Back when Credit Suisse was still a thing (i.e. last year), the bank estimated that around 5% of ultra-high-net-worth asset allocations were held in collectables as of June 2022; more than gold but less than private equity.
More recent data is thin on the ground, but whether for diversification or entertainment purposes, alternative investments are undoubtedly a popular global asset class.
Below, we check out what’s hot and what’s cold in the world of alternative, out-of-the-box investments heading into 2024.
Will timepieces tick higher? Top-shelf wine turn sour? Birkins beat the S&P?
Let’s have a look.
Like a fine wine
No pity party, but this reporter was accursed with an aversion to the drink “that makes glad the heart of men”, as wine was once described by a man called David in a book called The Bible.
Thankfully, our friends at WineCap know their tannins from their Tempranillos more than anyone, and have provided some stellar insight into the state of fine wine investing in 2024.
“The fine wine market is entering 2024 in a state of correction and repositioning,” said WineCap’s founder Alex Westgarth. “First, ongoing price corrections are affecting some brands and regions after their peak. Second, there is market repositioning and shifting demand among investors in a climate of increased risk aversion due to global economic challenges.
“This follows the unpredictable trends of 2023, a challenging year for investors. Markets were left reeling from the effects of the pandemic and the Russian invasion of Ukraine, which largely contributed to soaring inflation and multiple interest rate hikes.”
The Liv-ex Fine Wine 100 Index, which represents the price movements of 100 of the most sought-after fine wines on the secondary market, encapsulated this bearish market in 2023.
Fine wines lost 13.2% value in 2023 – Credit: liv-ex.com
According Westgarth, demand for fine wine remains robust, but collectors have narrowed their focus to more reliable and more attractively priced brands.
Riskier and rarer investments from Burgundy, for instance, are seeing sharper declines in value, while classics such as older Bordeaux vintages are enjoying a rebound.
This is in stark contrast to the overall state of the market in 2021-2022 when Burgundy, Champagne and other less traditionally dominant regions were peaking at the expense of Bordeaux, which was running quietly in the background.
“For the first time in years, the market is not diversifying – it is proving its role as a safe haven,” reckoned Westgarth.
Buyers are expected to remain less open to experimentation in the new year until interest rates begin to pivot.
In the meantime, they’ll be sniffing out the “value and consistent performance” of the more reliable players.
Therefore, we should expect to see higher demand and price appreciation from Tuscany and Bordeaux labels.
Westgarth added: “Ongoing releases of the high-quality 2019s from Piedmont may drive interest where there are a number of excellent recent vintages that may be pulled upwards by the release prices of these younger wines.”
Regarding the upcoming Burgundy and Bordeaux En Primeur campaigns, Westgarth reckons it will be challenging to make the new releases an attractive buy “if they are highly priced in a market that is undergoing a correction even if the quality is high”.
“For the first months of 2024, prices will likely stay under pressure, meaning that there will be newly created pockets of opportunities. For example, some of the most in-demand wines in 2023 were Salon and Dom Perignon – both of which have seen prices fall in the short term.
“The overall long-term trajectory of these brands has been upwards, meaning that the current downturn will only benefit buyers.
“As an improving asset in diminishing supply, fine wine investment is all about the long-term and is hardly affected by the events of any given year in the end. We remain confident that, regardless of market fluctuations, fine wine will continue to be in high demand – even if the regional focus temporarily shifts.”
Thanks Alex!
Whisky a go low or go high?
As a seasoned collector, Louis Haseman at Fah Mai Holdings has his finger on the pulse of the fine whisky market- one of Britain’s favourite alternative investments.
Such is whisky’s popularity that exclusive bottle prices reached insane highs in recent years, but the market has since cooled off.
“In 2023, the whiskey market experienced its first downturn in value after a 15-year continuous uptrend since the early 2000s,” noted Haseman.
He explained that 2022 saw peak prices for bottles like Macallan’s limited editions, with some labels reaching all-time highs, but this year, there’s been a 20-30% drop in prices for high-end collectable bottles.
For example, the Yamazaki 55, which previously sold for over $600,000, is now priced at a measly $450,000.
Similarly, 81-year-old single malt Macallans that once fetched half a million pounds are now selling for just £150,000 or less. Oh dram!
