The Performance and Potential of Investment Watches: A 2020-2022 Review

The Performance and Potential of Investment Watches: A 2020-2022 Review
ROLEX, STAINLESS STEEL CHRONOGRAPH 'DAYTONA' WITH PAUL NEWMAN DIAL, Source - Christie's

Investment Performance and Volatility

Fine watches have proved to be a classical store of value with low volatility and limited draw downs, with average single-digit returns. These investment assets have offered consistent inflation protection, especially wristwatches. Rolex collector watches have outperformed with an additional 8% return, while the annual returns of the brand increased by 33%. Watches and jewelry are regarded as low-volatility assets, with fluctuation rates between 2.5% and 5% annually and low draw downs, resulting in annual returns of 4.5%–6.5%.

Rolex as an Investment

Rolex watches, in particular, have boasted impressive information ratios, with values exceeding 200%, meaning the average annual return of 10% is double the usual fluctuation range of 5%.

Pocket Watches

Pocket watches have been the clear under performers, with a less compelling information ratio (below 100%), potentially due to a smaller collector group, thus narrower demand.

Sociocultural Significance

Fine watches and jewelry play a significant role for Ultra-High-Net-Worth Individuals (UHNWIs), constituting part of their assets. Beyond being an investment, these items carry cultural and historical significance, social status symbolism, and physical markers for important life events. They offer value storage in times of uncertainty, demonstrating the enduring importance of watch and jewelry collecting in wealth discussions.

Impact of COVID-19 on the Watch Industry

The watch and jewelry industry, like other sectors, has been impacted by COVID-19. Supply shortages due to mine closures led to significant price increases for gems. However, pre-pandemic trends have gained momentum, including an enhanced sustainability focus by the industry, increased Asian demand, iconic brand collaborations, and digitization.

Role of Branding and Innovation

The importance of brand has grown exponentially in the watch world, with growth primarily in luxury and ultra-luxury brands. Brands like Richard Mille have utilized brand heritage, narrative, and innovation to expand their consumer base. Mille's focus on techniques borrowed from motor racing and aeronautics led to impressive watchmaking technology and a highly recognizable design. Collaborations with high-profile personalities and an emphasis on customization and exclusivity have further bolstered the brand's appeal.

The pandemic has influenced the way watch brands interact with consumers, moving towards direct-to-consumer sales, non-physical store client relationships, and transforming physical spaces into experiences. Brands have also learned to control volumes to create exclusivity. The pre-owned watch market is one of the fastest-growing sectors, with Christie's breaking its record for online watch sales thrice in 2020.

Success in the Pre-Owned Market

Patek Philippe remains one of the most successful watches in the pre-owned market, with its brand history, marketing, exquisite watchmaking, and iconic design fueling demand. Modern watches' exclusivity has fueled the pre-owned market for watches like the Rolex sports models.

Vintage Watches as Investments

Vintage watches can be a strong investment platform, but they require extensive information and education to identify investment pieces, spot fakes, and understand the importance of the condition of the watch.

Asset Management

Collecting watches requires proper upkeep and risk management. Watches need special attention, from keeping automatic watches on winders to servicing and maintaining their water resistance and strap conditions.

This report confirms the resilient performance of investment watches during 2020-2022, highlighting their value in both financial and sociocultural terms.

Sources

Collectibles amid heightened uncertainty and inflation | Deloitte Luxembourg | Art & Finance
This initial report aims to provide an overview of some of the most popular collectible assets fueling investors’ imaginations over the years.

Read more