It is over 2,000 years since the three magi arrived in Bethlehem bearing the first Christmas gifts. While gold remains a staple of the luxury goods market, frankinsense and myrrh have gone slightly out of fashion and other Christmas staples including trees and mulled (fine) wine offer other investment opportunities.
Whether you’ve bought your true love five gold rings or you’re wondering if the three wise men believed in safe haven assets, gold is a shining example of a Christmas investment.
For many, 2013 marked the end of the gold bull run that began in 2000. Gold has lost 26 per cent of its value this year amid speculation about the scaling back of quantitative easing in the US as the outlook its economy improved.
There are also question marks over gold’s role as a hedge against inflation because of its significant price increase since 2000.
Argonaut Capital penned two blogs in the summer that described gold as an asset bubble and gold mining as an unprofitable industry that is haemorrhaging cash because high costs are impacting on profit margins. Argonaut Capital investment manager Greg Bennett says its views have not changed over the last six months
Bennett says: “The gold price has been trading sideways to downwards since the summer. There is nothing in the fundamentals that makes us change our minds in terms of the cost premium on the industry and the case for owning gold, given what it has done price-wise.”
But others feel there are still good reasons to hold gold. Tradenext, a city broker specialising in gold, sees the falling gold price as a buying opportunity. Senior dealer Alex Chehade says: “I’m buying long from here. There are more sellers than buyers of gold at the moment but that will reach an equilibrium. In the first quarter of 2014 a lot of money will be pulled out of stocks and the gold price will have bottomed out.
“A lot of people got scared on the way down – but most of the people who made money out of the stockmarket bought in the way down.”
ETF Securities, a provider of gold exchange traded funds, points out that although the gold price has been falling, physical buying of gold has remained strong – but not enough to offset negative investor sentiment. Going into 2014, the firm believes a combination of physical buying, lower production and limited supply will halt further price falls.
ETF Securities head of research and investment strategy Nicholas Brooks says: “We think current strong negative sentiment towards the gold price is overdone. The gold price should rally if US growth disappoints and so it provides a good risk hedge if optimistic consensus growth forecasts prove to be wrong.”
Talking of hedges, you may not be able to move for holly and ivy. Add to those the Christmas trees and mistletoe and it might seem as if your garden has gatecrashed your sitting room. But you can keep all that foliage in in check by diverting it to your client’s portfolio.
Forestry had a record year in 2013, according to latest Savills and UPM Tilhill Forest Market Report. It says 50 per cent more forestry property was traded in 2013 compared with the previous year. At £97.3m, its value in 2013 was eight and half times its value in 2000.
Savills director Jonathan Henson says: “As the year progressed, an improvement in the economy led to early signs of growth in the sector. This was strongly supported by a number of forestry investment funds and high net worth individuals who have been active at the top end. Both sectors of the market have been aggressively bidding for good quality spruce forests which offer reasonable scale and access to timber markets.”
Stellar Asset Management founder and chief executive Jonathan Gain says people have been buying into forestry as a diversifier for their portfolios; for the security that a tangible asset gives them and also for the tax benefits. But investing directly in capital intensive, so for most people a forestry fund is the only way to access it.
“Forestry has got 100 per cent inheritance tax relief once its been held for two years. It is free of income tax for any trees you chop down and sell and it is also free of capital gains tax,” says Gain. “And one of more interesting developments in recent years has been wood as an alternative fuel source, so every bit of a tree that is cut down is now used – there is no wastage from holding trees.”
Wine & whisky
Leaving a glass of mulled wine for Santa or relaxing with a whisky may be traditions played out across the country over Christmas. They can also be played out in an investment portfolio that builds on the desire to collect. As a wasting – or perishable – asset, gains from wine investment are tax-free provided they are not traded regularly. But on a cautionary note, investment in wine is unregulated.
Trading platform Wine Owners founder and executive director Nick Martin says that since the collapse of Lehman Brothers, wealthy investors have increasingly been investing in hard assets such as wine. But this is broader than the well-known Bordeaux market, which enjoyed a good run until the summer of 2011 then declined as interest from Chinese consumers cooled.
“More recently people have been looking at greater scarcity – there has been good performance in places like Burgundy, Italy and the top Californian wines,” says Martin.
Oracle Paradis Wine fund director David Nathan-Maister says: “A good rule of thumb in almost any collectibles market is that the more actively a product is marketed to collectors at the time of release, the less it will be valued by collectors in the long term. This is because it will be too common, too easily found and lacking in the true rarity and romance which is what ultimately drives high prices.”
As well as wine, the Oracle Paradis Wine fund has some exposure to rare whiskies. “However, this is a market with many pitfalls, chiefly the ever increasing number of collector’s editions. We believe many of these are being marketed at prices which will not be sustained by the secondary market. In other words, you might not get even your ex-distillery purchase price back on auction,” says Nathan-Maister.
He believes that only the most famous whiskies have true investment potential such as Macallan, Springbank and Laphroaig. “We feel the investment potential of small and obscure distilleries, and those without a long and storied history is limited.”
He also warns that collectors and investors need to have expert guidance to avoid fakes and bogus bottlings.
The nativity gifts of Frankincense and myrrh were the luxury fragrances of their time, on a par with Chanel and Clive Christian – the most expensive perfume in the world. Investors who want their portfolio to drip with the designer labels they did or didn’t get in their Christmas stocking can gain exposure through specialist equity funds and exchange traded funds.
According to Scilla Huang Sun, manager of Swiss & Global’s Julius Baer Luxury Brands Fund, the long-term growth trend for the luxury sector will continue in 2014 due to a pick-up of global economic growth, despite slower demand in China, a huge buyer of luxury goods.
“We expect slower but still above average growth in China, a stabilisation in Europe and solid demand in the US,” she says. “The luxury industry continues to invest, as many consumers in emerging markets will buy their first luxury product in the coming years. However, competition is tough. Investors should look for global reach, desirable products and constant innovation to seduce wealthy consumers.”