The Sunday Times: Art and watches beat the FTSE 100

The art market is roaring with record-breaking sales pushing up prices 30 per cent in the year to June, according to the Luxury Investment Index by the estate agency Knight Frank. Luxury watches and jewellery are up 10 per cent and rare coins 8 per cent.

Over the same period the FTSE 100 index climbed 5 per cent. Prime central London property was down 1 per cent.

Luxury goods can diversify an investment portfolio and are popular among the growing numbers of super-rich collectors in emerging markets such as China.

Gustav Klimt’s Dame mit Fächer (Lady with Fan) sold for £85.3 million including fees at a Sotheby’s auction in June — a record for a work sold under the hammer in Europe. It was bought by an anonymous collector in Hong Kong.

Derren Nathan, from the investment platform Hargreaves Lansdown, said: “The luxury goods market has fared incredibly well through an inflationary period. Having high-net-worth individuals as your core demographic also means the sky-high ticket prices simply don’t deter these shoppers.”

Unless you have a well-diversified and sizeable investment portfolio, or are a die-hard enthusiast with money to splash, investing in individual luxury goods is probably too risky.

The sector is unregulated and even the experts can find it difficult to identify items that will rise in value amid changing tastes.

Whisky was down 4 per cent over the year, but up 322 per cent over the past decade. The price of a classic Lamborghini is up 9 per cent in the first six months of this year, but a rival Ferrari is down by 15 per cent.

There is also the cost of maintaining, storing and insuring the goods to consider. Laith Khalaf from AJ Bell, another investment platform, said: “While returns might look good on paper, investors need to factor in the cost of buying and selling these items, and the costs of storage. A bottle of 2010 Château Lafite Rothschild is a valuable asset, but less so without a verifiable storage history.”

The investments are also illiquid, meaning you cannot sell them as easily as you would a listed stock market share.

Listed companies that make luxury goods for the rich may be a better investment long term. The French firms LVMH and Hermès are up 19 per cent and 40 per cent over the past 12 months. Ferrari is up 36 per cent and Burberry 25 per cent.

For those looking for a fund, Khalaf suggested the Amundi S&P Global Luxury exchange traded fund, which tracks the performance of the S&P Global Luxury index. This includes Hermès, LVMH and Ferrari in its top holdings and is up 7.8 per cent over the year. For a managed fund the Blackrock European Dynamic fund has LVMH and Hermès in its top ten.

Khalaf said: “Investors don’t have to seek out luxury goods exposure in their portfolio as it is likely there will be a small slice in the funds they already hold.”