Roll up and Cash in

Tobacco leaves are humidified at La Corona cigar factory in Havana

Winston Churchill nourished himself with the best on the market while Fidel Castro was rarely seen with out one of the fat Cuban tubes between his fingers.

Cigars. Around 20 billion cigars are smoked each year. But in addition to being a luxury puff for many people, they are increasingly being seen as an alternative investment mentioned in the same breath as wine or art.

Some investors have done very well out of the vintage cigar market. In 2010 a box of 10 Romeo y Julieta cigars sold for £11,500, far exceeding the £2,225 estimate. The box had been originally purchased for £70.

Mitchell Orchant, managing director at cigar merchants C.Gars Ltd, believes the market for premium cigars is worth billions of pounds. Much of the demand for these rolls of dried tobacco leaves comes from Europe and the US. But, as with all expensive branded items, the nouveau riche in China are muscling in. According to research from Market Avenue, the Chinese spend and estimated $335 million (£216 million) a year on cigars, and the industry is growing by around 30 per cent a year. David Dale, head of wealth management at law firm Dickinson Dees, says that in Hong Kong cigars are passed from one generation to the next. 'It is not unusual for a cigar aficionado to possess more than 100,000 cigars,' he adds.

Just as a fine wine is often drunk on special occasions, many of the cigars bought go up in smoke. Daniel Wade at Paul Fraser Collectibles comments: 'If you resist setting light to your investment, you will find yourself the owner of an increasingly scarce commodity over time.'

So how can investors dip a toes into this smoky world and make some money? Buying and selling cigars is fairly easy. It can be done through cigar merchants - online or in shops - or at auction. At C.Gars Ltd, the largest specialist cigar merchant in the UK, buyers and sellers are charged a 12.5 per cent fee on transactions.

Wade says it is important that online buyers check the anticipated delivery time of their cigars. 'Cigars can dry out in less than two weeks if not kept in a humidor - it is vital that your cigars reach you quickly.'

A humidor is a box or room with a specific and consistent humidity level used to store tobacco products. Dale says the right storage is vital for anyone wanting to make a profit from cigars. 'They need love and attention and must be stored at the correct temperature and humidity. Ideally, they should be stored at between 65 and 70 per cent humidity, and the temperature should never exceed 24 degrees centigrade.'

Cigars can be stored at home in a small humidor or with a professional cigar merchant.

In this market, the golden rule is to stick to Cuban cigars. Dale says: 'Only buy the most reputable and highest-quality brands, such as Cohiba. Stick to Cubans with a known history and of limited issue. That should be a good start.'

Another way for investors to enter the market is for them to buy 'UK regional editions', basically boxes produced by a small number of manufacturers in Cuba every year solely for the UK market.

Orhcant says: 'They are limited editions of between 300 and 500 boxes of either 10s or 25s. They are exceptionally high-quality cigars in terms of blend integrity.'

Specifically, he highlights Ramon Allones Belicosos 2004 and Por Larranaga Magnificos 2007. Wade says the PLM cigars were worth around £400 in 2007 but can now make double that at auction.

In addition, the fuller-bodied blends such as Partagas, Bolivar and Punch have 'almost unlimited maturing potential, much like a fine wine', according to Orchant. And Cohiba smokes are ever popular with collectors in the Far East.

The most serious investors - and those with the biggest wallets - will be looking for Cuban Davidoff and Dunhill cigars. 'These two brands are among the strongest in the auction market. Davidoff Perignons could be purchased for around £300 in 1992. A box of 25 from the mid 1980s achieved £6,000 at auction last year,' says Wade.

Experts recommend holding cigars for at least five years. Caveats that apply to other types of alternative investing apply here too: Choose a reputable merchant, ensure the product is the genuine article, and store and insure the product properly.

There is no capital gains tax to pay, as cigars are classed as a wasting asset. For inheritance tax purposes, cigars will be included in an estate at their market value at the date of the owner's death.

Wade reveals one final investment idea: Used cigars smoked by famous names. 'A Winston Churchill half-smoked cigar sold for £4,500 in 2010, 1,185 percent more than the £350 estimate.'

- Interactive Investor

Read the full article here

Return to the Publicity Page