Seeking first class returns? Try stamps, says Katie Hunt...
Edward Stanley Gibbons began trading stamps from a small desk in his father's chemist shop in Plymouth in 1856, 16 years after the world's first postage stamp, the Penny Black, was issued.
That stamp, featuring a monochrome bust of Queen Victoria, is now worth a small fortune and Stanley Gibbons Group is a listed company on the London Stock Exchange.
The group generated profits of almost £2 million in 2004, as stamp collecting, like other alternative investments such as wine, continued to change from a popular hobby to a lucrative investment strategy.
The 150-year-old firm reckons that the 30 rarest British stamps have on average almost doubled in value since 1999 - a tempting prospect for investors grappling with low interest rates and seeking alternatives to traditional pensions.
For those attracted by the returns but with little philatelic knowledge, Stanley Gibbons has launched the world's first rare stamp investment fund.
"Some people started buying from us who were uneasy about the direct investment," chairman Paul Fraser said in his office above the firm's store in central London.
"The fund is like buying into a unit trust."
The minimum investment in the fund is £20,000 for a five-year period.
Subscriptions close on February 24 and Stanley Gibbons says institutional investors and private banking arms of investment banks have shown interest.
The fund will invest in stamps worth a minimum of £1,000 such as an 1840 two penny blue.
The stamps will be stored in temperature-controlled vaults beneath the London store, which is a magnet for serious collectors and amateurs.
On a typical mid-week afternoon, people seeking valuations arrived in the shop, clutching inherited stamp collections in dogeared cardboard boxes. Enthusiasts picked up magnifying glasses and stocked up on mildew remover.
The Universal Postal Union says stamp collecting is the world's most popular hobby with 30 million collectors.
That number has been boosted by retirees investing in their childhood hobby.
The donation of collections to museums and a growing number of collectors in emerging markets such as China and India has lifted prices.
"The top end of the stamp market has always gone up by ten per cent per annum but when interest rates were above ten per cent it wasn't something you could bang on about," said Fraser.
"Now we have low interest rates and low inflation and stamps are still going up on average by ten per cent per annum. The balance has swung in our favour in the last few years."
Global equities averaged a return of just under ten per cent over the past decade but prices have fluctuated sharply, with a massive rally in the late '90s followed by a slump in the first years of this decade.
A Salomon Brothers study of assets between 1907 and 1990 in the United States said rare stamps gave the fourth highest yearly rate of return at ten per cent. Bonds recorded 9.6 per cent.
Stamps, the world's most valuable commodity by weight, are just one of a number of exotic investments gaining popularity. Wine, art, antiques and autographs are also finding favour as traditional investments lose their allure.
"The bottom line is if it doesn't work out, the best you can do is to burn your share certificates to warm yourself up. But with wine, if it doesn't work out, you can drink it," said Sam Fazeli, a London-based investment banker.
He said 20 per cent of his personal investments were in fine wines such as Domaine de la Romanee-Conti, a red Burgundy.
However, analysts say quirkier assets have peculiar risks. Wine or stamps are not traded on a formal exchange, which could make a quick sale tricky.
Nature can also intervene. One stamp collector lost his £250,000 pound collection in an Australian bush fire.
"It is not for the man on the street with their first savings," said Richard Purkis, a director at Stanley Gibbons.
"It is for sophisticated savers looking for diversification."
Alternative investments, particularly wine, were given a lift last year on expectations that a reform to British pension rules would enable investors to put a range of assets, including exotic investments, in a self-invested pension plan (SIPP) and qualify for pension tax relief.
But last month, Chancellor Gordon Brown decided against allowing the tax break.
Exotic investments will now be excluded from SIPPs although Stanley Gibbons said its rare stamp fund would still qualify.