Summary: Never mind the law changes to SMSF collectable investing, ATO and auction house data reveals the market is alive and well.
Key take-out: The Asian century is already dominating the art world, and smarter nostalgia guides a new breed of collectors who prefer contemporary art and certain classic cars. Investors should be aware they are competing against pure collectors, which could squeeze their profits.
Key beneficiaries: General investors. Category: Investment strategy.
Collectables appeared to hit the market faster than a red-hot Ferrari upon changes to SMSF investing laws, but investors holding strong could be playing a winning game.
Jags are revving up the ranks. A 1963 Jaguar E-Type Series 1 Roadster just sold for $205,000 at a Shannons Auction in Victoria, beating guidance of $160,000 to $200,000. Jags have sped up in value for the past few years, with the real turning point for Shannons a $142,000 Coupe sale in May last year.
You could have bought the Coupe for $7918 at a car yard in 1967.
But you don’t need a time machine to make coin. Just switch out of retail stocks and buy a Hermes Birkin.
Birkin bags (one sold for $298,000 in 2016) have delivered more consistent returns than the S&P 500 index in recent times. From its launch in 1980, the Birkin surged almost 14.2 per cent per annum in resale value to 2015. Compare this to the S&P 500’s 8.65 per cent average annual return, and you could bag yourself a winner.
Then there’s the best of your liquid assets – wine, which appreciated more than any other collectable class in the last financial year. According to the Knight Frank Luxury Investment Index, the best regions to taste test are California, Bordeaux and Burgundy.
And if you like building things, but a new house is a stretch, pristinely kept Lego sets have increased in value by 12 per cent every year since 2000. Compare that to the FTSE 100, which returned 4.1 per cent over the same period.
There are clearly plenty of places to stash your extra cash, but for SMSF members, your house or office isn’t a place to store your collectables. A five-year transitional law change to collectable investing for SMSFs took effect from 2011, and came into full effect last year.
Shelley Banton, director of Super Auditors, said many funds divested in collectables because it became too difficult and expensive to keep their assets.
“Collectables could no longer come under home [insurance] policy, and instead had to be placed under an insurance policy separately owned by the SMSF,” explained Banton.
“The premiums are more than the asset is worth in some cases so people were caught between a rock and a hard place.”
But those left in the collectables game are holding steady, with the numbers speaking for themselves. ATO data shows there was $397 million worth of assets tied up in this area in June 2015, and at September 2016 (post-SMSF changes) that figure still stood at $401 million.
Eureka Report spoke to leading auction houses to uncover what investors are buying and eyeing at the top-end of the collectables market.
The Asian century
International auction house Sotheby’s has noticed an uptick in its Asian artwork sales from all corners of the globe.
Sotheby’s Australia’s Head of Arts & Design, Guy Cairnduff, said buyers in Asia are particularly keen to buy a piece of their heritage. And like with anything, their brand eye is strong, with the maker making all the difference.
A Dehua multi-armed figure of the 19th century Guanyin Qing dynasty (below), forecasted to fetch between $8,000-$10,000, sold for $28,060 last July.
“These buyers have a very, very strong buying power right now, and a tremendous interest in their own culture,” said Cairnduff.
“Perhaps this is because for various periods throughout history the West has taken elements of eastern culture.
“Now we are seeing from our Asian buyers this incredible pride and interest in their own culture, and many are taking to re-acquiring the best examples.”
Once taken back, it’s rare for these goods to hit the market again. Cairnduff concedes “there’s a link between how the economy is performing and discretionary spending”.
Provenance – or ‘close enough’
A superior emerald, if you could find one, would still be put to shame by The Rockefeller Emerald, set for sale next month at Christie’s in New York.
When the Kardashian’s list their worn goods for sale on luxury consignment websites they fly off the mannequins – even if the items are still retailing for less elsewhere.
Prestigious provenance rates highly, Cairnduff confirmed to Eureka Report. However, sometimes a replica is more than enough.
“History and association makes all the difference – it can take a watch from $20,000 to $80,000,” said Cairnduff.
“We have a Rolex Daytona Cosmograph connected to Paul Newman [see below] because he apparently wore the watch in promotional move posters. It’s not even the same watch, but we know its association with that actor and that era will dramatically drive up the price.”
