Classic cars make great investment vehicles

March 16, 2018 08:28 AM
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Alternative assets such as art, wine, stamps and classic cars have always been an option for knowledgeable investors seeking to protect or diversify portfolios. Markets, in particular equities, have been buoyed by cheap money corporate share buyback programs and will remain highly sensitive to interest rate moves. Inflation has all but wiped out returns on cash deposits, so it’s no great surprise activity in classic cars remains high. There’s a definite demand for high-yielding assets right now and alternatives are leading the charge.

The first records of cars as investments can be traced back as far as the 1930s in the United States. Part of the surge in demand is now coming from China, India, Africa and Russia; countries that understand the value of tangibility. The Middle East is also driving demand as they diversify reliance away from oil. Apart from the odd car being dug out of a barn such as the one-off alloy bodied Ferrari Daytona auctioned at the Ferrari Leggende e Passione for €1.8 million ($2.17 million), supply is not growing anywhere near the pace of demand. 

In 2016, the quick money makers left the market to specialist investors and collectors -- a more accurate reflection -- so how do we view 2017? The HAGI Top, which indexes the top 50 classic and collectible cars, indicated 2017 was a sluggish year. At the end of 2015, the market was up 16.57%, by the end of 2016 growth slowed to 9.02% and 2017 was the weakest year in decades. But, it’s worth remembering the data is based on publicized sales, auctions, Internet and hearsay, but only represents 25% of the market. The intimate 75% (where Kidston sold his 250 GTO for an undisclosed sum) is still firing on all cylinders. The top of the market remains robust, evidenced by an increase of 46% on cars sold with values exceeding $500,000 on a sell-through rate of 89%. This was further supported by Ferrari’s 70th Anniversary auction on Sept. 9, boasting a 92% sell-through rate. Those waiting for a 1980/1990s style correction may be waiting a very long time. The market is now a more mature, better regulated, macro environment that is radically different with additional growth coming from emerging markets.  

Counter Cyclical?

Like any capital market, classic cars move in economic cycles of four to six years. The last cycle started in 2010 and peaked in 2015; 2017 has been softer, an opportunistic buyer’s market. It tends to soften as expectations climb evidenced by rising low reserves, which eventually meets with lackluster performance resulting in cars parked unsold. Hagerty reported a 10% fall in the volume of cars offered at this year’s Retromobile. One also could argue 2017 has been hit by the aftershocks of Brexit, Donald Trump and volatile forex rates. As WMG’s Collectable Car Fund is priced in British pounds, it represents a currency hedge against most global currencies. 

If you lay a chart of 2017 over 2011, you’ll see some staggering similarities in the classic car world.  The HAGI 50, a sample model portfolio selected at random, on average has risen 13.5% per year since 1980 (see “A hot sector,” below). 

What do we buy? 

A common question we get is, “What exactly do you buy?” Ultimately, it depends on budget, but I would always advise treating car purchases and crash helmets the same — buy the best you can afford. I can’t give away all our esoteric secrets, but cars from the 1980s, 1990s and even 2000s are starting to become investable. Think low production numbers, high performance and controversial [at the time] styling: Bugatti EB110 SS, Jaguar XJ220, Aston Martin Vanquish S, V8 Vantage X pack, V8 Virage, Lagonda, Porsche 959 S, 930 & 993 turbo S, GT1, Ferrari Enzo, 355 Spider, 550, F40, F50, Lamborghini Diablo, Countach 25th, Pagani Zonda S, F, Cinque, McLaren F1 (if you can find one under £10 million ($13.5 million).

WMG’s Collectable Car Fund aims to raise £50 million ($67.7 million) to invest in a portfolio of 20-25 rare, high performance, vintage classic and collectable cars for the purpose of capital appreciation.  This has grown from a passion to valid actionable alternative investment strategy with strong upside potential.  

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About the Author

Richard Hawken is a portfolio manager joining WMG from an investment banking and motorsport background. Richard spent 20 years on the London trading floors and he collects exotic automobiles and races professionally, claiming three championship titles in Europe.