More and more retail high net worth investors are holding assets in collectible alternatives such as wine, fine art and classic cars.
Returns have been impressive over the last year in these areas.
High-end art sales worldwide increased in value by 6% in 2018 to $67.4bn (£49.3bn, €57.4bn), the markets’ second highest level in 10 years, according to UBS Global Wealth Management.
Between 2015 and 2018, a portfolio holding fine wine as an alternative asset delivered a higher risk-adjusted return of 8.63% than portfolios that did not include it, according to Cult Wines.
Diversification
Investing in alternatives can be beneficial for investors.
They offer something different to the traditional areas such as bonds and funds.
Tony Dalwood, chief executive of Gresham House, told IA: “Alternative investments should play a part in the portfolio for most types of investors.
“Alongside diversification benefits, they have the potential to significantly improve the overall risk-return characteristics of a portfolio, providing lower volatility total return while also generating a strong income yield.
Art
In particularly, investment in fine art has made some waves.
High-end art sales worldwide increased in value by 6% in 2018 to $67.4bn (£49.3bn, €57.4bn), the markets’ second highest level in 10 years, according to UBS Global Wealth Management.
Michael A. Welti, Head of Zurich and Managing Director of Wealth Management, Reyl & Cie, told IA: “We are seeing more and more instances of art being used as an instrument for asset management purposes, and one that is set to become increasingly important in the future.
“Art is attractive to private investors and has become a definitive asset class that offers new possibilities.
“As an asset that has maintained and will likely continue to maintain its value, art can be considered as a long-term investment with good returns and manageable risk.
“Every investor from each generation approaches art in a different way. Some clients treat art purely as an asset class offering diversification and low correlation with other investments.
“When it comes to using art as an investment vehicle, we have found that there is interest in fixed-income products with works of art as their underlying assets.”
Move from institutional
Outside of traditional alternatives for retail investors, there are also an array of alternatives that have been only available for the institutional space until becoming demanded by the former.
Alternative asset classes that are well covered by asset managers include private equity, strategic public equity, renewable energy, energy storage, forestry, and infrastructure.
Some of these areas have been risky for retail investors and have caused problems including being part of scams.
Gresham House’s Dalwood added: “For retail investors, the vehicle structure through which they access alternative investments is an important consideration.
“The emphasis should be on higher regulated vehicle structures. Focusing on top quartile managers with long term track records who follow a consistent investment process is essential.”
