, Tanners and Yapp Bros. The code sets minimum standards for the storage of investors’ wine, for example.

But be aware that the industry is awash with rogue traders. The website investdrinks.org lists details of recent frauds and blacklisted companies.

Investors can buy cases of wine and pay a broker to store it safely. To get a diverse mix of wines, dealers suggest a minimum investment of £10,000.

Start with blue-chip Bordeaux chateaux, which represent about 90% of the fine wine market, or the top Burgundy labels. Investors buy ‘en primeur’ – before the wine is bottled and released on to the market. This way they get it cheaper. The wine is typically delivered two years later and held in bond by brokers on behalf of their investors. Holding the wine in this way will ensure it is kept at the correct temperature in the dealer’s specialist cellars. It also has tax advantages because no duty or VAT is payable.

Tax applies only if investors want to take delivery of their wine. The wine specialist website decanter.com has more information available on how to get started in fine wine investment. Alternatively, many dealers offer plans where investors pay a set amount each month, allowing the broker to choose how best to use it.

Antiques Roadshow presenter Katherine Higgins has been investing in wine for more than a decade. She pays regularly into the Cellar Plan through Berry Bros & Rudd. Katherine, who lives in Guildford, Surrey, with her husband, Tom, 43, says the idea is to provide a long-term investment for their three children, Oliver, 7, Poppy, 5, and Cicely, 3.

Investors can get started in the Cellar Plan from £100 a month. There are no annual management fees and clients get advice on the best wines to buy, when to sell and when to drink. Katherine, 41, an expert in collectibles, says: ‘I’ve always been interested in collecting fine wine and investing since I was a student working in auction houses. I started to invest more seriously after I had my children. I see wine investment as watertight over the long term compared with equities. I’ve had stock market investments and they have never performed well.’

One of the advantages of alternative investments, such as wine, jewellery and classic cars, is that they can always be enjoyed even if financial returns are disappointing. And this is certainly true of art investment.

In 2003, Kevin Ford and his wife, Yvonne Quinn, paid £3,000 for a self-portrait by British artist Antony Micallef for their office in Leicester where they run a training and development business. Micallef was little-known at the time, but his work is now exhibited around the world, including at Tate Britain in London. From next month one of his sculptures will be on show at the Royal Academy in London.

Looking good: Kevin Ford with a self-portrait by Antony Micallef

Actors Brad Pitt, Angelina Jolie, Jude Law and Robin Williams as well as artist Damien Hirst are among the celebrities who own Micallef’s work. Some of his pieces sell for more than £100,000. Kevin, 52, who was advised to buy the painting at the Affordable Art Fair in London by a former employee who is a fine arts graduate, says: ‘We really liked the piece. We wanted something bright and uplifting for our office. We weren’t really thinking of it as an investment and I had not heard of Micallef.

‘I have other art works as well as investments, including property, equity funds and, of course, our business, but it turns out that the Micallef painting could be worth £30,000.’

The Affordable Art Fair is held twice a year in Battersea Park, south London. Entry costs £10 in advance or £12 on the day. The next is from October 23 to 26. Affordable Art Fairs are also held in Bristol, New York, Brussels and Amsterdam. All works are priced at less than £3,000. For more information visit affordableartfair.com.

Other places to search for contemporary original art include this week’s Frieze Festival (friezeart fair.com) in Regent’s Park, central London, and website New Blood Art (newbloodart.com).

But Will Ramsay, founder of the Affordable Art Fair, says Kevin Ford was lucky and art buyers should not purchase works expecting them to rocket in value. ‘Don’t go to the fair looking to buy an investment,’ he says. ‘Some works will increase in value, many won’t.

‘Buy something because you want to hang it on your wall. If it turns out to be a lucky find and the artist goes on to great things, well that’s a bonus.’

For investors with a bit more cash to spend – starting at £50,000 – the Fine Art Fund, run by former Christie’s auction house expert Philip Hoffman, will give you exposure to the top end of the fine art market. The fund buys and trades in a wide range of works by artists such as Canaletto, Picasso and Hirst as well as ancient Chinese, Indian and Middle Eastern art.

There is a 1.5% initial fee and an annual management fee of 2%, but the returns are strong at 23% per year on average. Hoffman says: ‘The top end of the market hasn’t suffered despite the global economic downturn. Values are robust and rising.’

The Royal Institution of Chartered Surveyors’ Arts and Antiques survey for the third quarter of 2008 shows that while spending is slowing at auction in the up to £5,000 sector, sales in the £50,000-plus bracket remain strong, with 39% more surveyors reporting a rise in prices. But some experts believe the bubble in the high end of the art market could be about to burst as a result of the global crisis and warn investors to go in with their eyes open.

…and sit back in an antique chair that will cushion you from crisis

Valuable quality assets such as antique furniture can offer a haven to investors during turbulent economic times. Mark Dodgson, secretary general of the British Antique Dealers’ Association (BADA), says provided investors take advice from experts, go for quality and buy the very best, antiques will often hold their value and increase in value over the long term. But as with art investment, the general advice is always to buy something you love and want to live with, not just something you think may possibly rise in value.

When using a dealer, look for specialists in the field you are interested in rather than generalists. A good way to start is by searching for a BADA member (bada.org). Under the trade body’s code of practice, a mistake in the description of an object will usually entitle the purchaser to a full refund.

Disputes with BADA members can also be taken to the association’s free arbitration service. Auction houses are another place to look for antiques, but be aware that the condition of items can be an issue as you may not be able to inspect them fully ahead of a sale. Always check the terms and conditions of any sale and make sure you know exactly what you are buying before you part with cash.

Play it safe – Don’t forget the insurance

Valuations and insurance must be considered when investing in tangible assets such as jewellery, watches, art and antiques. Insurance can be expensive and should be factored into your investment. Andrew Cheney of specialist insurer Hiscox, who visits collectors, says under-insurance can be a big problem.

‘In the current climate, when prices are volatile, it is vital that investors regularly get their collections valued, at least on an annual basis,’ he says. ‘Some antiques and artwork can suddenly become fashionable and rise in value rapidly. Conversely, investors must know if something has fallen in value to avoid paying too much for their insurance.’

Insurers will want to see that valuable investments are stored safely – a locked safe, for example, for expensive items. Ideally, your property should also be alarmed and fitted with smoke detectors.