The expanding market of non-traditional investments.
Alternative investments have been gaining popularity as investors seek sources of return beyond traditional assets such as equities and securities. One area of the alternative investment ecosystem that is worth exploring is luxury art and timepieces. While these markets may be small relative to the broader alternative investment space, they offer low-correlated returns that are particularly appealing to investors seeking diversification.
Luxury art, in particular, has a long history and is sought after by collectors, institutions, and investors alike. Contemporary art has exhibited robust price appreciation over the years, growing at a CAGR of 12.6% per annum from 1995 to 2022, which is significantly higher than that of the S&P 500 Index. Art is also known for its low correlation characteristics with other major asset classes, which can provide potential insulation for owners during broad market drawdowns. In 2022, despite haphazard market conditions, the art market had an exceptionally strong year, setting a record-breaking turnover of $65.1 billion. The ability of art to perform throughout market drawdowns and display low correlations to other asset classes is due to a swelling of wealth among high-end buyers, scarcity of renowned art pieces, and the marketability of this asset class around the globe.
The luxury timepiece market, on the other hand, is characterized by brands such as Rolex, Patek Phillipe, and Audemar Piguet, which are produced in extremely limited quantities and are worn by the elite. Although the prices of these watches are not as high as those of contemporary art pieces, their rarity in circulation has caused significant price appreciation in the secondary market. In recent years, the luxury watch market has appreciated by an average of 20% per year, outperforming the S&P 500 as an investment asset since August of 2018. Secondary market platforms have also contributed to the growth of the luxury watch ecosystem, with forecasts of secondary market sales topping $85 billion by 2033.
In conclusion, luxury art and timepieces offer investors a differentiated source of return that is uncorrelated with traditional assets. Although these markets are relatively small compared to other alternative investments, they provide an opportunity for investors seeking diversification and the potential for high returns. Investors should, however, be aware that these markets require a significant investment of time, resources, and expertise, making them more suitable for sophisticated investors.
And with the rise of online platforms, investing in luxury watches has become more accessible than ever. Companies such as WatchBox, Chrono24, and Bob’s Watches have emerged as prominent players in the secondary market for luxury watches, offering buyers the opportunity to purchase pre-owned watches in excellent condition with verified authenticity. Moreover, these platforms provide buyers with the option to finance their purchases or trade-in their existing watches, further boosting the liquidity of the market.
As investors search for new ways to diversify their portfolios and hedge against market volatility, the world of alternative investments has become an increasingly attractive option. The luxury art and timepiece markets, in particular, offer investors the opportunity to access unique assets with low correlations to traditional asset classes, potentially providing a hedge against market drawdowns. With record-breaking sales figures and rising interest from cash-strapped millennials and gen-z consumers, these markets are poised for further growth in the coming years. As always, investors should do their due diligence before investing and seek the advice of a professional to ensure that these investments fit into their overall investment strategy.
While the luxury art and timepiece markets represent a small fraction of the alternative investment ecosystem, they have proven to be resilient and rewarding investment categories. Both markets offer low-correlated, long-term return potential that can provide diversification benefits to investors. However, it is important to note that investing in luxury art and timepieces requires a significant amount of knowledge and expertise, and investors should thoroughly research and consult with professionals before making any investment decisions.
As the world continues to evolve and the demand for luxury goods remains strong, it is likely that the luxury art and timepiece markets will continue to grow and provide attractive investment opportunities for those willing to do their due diligence. While the value of these items may fluctuate over time, their rarity and cultural significance ensure that they will always remain highly sought-after items among collectors and investors alike.