Last year’s stunning falls in equity markets will not be forgotten for many years, and this has perhaps left investors more open to alternative forms of investment. But while prolific art and wine investors may be familiar figures within wealth management, other, less traditional types of collectibles are increasingly coming to the attention of wealth managers. Stamp collecting, or philately, is increasingly popular in Russia, India and China for example, and internationally some impressive sums are changing hands: one stamp recently sold by prominent US businessman and philatelist Bill Gross fetched $260,000.

But as Baird points out, collecting is a very common pastime and, even at the lower end of the scale, collectibles can rapidly rise in value to be worth thousands of dollars to comprise a significant part of clients’ net worth. But most significantly Baird’s research has revealed that over recent years collectibles have performed favourably against both stocks and bonds, and displayed better risk/return characteristics than equities for the same period – findings which would seem to justify collectibles being given a much more prominent place in clients’ wealth management strategy, even where there is no “passion” involved in collecting.

For its study, “Picasso, St. Gaudens or Lafite: Does Passion have a Place in Wealth Management?”, Baird compiled a basket of collectibles based on indices representing the historical performance of wine, art, coins and stamps between end-2001 and mid-2009. Over the period, Baird found the collectibles basket returned 6.6 per cent on average versus just 0.32 per cent for stocks, and with 55 per cent lower risk. The average return for the collectibles basket was also higher than that for bonds, which returned 5.1 per cent. Although, Baird also points out that the risk presented by the collectibles basket was 117 per cent higher than bonds.

In addition to attractive potential returns, Baird’s research also suggests that collectibles may also act as a good inflation hedge, meaning that they could be a good diversifier in an overall wealth management strategy. But before rushing into collectibles, Baird cautions investors to consider several potential downsides, not least the fact that a lack of reliable benchmarks and accurate valuations may make it very difficult to develop a precise asset allocation strategy incorporating collectibles.

Collectibles’ general lack of liquidity is a further concern, as is the fact that they may add risk in the form of price volatility. Potential returns must be also be weighed against costs such as insurance, auctioning commissions, storage and authentication, Baird cautions, and such risks suggest that collectibles should form a only small part of clients portfolios.

With all this borne in mind, Baird is of the view that collectibles should be treated in the same vein as hedge or private equity funds, with exposure be limited to around 10 per cent of clients’ total wealth. In this way, clients can make the best of their passion investments without incurring undue risk.

“While most people start collections for very non-financial reasons, treating them like other assets can maximise their potential returns and help collectors follow their passions for years to come,” the firm said.