Alternative Investments in the coming Decade

Over the past decade when equities put in their worst performance since 1930 and where government bond yields have been at their lowest for a generation, certain assets have very much bucked the trend.

Joe Roseman, an economist, analyst and writer, calls them the SWAGs, which stands for silver, wine, art and gold. Despite major economic headwinds – like the bursting of the internet bubble in 2000 – 02, the US sub-prime crises in 2007/08 and now the emergence of a sovereign debt crisis in Europe – they have put in superb price performances. The Liv-ex Fine Wine 100 index, for example is up around 250% over the decade whereas the FTSE all-share index (and the S&P 500) stands at almost the same level as a decade ago.

If held within a portfolio, fine wine would have provided a tremendous boost to a portfolio mix of only equities and bonds. Therefore we believe it makes a lot of sense as part of your investment portfolio. The question is why have those assets performed so strongly? One way of looking at this question is to identify the common traits of these assets.

What do they all have in common?

• They are all physical and have longevity; Chateau Lafite will last for 50 to 100 years.
• There is a ready market of exchange and demand is international.
• They are transportable and easy to store.
• Their performance seems relatively uncorrelated to equity markets.
• There is scarcity – a finite supply.

Another important feature is that each of these assets is not only open to institutional investors but very much to small investors as well.