New-generation buyers are led by nostalgia, said Cairnduff, but they aren’t buying grandma’s bric-a-brac.
The buyer’s profile is changing, and naturally, Baby Boomer collectors are being overtaken by Generation X and early Millennials. These buyers are said to be more selective than their predecessors who decked out dining rooms – now distant memories due to shrinking floorplans – with antiquities from all over.
“Even if a category is a little subdued in terms of demand, which is what we are seeing in traditional furniture and areas of the porcelain arts, there will still be a market if you find the very best example of a given style,” he said.
“The rest is really going by the by. People are now buying the best they can afford, and that’s a smart way to invest.”
Multi-faceted works are transacting with speed for this reason. Cairnduff said items where interest crosses over – football cards that play into a topical time in Australian history, for example – are moving well because buyers feel like they are getting more bang for their buck.
By the same token, Christie’s made the claim that “it’s currently a masterpiece market”.
But 18th and 19th century masterpieces generally aren’t in favour, in keeping with the serious underperformance of European impressionist art and French 18th century furniture, according to Knight Frank’s 2016 Luxury Investment Index.
Amanda Fuller, a specialist who looks after Christie’s Australian art sales in London, said the biggest boom is happening at the contemporary end, or post-war. Locally, she said Aboriginal art experienced its last peak in the lead-up to 2008, and Australiana exploration material had its biggest moment a quarter-century ago.
“Artwork that hasn’t been sold before, or may have sold once a few decades ago, those are the works that are performing really well because they are fresh and exciting – it does go with the Zeitgeist of the time,” said Fuller.
“Important works that are priced well by key well-known contemporary artists – like Sidney Nolan and Fred Williams in Australia – if they have good provenance, that’s what our buyers increasingly want.”
Shannons’ Christophe Boribon, in Victoria, said a lot of people got out of ‘collectable’ cars following the SMSF changes, but in fact, many sold their cars back to themselves.
“The classic car market has been very strong overall and we are seeing a different breed of buyers coming into the market,” said Boribon, the manager of Shannons national auctions and external relations.
“Five or 10 years ago, the Baby Boomers were coming through quite strongly, and now we are seeing many more Generation X buyers – these are the kids of the 80s who now have high disposable income, essentially buying the poster walls of their generation.”
Boribon said there’s been a boom in late 1980s and early 1990s sports cars. Buyers will hunt down the roadworthy cars, like Porsches from that period, which have Volkswagen-approved engines.
“It’s all about the modern, and still driveable, classics. There’s been a lot of talk around Jag being the hot car in the last three to five years, and we have seen the E-Type [see below] soar in value. Part of that though is because these cars are very expensive to restore, so their market value is reflective of that.”
Often, entire cohorts of classic car collectors will trade up to the same model at the same time. Jaguar will sell well one year, and a clear majority of these profits are re-invested in Porsche for the next round – hypothetically, of course (but Porsche did see the biggest uptick in 2016, by a mile, revealed Knight Frank).
The auction houses Eureka Report canvassed say they are staying alive; many claim to be cracking record sales and transaction volumes.
According to reports, Sotheby’s Australia has so far raised $14.26 million this year, leading the local art market.
Vintage gauges can be temperamental at times. No global index measuring the value of these investments deals perfectly with items that fail to sell at auction. As well, some of these indices ignore single sales and only consider repeat sales.
Boribon noted, in at least the last three years, Shannons has sold 80-90 per cent of stock at auctions. Sales in value have also picked up about 25-30 per cent in a five-year period.
“It’s definitely superior to the average auction clearance rate.”
To make sure your investment is on the pulse, Sotheby’s recommends seeking advice from an accountant who specialises in art investment.
Sotheby’s Guy Cairnduff said it’s critical to ask questions about conditions and history, and find comparable results for similar items.
“It’s also really important to be familiar with all costs – there’s generally an auction commission paid on top of the hanger price, and import taxes might come into play,” said Cairnduff.
“We find we have a quite informed client base. Some people will buy just as investments, but they are competing against those who are buying as collectors with great knowledge.”