The 2007 World Wealth Report, issued recently by Merrill Lynch and Capgemini, reveals “investments of passion” have become an important allocation as the world’s 9.5 million High Net Worth Individuals (HNWIs) develop an increasingly more global outlook with varying interests. Luxury collectibles (automobiles, boats, aircraft), jewelry, art, sports-related investments (professional teams, sailing, race horses) and other collectibles categories (wines, antiques, coins, etc.) are the so-called “investments of passion”.
Ranking first in the report was the luxury collectibles with more than 26% of all HNWIs investments of passion in 2006. Luxury collectibles became a top seller over the last year, with collectors buying classic automobiles and private aircraft, as wealth continued to concentrate in the hands of the Ultra-HNWIs.
Porsche is one of the considered luxury car makers in the auto industry. It is yet to find out whether Porsche 914,are considered luxury collectibles in match with that of index.
Bertrand Lavayssière, Group Director of Capgemini Financial Services, said HNWIs have obtained a wide knowledge of many cultures into a varying set of interests and hobbies. He continued that other than portfolio returns, socially responsible investing, global diversification, and an increased focus on philanthropy, investments of passion has become yet another objective that HNWIs integrates when assessing their overall goals and are developing wealth management strategies.
The report also shows the art market having 20% of HNWIs allocations is second in the category of investments of passion. Art has become a very popular commodity and many wealthy investors now perceive paintings, drawings and sculpture as viable vehicles for diversifying their portfolios given the low interdependence between art prices and the market cyclicality of stocks, bonds and real estate.
Having 16% allocation to this luxury market, jewelry followed third in the rank. Among the investments of passion, jewelry showed greater geographic variations. Last year, this category was most popular with Middle Easterners, who put 32% of their investments of passion into jewelry. In contrary, Europeans, Latin Americans and North Americans each allocated less than 20%.
As investments of passion pursue great interest to HNWIs, the cost of luxury goods and services increased about twice as fast as the cost of everyday consumer products in 2006.
The Report compares the consumption of luxury goods and the everyday consumer products. The cost of the luxury items tracked by the Forbes’ Cost of Living Extremely Well Index (CLEWI)1 climbed 7.0% while the cost of consumer goods and services, oversaw by the Consumer Price Index (CPI), climbed 4.0%. Therefore, a significant increase is represented in relative inflation of luxury goods over 2005, when the CLEWI rose 4.0% and the CPI by 3.6%.
The Report deduces that the growing buying power of emerging market HNWIs will pursue to force demand for lifestyle and luxury brands. However, this growth carries with it the risk that as the number of HNWIs interested in investments of passion primarily intended for financial gain increases, the possibility that these items will become overvalued also increases. Financial service firms will have to properly do their tasks.
No comments:
Post a Comment