Ways to profit from the City bonus boom

After such a strong run for many exotic assets, there are fears that some investors will pay over the odds, although many people called the top of the market last year and experts say there are still bargains if you know where to look. Even so, remember that alternative investments can be highly volatile, costs are high and scams are rife.

Here we show where to find the best deals if you are expecting a bonus or just have some cash to spare.

Art

It is not only City workers who are piling money into art. Newly moneyed buyers from Russia, China, India and southeast Asia are helping to fuel the boom, and ordinary investors are being encouraged by the growth of fine-art departments at private banks such as Barclays Wealth.

Fine-art collections have risen in value by up to 9 per cent, according the latest figures from the Hiscox art index. English sporting paintings, British 17th to 19th-century portraits and English 20th-century paintings have all been star performers. Contemporary art, which soared by 10 per cent in 2005, showed a more sluggish 2 per cent increase.

Philip Hoffman of Fine Art Management Services (Fams) believes there are still areas of the market that look undervalued, despite the frenzied buying in recent months. “Chinese and Indian contemporary art looks interesting because it has not yet been picked up by most investors on the international market,” he said.

That is changing fast, though. Sotheby’s first sale of Indian contemporary art in New York exceeded expectations, fetching $1.8m in September. Hot names include Atul and Anju Dodiya, Surendran Nair and Sudodh Gupta. You can buy works online at Saffronart.com.

Chinese artists to watch include Fang Lijun, Zhang Xiaogang and Yan Lei. At Christie’s in London last month, a portrait by Zeng Chuanxing sold for £164,800, which was seven times the estimate.

Hoffman also tips the controversial London duo Gilbert and George, whose most recent exhibition was titled Sonofagod Pictures. He believes their work will stand the test of time while many other contemporary artists will fall by the wayside.

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A growing number of private banks are offering art advisory services to help their clients avoid dud pieces and decide when to sell. Seymour Management provides advice for the clients of Butterfield Private Bank while Swiss bank BSI uses Fams.

Fees for these services usually depend on the size and number of deals overseen for a client. They are generally about 2 per cent of the sale price, although they can be as high as 10 per cent. Both Fams and Seymour offer separate services for wealthy clients who come directly to them.

Investors who are not confident enough to buy art themselves can invest in the Fine Art Fund, run by Fams, which manages a portfolio of old masters and modern art for investors. Hoffman said that investors should be prepared to hold art investments for at least five years.

Wine

Wine buffs have called the bordeaux 2005 vintage one of the greatest of all time, but it is not necessarily the best investment. Chateaux have almost doubled their prices, making it more difficult to turn a profit.

Normally when a vintage goes on to the market a top-class bordeaux sells for £1,000 to £2,000 for a case of 12 bottles, according to Justin Gibbs at Liv-ex. When it went on sale this summer, the 2005 vintage fetched £4,000 a case on average.

Gibbs believes wines from previous exceptional vintages such as 1990, 1995 and 1996 offer better value. Prices have soared on the back of the strong interest generated by the 2005 crop, but Gibbs believe there is still room for growth.

He said: “A Latour 2005 will cost about £5,000 a case whereas the 1996 vintage of a similar standard goes for about £4,000. The 1996 wine also benefits from its age. After 10 years people are starting to drink it so it is becoming scarcer, making it more collectible and adding to its value.”

Wine specialist Jim Budd’s Investdrinks.org, website offers a directory of reputable merchants.

You will have to store the wine in a temperature controlled warehouse, which is essential if you wish to resell. This typically costs about £10 a case per year. You should also take into account the cost of insuring the wine and paying commission when you sell, which can be 10 per cent to 15 per cent.

Luxury yachts

Sales of yachts and boats surge when the bonus season comes round, according to David Lewis of Sunseeker, which sells luxury motor yachts from its Mayfair store.

Buying a yacht is expensive, with models starting at £250,000 and rising to £10m. Then there is Vat on top, and it can cost another £150,000 a year to maintain and run if you employ a crew.

You can offset these costs, and even turn a profit, though, by chartering out the boat when you are not using it yourself. But watch out for the taxman. Many people who charter out their boats for part of the year own them through a limited company, which offers limited liability in case of an accident. However, people who own their yacht through a company have to pay a benefit-in-kind tax to Revenue & Customs when they use it. The tax liability would be based on 20 per cent of the market value of the yacht.

The easiest way to escape the charge is to set up a limited-liability partnership, according to James Hender at Smith & Williamson, an accountant. This gives the legal protection of a limited company in the event of an accident but without the threat of a benefit-in-kind charge.

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