A recent article entitled ‘Alternative Profits’ published by the Investors Chronicle looks at including alternative assets alongside more traditional investments when portfolio planning. Casting an eye over a number of ‘alternatives’, the article comments on some of the characteristics peculiar to ‘treasure assets’ such as art, fine wine, rare coins and stamps alongside investing in financial assets wrapped around resources, such as water, which, it observes, are being ‘commoditized’ on the forecast of growing scarcity. EIS and SEIS investments are also considered, as are opportunities that have arisen out of the development of new ‘disruptive’ technologies which change money flow through peer to peer platforms and crypto-currencies.
The Investors Chronicle Companies team are joint authors of the article which acknowledges that the magazine’s traditional focus on the most widely and easily traded assets (equities, funds, bonds, cash and property) does not capture ‘the entire investment universe’. They point to a Knight Frank Wealth Report survey, which found that approximately 12% of the wealth of the Ultra High Net Worth Investors represented was invested in ‘treasure’ assets and collectibles.
It noted that “investors shouldn’t discount an asset that doesn’t provide a financial yield’, or dividend, and that a study undertaken by Philippe Masset and Jean-Philippe Weisskopf in 2018 found that ‘post war classic European cars and cases of Bordeaux outperformed equities, fixed income, real estate and gold in the period between 1998 and 2016.’
Costs associated to investments in some alternatives have to be taken into consideration. With some there is a lack of price transparency and challenges determining the right value for unique items. Reliance on auctions to secure buyers tends to result in higher transaction costs and this is very apparent with Art and other rare assets. But technology is opening up some markets to the average investor and platforms such as Liv-ex have contributed significantly to secondary market strength, liquidity and accessibility for average investors.
The article comments that “the very existence of Liv-ex – which describes itself as the global marketplace for the wine trade, with more than 440 members worldwide, is indicative of the appeal that fine wine investment can hold. With the right research and knowledge, it could, perhaps, constitute an interesting ‘pairing’ to other portfolios.’
Investment term is an important consideration and investors in fine wine should generally consider a five to ten year hold to optimise returns. Other considerations include specialist storage of the wine to ensure the perfect conditions to protect quality and value and beneficial tax treatment. VAT and Duty are not chargeable whilst the wine remains in bond and Capital Gains Tax does not generally apply to any growth in the value of fine wine at sale – but advice should be sought from a professional advisor.
For more information on investing in fine wine, download our Guide to Collecting and Investing in Fine Wine, read our specialist market reports and call us on 0203 384 2262. Subscribers to Investors Chronicle can read the article in full: https://www.investorschronicle.co.uk/asset-allocation/2019/09/26/alternative-profits/