Collectibles: Between passion and investment

For some collectors, their collections are investments like other real assets and are an integral part of their wealth and assets. Indeed, collectibles can add an extra dimension to investors' portfolios by helping to diversify asset allocation and provide an element of safety.

However, like every investment, they are not free from risk and require the same attention and management that other assets receive. 

Collectibles as a part of portfolio  

While real estate by far leads real assets in size and prevalence among private individuals, by their low correlation with other financial assets, collectibles offer significant diversification benefits. In times of elevated uncertainty, whether due to war or to resurgent inflation, they can even provide investors with precious stores of value.

Nevertheless, like any other investment they also involve risks of their own. They differ in terms of volatility and are sensitive to the business cycle, interest rates, and other specific factors.

Comparing collectibles with other assets

Collectibles are often regarded as real assets and are thus often compared with other real assets like gold, for example. However, collectibles and gold do not necessarily exhibit similar performance during economic downturns.

It is essential to understand collectibles' attributes as building blocks for financial planning by comparing them with other assets in terms of their correlations, typical historical annual returns, volatilities, and performance under different global conditions and throughout the business cycle.

Collectibles – like other financial assets  – can be classified as:

• Stores of value (low risk, low volatility, and in general mid-single-digit returns) geared more toward protective investment strategies. Stores of value are relatively safe assets with generally slow, but steady, value appreciation and are appropriate for shorter investment horizons.
• Risk assets (with medium to high volatility) geared toward capital growth strategies. These assets would generally have higher volatility and be riskier, but they come with faster average returns allowing investors to grow their capital. These would generally require longer investment horizons.

By far the most stable (low-volatility) categories are jewelry, watches, and luxury handbags, with annualized volatilities of 2%–7% and mid-single-digit returns.

Sales of collectibles disrupted by COVID-19

Throughout the pandemic, collectibles markets saw a major shift. In-person auctions were cancelled in 2020, which opened the way for a vibrant digital marketplace instead. This in turn added new digitally savvy collectors, gave Asian collectors even more access and importance than before, and changed other market structures – such as the price range of goods sold. On balance, 2020 ended up being a reasonable year for most collectibles, with returns in the low- to mid-single-digits and some strong performance in unexpected niche areas. Subsequently, as the pandemic waned in 2021 and in-person events resumed, collector appetite increased strongly. Similar to what was seen for financial assets, 2021 proved to be a blockbuster year for many collectibles.

Collectibles in the times of crisis

Since the onset of the COVID pandemic, the world has undergone – and is still experiencing – major shifts. Inflation has made a pronounced comeback. War in Europe has become a sad reality. Economic growth is still resilient, but not assured, and as such investors are naturally drawn to stores of value and ways to diversify their assets. When this objective also responds to personal affinities or even passions, as it does for many devoted collectors, demand thrives.

Despite all its uncertainties, macroeconomic shifts, and geopolitical upheaval, 2022 started on a strong footing for collectibles. With inflation likely to stay elevated and interest rates set to rise, we do not expect similar wealth effects on collectibles as in 2021 and would anticipate slower returns in 2022 than in the previous year overall.