“I think prices came down partly because of the lower expendable income in the UK,” said Haseman. “The UK is one of the biggest secondary trading markets with over 100,000 bottles a month being traded on online auctions alone, and when the UK felt that pinch with the increased electricity and so on, businesses and residents alike had less money to spend.”
Though buyers at the very top of the six-figure-per-bottle spectrum are unlikely to give a toss about cost-of-living pressures, “prices just reached such highs that they had to retrace a little bit… I mean, they can’t just keep going up!”
But prices could start to climb again in 2024.
“I think we’ve already seen that in the secondary market on the auctions, where the price and value of the whiskey started to go back up again this Christmas,” said Haseman.
It’s worth keeping an eye on Macallan Folio prices, as they are “always a good benchmark”.
Although some very high-end distilleries are popping up in Australia, India, Taiwan and continental Europe, Haseman was adamant that single-malt Scotch “will remain the benchmark in the West for whisky”.
“People from Ireland would probably argue that Irish Whiskey was the benchmark and it arguably came before Scotch, but the Scotch whisky industry is the most prominent,” he added (don’t shoot the messenger, please Ireland).
Rolex and other status symbols
Watches are the sick man of luxury items right now, with secondary prices crumbling 40% from their all-time high in March last year, according to the Bloomberg Subdial Watch Index.
“We are seeing growing downward pressure in the market, which could lead to a further downward drift in prices as dealers cut valuations to chase sales,” Christy Davis, the co-founder of Subdial, said in November.
She added: “With more watches available at a wider spread of prices, what we’re seeing is people dropping prices to chase sales going into the holiday season.”
Since the luxuriousness of luxury items has an inverse relationship to their ubiquity, secondary Rolex prices risk falling even further if supply remains abundant.
Birkin bags, on the other hand, remain one of the world’s most in-demand status symbols.
The coveted Hermès flagship famously rallied 38% in price back in 2020 (Credit: Delloite), but can it outperform the stock market in 2024?
Maybe, maybe not, though Judy Taylor, president and chief executive of luxury handbag reseller Madison Avenue Couture, believes the Hermès Birkin line will continue to appreciate regardless.
That’s despite them already fetching upwards of $86,000 on the secondary market (as is the case with the Birkin 25 Gris Neve Matte Alligator Gold).
“These bags have been proven to increase in value over time and make great investments,” said Taylor. “We have many customers come to us to buy Hermes Birkin bags as investments and never plan on actually wearing them.”
As an aside, Taylor warned us against investing in sneakers.
“Sneakers can rise in value, but this is rare and you have to time the market perfectly,” she stated. “This is one area that I would avoid if I was looking for alternative investment opportunities.”
Someone should let DJ Khaled know. Back in the strange days of 2022, he gave lucky (?) sneakerheads to chance to sleep overnight in his vast sneaker emporium in Miami, Florida.
Photo credit: Airbnb
Taking the traditional route
Investing in out-of-the-box, luxury items isn’t as easy as buying traditional securities. It requires finding a good broker to work with and a lot of time and knowledge.
The other option for betting on luxury is to buy big-cap discretionary stocks.
Unfortunately, the 2024 outlook isn’t overly rosy.
For instance, Deutsche Bank has downgraded Paris-listed Louis Vuitton Moet Hennessey to neutral, citing limited potential for sector growth in the short term.
Despite holding a positive view on the sector’s medium to long-term fundamentals, the bank expressed caution, noting the absence of earnings upgrades and elevated EV/Sales multiples, which remain 25% above historical averages due to peak margins.
Deutsche Bank extended this caution to Paris-listed Kering and Milan-listed Ferragamo, which, alongside London-listed Burberry, have been placed on negative catalyst watch
Richemont, on the other hand, emerged as the standout in Deutsche Bank’s analysis as the only overweight recommendation in the luxury space. Analysts cited strong momentum, particularly in its Cartier and Van Cleef brands.
Pandora has been placed on positive catalyst watch too, suggesting a potential upside in its forthcoming results.
UBS shared Deutsche Bank’s cautious outlook,
“Over the past few years the luxury goods sector has enjoyed strong momentum, delivering +10% organic sales growth since 2016…further helped in the past
three years by a return of higher pricing,” said UBS.
“However, as we enter a less favourable macro environment, we expect sales growth to Slow.”
For UBS analysts, a luxury stock recovery rests on the shoulders of a revitalised US market, but the bank isn’t overly confident.