Stamps are perhaps not the most exciting or flashy luxury goods investment. However, Keith Heddle, managing director of Stanley Gibbons, details strong growth in this alternative asset class over the past ten years, alongside a notable demand for collectables in emerging markets. John Schaffer finds out more
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The Penny Black, the world’s first adhesive postage stamp, marked its 175th anniversary on May 6th.
The British stamp, endorsed by Queen Victoria, was a significant event for communication amongst the masses – allowing for post to be transferred both within the UK and the British Empire. The Stamp innovation was the Victorian’s equivalent to the internet.
Stamp collecting certainly has a rather geeky image. However, Keith Heddle, managing director at Stanley Gibbons Investments, feels that this area of the collectables market is often overlooked. He suggests that a portfolio of rare stamps is a serious alternative asset class that can compete with more traditional investments.
Heddle himself is certainly not an anorak. He is engaging and his wealth of historical knowledge and passion for rare stamps is evident.
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By GlobalDataStanley Gibbons, established in 1856, is a rare stamp and collectables merchant with offices in the UK, US, Hong Kong, Singapore and the Channel Islands. The company organises the acquisition of collectibles portfolios for wealthy clients, using their team of experts on rare items to gain a greater purchasing power.
The company provide fully insured storage facilities for their client’s collectable portfolios. Locations include London, Guernsey and Hong Kong. Heddle suggests that this service is pertinent with regards to the preservation of stamps, as varying humidity conditions can significantly affect the value of fragile rarities.
Interest mounting
The Stanley Gibbons’ central London showroom is a treasure-trove of collectables including coins and manuscripts, alongside their substantial stamp collection. A particular block of Penny Black stamps, for instance, have an astounding valuation of £145,000.
Heddle says that interest is gradually mounting in stamps as an alternative asset class and some financial institutions are taking an interest in stamp’s investment potential. However, he adds:
"It’s difficult to shift out of your pre-prescribed model. We come along with a very simple portfolio structure that is difficult for institutions to engage with. The more proactive ones, people like Coutts out in Asia and Standard bank, have said ‘look, we want to work with you because our clients are asking questions now and we want to stop paying lip service to client centricity, we want to actually deliver something back.’
"The genuinely more proactive ones over time are starting to introduce us to their clients or to use us, slightly as the novelty card, but to create that differentiation."
Heddle highlights the consistent growth in investment returns on stamps.
"The GB250 index, for instance, tracks the performance of the top 250 traded investment grade British stamps over the last ten years, showing a total return of 195% and compound annual growth of 11.4%. During the crash of 2008/09, the index actually saw a growth of more than 32%, when most traditional asset classes were in free-fall."
Passion vs. Speculation
While collections of classic cars and paintings by the Old Masters display a rather ostentatious nature, a collection of stamps is certainly a less showy display. Notably, the nature of a stamp collection lends itself to preservation of delicate items, meaning that the collectables are likely to be stored away rather than having pride of place in a family mansion.
Where the vast majority of purchases of classic cars and paintings are driven by passion first and investment second, Heddle says that the majority of stamp portfolios are driven by speculation.
"Approximately 90% of people who stand in front of me start on the premise of ‘I’m really sorry, but I don’t know anything about stamps or coins’"
The stamp industry is also not restricted to the ultra wealthy. Stamps have a lower entry barrier than more extravagant luxury items. Heddle says:
"We have people coming in with £25 – £30,000 portfolios, testing the water, and then up to clients with portfolios worth several millions."
A Niche Market
The market for collectible items such as rare stamps will always be relatively specialist. Heddle says that the vast majority of stamps lack any value at all and that it takes expert knowledge to pinpoint the most desirable items. Merely amassing a collection of unused stamps is unfortunately not an investment portfolio.
The supply of the elusive rare stamps that hold high values is restricted, as new sheets of discontinued stamps cannot be re-printed.
Because of the nature of the market, investment in stamps is a relatively illiquid venture. Heddle advises his clients that a collectibles portfolio is a medium to long term investment strategy.
"The investment strategy has to be buy and hold. It’s got to be mid to long term. It’s got to be about capital appreciation and portfolio diversification and not about quick returns."
Emerging market collections
Seemingly, the most fluid market for stamp collection lies in emerging economies such as China.
"About 20m of the approximately 60m stamp collectors in the world are in China. You go to a stamp show in China and it is jaw drooping. Bus loads, train loads of people will come into a reasonably small town, two and a half hours outside of Shenzhen to a stamp show. You also see young couples going around the stamp shows."
According to Heddle, stamps provide a secure investment for the emerging Chinese middle class.
"The Penny black and other such iconic stamps tend to move much more slowly than your football club, super yacht or diamond encrusted Mercedes, because they’re less flashy.
"But in the last couple of years with Chinese government crackdowns on corruption, conspicuous consumption, gift giving and so forth, what I call quiet wealth – a more considered, sophisticated approach to investing- has started to develop."
Asia fund plans
Due to the influx of demand in the Asian market, Stanley Gibbons is looking into the creation of a collectables fund:
"We are about to launch a rare stamp fund in Asia. It’s going to be a Cayman domiciled, five-year close ended fund.
"It is, right now, the most significant collection of British rare stamps ever assembled. The biggest call for the fund has comes out of Honk Kong and Singapore."
Heddle adds that the fund will enable more direct interaction between wealth managers and private banks.
