Wealthy Investors Include Investments of Passion in Portfolios

As 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 (automobiles, boats, aircraft), jewelry, art, sports-related investments (professional teams, sailing, race horses) and other collectibles categories (wines, antiques, coins, etc.), according to 2007 World Wealth Report, issued recently by Merrill Lynch and Capgemini. Luxury collectibles ranked first, accounting for more than 26% of all HNWIs investments of passion in 2006.

The Report says the art market rated second in the category of investments of passion, garnering 20% of HNWIs allocations. Many wealthy investors, including those without a particular passion for art collecting, now see paintings, drawings, and sculpture as viable vehicles for diversifying their portfolios given the low correlation between art prices and the market cyclicality of stocks, bonds and real estate, a press release noted.

Jewelry accounted for 16% of HNWIs allocations, and showed greater geographic variations than other investments of passion. In 2006, jewelry was most popular with Middle Easterners, who directed 32% of their investments of passion into this category, while Europeans, Latin Americans and North Americans each allocated less than 20% to jewelry.

This interest from HNWIs in investments of passion resulted in a greater increase in the price of luxury goods than for the price of everyday consumer products, according to the report. The cost of the luxury items tracked by the Forbes’ Cost of Living Extremely Well Index (CLEWI) rose 7.0% while the cost of consumer goods and services, monitored by the Consumer Price Index (CPI), rose 4.0%.

The report warns that as the number of HNWIs interested in investments of passion primarily for purposes of financial gain increases, so does the possibility that these items will become overvalued.

Bertrand Lavayssiere, Group Director, Capgemini Financial Services, said in the release: “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.”

A copy of the 2007 World Wealth Report is available online at www.us.capgemini.com/worldwealthreport or www.ml.com.