In focus
the value of these assets is dependent
on sentiment, which is determined by
collectors and trends – for example, he
points out fine wine started to do well
about 10 years ago when it became
fashionable among high net-worth
individuals in China.
These specialist investments also
present more practical problems.
“With anything like that, they
are physical assets so there will be
additional costs,” Lowcock adds. “If
you buy a classic car, for example, you
are either storing it or maintaining
it, and both of those have a cost. You
need a garage to store it in the right
conditions and if you’re driving it,
you will have wear-and-tear costs,
insurance premiums and all that.”
Going for a song
Not all of these specialist assets are
luxury goods that need to be locked
away in a safe or warehouse. Some
have no physical properties at all,
but their popularity has made them
valuable investments.
“We have been investing in
songwriter royalties and value their
bond-like characteristics,” says Gary
Moglione, fund manager at Seneca
Investment Managers.
Royalties have become increasingly
attractive to investors with the
formation of Hipgnosis Songs, the
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Streaming has boosted
the value of song revenues
and they have another
characteristic shared with
assets such as fine wine
and art
trust created in 2018. It currently owns
the rights to songs by artists such as
Justin Bieber, Little Mix, Beyoncé,
Emeli Sandé, Rihanna, Jay-Z and
James Arthur.
Streaming has boosted the value of
song revenues and they have another
characteristic shared with assets such
as fine wine and art.
“Music royalties have a low
correlation to other asset classes,” says
Moglione. “This is important to us
from a portfolio construction and risk
perspective.
“We believe music-industry revenue
is more heavily influenced by factors
such as music piracy, legislative
change, emerging market growth and
technology than interest rates and
stock market fluctuations.”
Buying into the brand
Not everyone will want to own fine
wines or luxury handbags. Why
bother, when you can access high-end
companies via a fund?
The growth of the middle classes,
[ SECTOR PROFILE ]
particularly in Asia, has fuelled
demand for their products. Over the
long term, these types of companies
tend to outperform the broader
market, says Sam Morse, manager
of Fidelity’s European Values trust.
His portfolio includes global luxury
goods companies that offer defensive
characteristics as a result of top-
quality franchises and growing sales
in emerging markets.
L’Oréal really is worth it, says
Morse. The world’s largest cosmetics
company, with a 13 per cent market
share, generates strong returns, is
growing fast and pays a 2 per cent yield.
“Total shareholder return from
L’Oréal in the next three to five years
should be very attractive relative to
the market,” says Morse.
LVMH is a well-diversified company
that has delivered “excellent
performance for the past few years”,
making it a “long-term buying
opportunity” due to fundamental
growth in the business.
“Hermès is the ultimate luxury
company,” says Morse, adding that it
produces the finest bags, scarves and
ties and limits stock, often keeping
customers waiting for years to buy
their first items.
This scarcity helps keep pricing up
and creates a secondary market, which
allowed it to ride out the financial
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