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Profit from alternative investments By Jeff Salway
Alternative investment funds can provide you with useful diversification away from the stockmarkets and the opportunity to cash in on your hobbies and interests, without the money or expertise you would need to invest directly.
Winning
You can make good money investing in the right vintage. Wine investment experts Premier Cru claim that between January 1990 and January 2006 wine indices showed a 14.7% average annual growth, more than double the FTSE All-Share Index. However, although you may be an experienced wine lover, it's still important to go through a wine investment specialist. Not only can wine deteriorate quickly, you also need to know how much to pay, how long to hold it and the right place to store it. Marlene Shalton of independent financial advisers Chambers Morgan James began offering clients exposure to wine investment - through Premier Cru portfolios - as a way of providing diversification away from equities. "It's a bit of fun but the returns are good, and you can invest as little as £1,000 or £100 a month," she says. Another fund, the Wine Investment Fund, requires investment of at least £10,000 and runs in blocks of five-year tranches. At the end of the five years, the wines owned by the fund are sold, with investors getting the proceeds. According to Bestinvest, the tranche launched in 2003 has already grown by 66%. There are also tax advantages to investing in wine - profits are currently free of capital gains tax because wine is a 'wasting asset', as it eventually becomes undrinkable. But watch out for high charges - initial fees often start at around 5%, with 1.25% annual subscription, plus 20% of the overall gain in excess of 50% growth. Following philately These were among the top four investments of the 20th century, according to investment bank Salomon Brothers, with an average return of 10% a year. It's a chance to invest in something people the world over are passionate about. There are about 48 million philatelists (stamp collectors) worldwide and stamps are the third most popular sales category on auction website eBay. Some rare stamps have increased in price by over 400% in the last five years, according to London-based stamp firm Stanley Gibbons, which also owns autographs such as the Marilyn Monroe menu. The firm offers a range of investment products. One is the Rare Stamp Fund (now closed to new investment), which lets you own units in an investment fund. The minimum investment is high, at £20,000, but it targets a return of 10% a year over five years. Alternatively, £5,000 gets you a guaranteed minimum return contract, promising at least 4% a year growth on a three-year contract or 6% a year on a 10-year deal. Pick a Picasso Despite the huge numbers of art collectors today, there are very few art investment funds. One exception is the London-based Fine Art Fund, which is aimed not so much at enthusiasts as those who think art makes good investment sense. But, with a minimum investment of £140,000, it doesn't come cheap. So how can you make money from your masterpiece? The Andipa Gallery in London offers several investment portfolios. Again, however, its 'bespoke' portfolios typically start at £250,000, although some people invest £50,000 for 10 years or more through the gallery's art advisory service. "We see a lot of people investing money in art that they would otherwise have invested in a pension fund," says gallery owner Acoris Andipa. "But what few people realise is that with the right advice they can buy modern masters, from Picasso to Hirst, from a few thousand pounds." He says buying art directly, rather than buying into a portfolio, can cost as little as £1,500 for limited edition prints by artists such as David Hockney. "It's important to be well-advised and have a clear idea of the period over which you are investing," he adds. "Like any market, there are fluctuations, but the art market has always bounced back very strongly." Coining it The idea of part-owning a rare Edward II 'double leopard' coin, issued for just a few months in 1344, may sound far-fetched. But the launch in May this year of Avarae Global Coins on the AIM has made it easier to benefit from the growth in value of rare coins such as this. You can buy as many or few shares in the fund as you want, or in many cases you can buy the actual coins, the price of which varies considerably. Long-term collections (around 50 years or more) have achieved compound annual returns of 8.7% to 10.5%, but short-term returns are usually limited. "If you have £5,000 in the fund, you own part of a valuable collection and you have a lot of diversification," explains Ian Goldbart, the man behind the Avarae fund and a director at Noble Investments (which owns London coin dealer AH Baldwins). Avarae works like a conventional fund. "We buy anything we think is interesting and/or undervalued," Goldbart says. But you should think of coins as a long-term option - the biggest risk is a decline in value if a batch of the same coins is discovered. Financing films Film partnerships, the main way of investing in film, have lost their lustre recently, due to the loss of tax breaks. Richard Allen of Allenbridge, a tax consultant, says investors could previously get tax relief on their entire investment, but these rules have been removed. It's much more risky to help fund a movie project now. There are still some film opportunities within Enterprise Investment Schemes and some tax benefits to go with this, including 20% income tax relief (but only if you invest £400,000 a year), plus inheritance tax and capital gains tax advantages. But these benefits are also available on other EISs, such as property, which invest in actual assets and don't take a gamble on whether something will be a crowd-pleaser. Worth a punt? Even though more people are beginning to invest in hobbyist funds, these assets are outside Financial Services Authority (FSA) regulation. It did look like they would be included in self-invested personal pensions, but Gordon Brown decided to remove esoteric investments from the range of options. But if you like the idea of owning a bit of history, or want to diversify your portfolio, it's becoming easier. You just need to remember that you should only commit as small portion of your savings - 10% of your portfolio at the most - because of the risk involved.
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