According to the 2007 World Wealth Report which was issued recently by Merrill Lynch and Capgemini, the world's 9.5 million High Net Worth Individuals (HNWIs) develop an increasingly more global outlook with diversified interests, "investments of passion" have become an important portfolio allocation.
Investments of passion include luxury collectibles which cover automobiles, boats and aircraft; jewelry, art, sports-related investments like professional teams, sailing and race horses; and other collectibles categories consist of wines, antiques, coins, and the like.
The luxury collectibles ranked first, accounting for more than 26 percent of all HNWIs investments of passion in 2006. As wealth continued to concentrate in the hands of the Ultra-HNWIs, luxury collectibles became a hot seller over the previous year, with collectors purchasing classic autos and private aircraft. This is why the are almost on every road in affluent territories.
"As HNWIs have become citizens of the world they have parlayed a deep knowledge of many cultures into a diverse set of interests and hobbies," said Bertrand LavayssiÃ?re, the Group Director for the Capgemini Financial Services. "Now, in addition to overall portfolio returns, socially responsible investing, global diversification, and an increased focus on philanthropy, investments of passion have become yet another objective that HNWIs incorporate when assessing their overall goals and are developing wealth management strategies."
The Merrill Lynch and Capgemini's Report revealed that the art market was rated second in the category of investments of passion, with 20 percent of HNWIs allocations. Art has become a very famous commodity and many wealthy investors, even those without a fastidious enthusiasm for collecting, now see sculpture, paintings, and drawings as viable channels for diversifying their portfolios given the low correlation between art prices and the market cyclicality of stocks, bonds and real estate.
Next to art masterpieces are jewelries with 16 percent allocation in the luxury market. Jewelry reflected greater geographic variations than other investments of passion. In 2006, this category was most popular with Middle Easterners, who directed 32 percent of their investments of passion into jewelry. By contrast, Europeans, Latin Americans and North Americans, each allocated less than 20 percent.
As investments of passion continue to be of great interest to HNWIs, the cost of luxury goods and services rose nearly twice as fast as the cost of everyday consumer products in the previous year. The Report compared the consumption of luxury goods against daily consumer products. The cost of the luxury items tracked by the Forbes' Cost of Living Extremely Well Index (CLEWI) rose 7.0 percent while the cost of consumer goods and services, monitored by the Consumer Price Index (CPI) increased by 4.0 percent. This marked a significant raise in relative inflation of luxury goods over 2005, when the CLEWI increased by 4.0 percent and the CPI by 3.6 percent.
The Report concluded that the growing buying power of emerging market HNWIs will continue to drive demand for lifestyle and luxury brands. Nevertheless, this upturn carries with it the risk that as the number of HNWIs interested in investments of passion primarily for purposes of financial gain amplifies, so does the probability that these items will become overvalued. Financial service firms will have to carefully maintain equilibrium between the financial and collectible interests of these investors.
Merrill Lynch, one of the world's leading wealth management, capital markets and advisory companies, is a global trader and underwriter of securities and derivatives across a wide range of asset classes.
Meanwhile, Capgemini, the world's foremost providers of Consulting, Technology and Outsourcing services, offers noteworthy insights and capabilities that enhance companies' freedom to achieve excellent results through collaborative business experience, a unique way of working.
