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Wealthy Brits shun gilts in favour of classic cars, art and wine

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Wealthy UK investors are selling off government bonds in favour of property, shares and collectables such as art and classic cars, a new report has found.

According to YouGov research of 1,000 UK adults with over £250,000 of investible assets conducted for Lloyds Bank Private Banking, the average government bond holdings have fallen by 16% from over £64,000 in October 2012 to £54,043 in September 2013.

The sell-off follows indications from the Bank of England that interest rates may be increased sooner than previously expected, prompting volatility in the bond market.

In early September, gilt yields were reported to have hit a two-year high, according to Reuters.

In contrast, there has been a substantial rise in holdings of collectables (such as wine and classic cars), with an average portfolio holding of £55,857 of those surveyed in October 2012, rising to £69,912 currently.

Collectables such as cars, art and wine are often popular during difficult times, and recent research from the Historic Automotive Group showed that an index of 50 valuable cars had risen in value by over 430 per cent over the past 10 years.

The report also found that equities, traditionally a popular investment during low interest rate periods, also grew in popularity among wealthy UK investors over the past year, with an average portfolio holding in the October 2012 survey of £171,354 rising to £204,137 in September 2013.

Property also saw an increase as average holdings (excluding their main residence) went from £346,841 in October 2012 to £386,306.

Ashish Misra of Lloyds Bank Private Banking said: “A confluence of excessive valuation, worrisome fundamentals and a general investor sentiment favouring more risky asset classes has recently made the “sell gilts” trade fairly mainstream. We’ve held a cautious outlook for gilts during the past year and have noticed signs of a de-coupling of equity and bond prices, a welcome trend change as it allows us to enhance portfolio diversification and potentially generate better risk-adjusted returns since stocks and bonds constitute the bulk of most investors’ portfolios.”

“On the other hand, it is interesting to see investors putting more money into collectables. Tangible assets can be a popular choice for those looking to diversify their portfolios, particularly during difficult economic times. Certain types of asset such as classic cars have certainly seen significant returns in recent times, but it’s important to remember the risks these assets carry as well.

“They cost money to store, maintain and insure, and one incident such as theft or damage can significantly impact or even wipe out their value. As such, investors should consider them as part of an overall investment strategy, and make sure their portfolio is well-balanced.”