Investments: Making money from coins and horses

Tales of financial doom and gloom are never far from the headlines these days, but an increasing number of investors are using the credit crunch as a spur to diversify their portfolios and embrace so-called ‘alternative’ investments such art, stamps, coins or song. Antoinette Odoi takes a look at alternatives on offer.

As an example of their popularity, only a few weeks ago a Fine Violins Fund had secured €16 million of its €60 million target which it plans to invest in pre-19th century violins.

And with the fund expecting a 15 per cent net rate of return, it proves alternative investments are not to be sniffed at.

So which alternative investments are worth considering?

Art

Once the preserve of art aficionados, the new breed of art investor does not necessarily require any knowledge of art for there are a plethora of companies, such as Seymour Management, designed to give expert advice on how to make money from pictorial forms.

Investing in an art fund can also take the stress out of the process and that’s where vehicles such as the Fine Art Fund, the Art Trading Fund and the Andipa Gallery’s investment portfolios come into play.

But be warned: investing in such funds isn’t cheap, and with £10,000 minimum investments not uncommon, it is not for the faint hearted.

Additionally, managing director of Seymour Management, Spencer Ewan, warns that though a love of art is not a prerequisite, an appreciation is beneficial, especially as the art market - and prices - are volatile.

“The best way to invest in art is to build a collection you love and to have a long-term perspective and investment horizon,” says Mr Ewan.

If you want to invest directly but don’t quite have millions to spare, don’t automatically count yourself out. Events and exhibitions such as The Affordable Art Fair in London offer smaller investors a chance to pick up works by up-and-coming artists which could be worth a significant sum in the future. Alternatively, there are also opportunities to purchase smaller works by well established artists; screen prints by Sir Peter Blake were selling for a reasonable £1,100 at last month’s Affordable Art Fair.

Auctions are also a good place for the budding art investor to start and those who have more cash to splash can explore art galleries, though administrative fees can burn a deeper hole in the pocket.

Horses

For the more adventurous, investing in horses may be an option. Despite its associations with privilege, a wider range of people are becoming involved in equine purchase and a host of specialised funds - such those offered by Breeding Capital, the Kingwood Partnership or the Tweenhills Breeding Enterprise Investment Scheme - are springing up.

Breeding Capital, which invests in broodmares and foals, aims to double returns within a five-year investment period and had an internal rate of return of more than 40 per cent.

Though it is difficult to assess the success of such investments as there is no standard industry yardstick, its funds have proven popular and were fully subscribed, which bodes well for when the funds are wound up after their initial investment period (the first will wind up in 2010).

But bloodstock investment is not for everybody and William Sporborg, Breeding Capital’s managing director, is realistic about its challenges.

“There are 25,000 horses sold each year in the UK and Ireland,” he says. “So there is a good liquid market. However, returns from bloodstock are very volatile; you can make a lot of money but also lose a lot.”

Investment in such funds varies, but at Breeding Capital the minimum investment capital is £10,000. Furthermore, investing in bloodstock brings tax benefits as it utilises the enterprise investment scheme (EIS) structure meaning income tax relief at 20 per cent of the total invested amount.

Coin/stamp collecting

Perhaps coin or stamp collecting have had a less-than-glamorous reputations in the past but the philatelists and numismatics now laugh last and loudest for these hobbies have become very credible alternative investments.

Avarae Global Coins, a company whose concern is rare coins, recently launched on AIM and has proven a popular means through which people can capitalise on the growing interest surrounding coin investment. Avarae supports investment either through share purchase or direct investment in the coins themselves throughout a wide range of investment horizons.

Despite flexible investment horizons, as with most investment practices the monetary benefits of investment are more pronounced over a longer time period and so are more suited to investors who can lock away funds for some time.
Ian Goldbart, director of Avarae’s numismatic advisor Noble Investments, says investors have started making good money on what had been considered a mere hobby, and explains average returns of 10-11 per cent over 50 years are not unusual.

“Indian, Chinese and Islamic coins are generating increased interest,” says Mr Goldbart “There’s also growing interest in coins from other places where the economy is booming such as Russia and Poland with people are trying to repatriate their heritage.”

And it appears there is room for such investment to grow; Mr Goldbart estimates the industry has a value of “billions” in the US so with the UK numismatic industry worth £30 to £40 million a year there is still a way to go.

Investment in stamps is also popular and, as with the other alternative investments, there are a range of companies to accommodate the trend.

Stanley Gibbons offers investment products involving rare stamps and autographs as well portfolios for set-term investment. Investors choose the stamps themselves and can invest a minimum £5,000 in a portfolio, or £5,000 in a four-year guaranteed minimum return contract with an estimated return of four per cent. But several invest far larger sums and the company claims many investors have committed up to £500,000.

Director, Richard Purkis, believes one of the keys to success is for the company and client to work together.

“Stanley Gibbons selects the stamps or autographs with the client after a ‘know your client’ discussion and we work on an advisory basis [during which] the client has sole control of the material.”

While autographs of icons such as Einstein and Marilyn Monroe are most coveted, the most expensive ‘autograph’ was a King Edward IV signed proclamation which sold at over £100,000. On the stamp side, Great Britain and the British Commonwealth stamps are popular and Stanley Gibbons has several such items worth over £100,000.

So if you’re fed up of following more traditional asset classes with trepidation, you could do worse than give these unusual investments a try.

Antoinette Odoi