While investors may remember playing with LEGO during childhood, it’s unlikely they’ve ever thought to include it in their portfolios.

However, LEGO could possess some genuinely attractive defensive properties as an alternative asset class, according to a paper by researchers at the University of Northumbria at Newcastle.

“People have been collecting rarities and luxury items for centuries, turning mere tokens into legitimate asset classes traded on large-scale secondary markets,” the paper said. “High-net-worth individuals globally enjoy the opportunity to transform their hobbies into a source of capital gains in the long term.”

As it stands today, LEGO has a secondary market with participants from 95 countries, engaging in 90,000 transactions over the six-month period between September 2018 and March 2019, with transactions exceeding US$7.5 million.

The paper noted a 2018 study that examined the performance of 2,322 LEGO sets between 1987 and 2015. It found the sets yielded an eight per cent average annual real return. However, this could represent a somewhat inflated return given the methodology, the paper added. “Presumably, there have been sets that are not currently being traded due to low or lack of collector value, and thus the estimations that disregard this effect will suffer from a form of survivorship bias, exaggerating the magnitude of LEGO returns.”

Perhaps unsurprisingly, there is little other literature to contextualize LEGO’s potential as an alternative asset, the paper noted. However, there is considerable research regarding other rare and precious items, such as wine, violin or gems, that can serve to contextualize LEGOs’ potential.

LEGO has a number of features which distinguish it from other physical alternative asset classes, the paper said. For one, unlike fine art, LEGO isn’t at a substantial risk of being counterfeit.

Much like other such alternatives, LEGO sets show significant lack of correlation with movements in other asset classes. “Older sets are also enjoying higher returns, demonstrating a liquidity effect,” the paper noted.

But of course, not every set is created equal. There are certain sets that aren’t traded at all, since they’re no more valuable than their face value as a toy.

“Overall, LEGO sets are an emerging asset class with attractive returns, substantial defensive properties and significant diversification benefits,” the paper said. “Collectible-savvy investors can ultimately consider including LEGO into their portfolios to enjoy a substantial improvement in sharpe ratios.”