Ferraris, Fine Wines, and the Uncertain Alternative Investments

1957-ferrari-finewine

Ever since Brexit, we’ve seen a couple of articles emerge suggesting this sort of uncertainty will cause many investors to spend more time thinking about investing in “real assets” such as real estate (land), gold, and now…. The cars you dream about and the fine wines you wouldn’t dare drink. Wealth Management is out with an enticing article on Ferrari’s, Cru wines, rare coins, and collectible jewelry “going mainstream” on the heels of ultra-low interest rates and volatile stocks.

And fine wine saw its largest positive monthly movement since 2010 in July with the Liv-ex Fine Wine Investables index, which tracks around 200 Bordeaux red wines from 24 leading producers, up by 4.5 percent. It is up 13.8 percent so far this year, compared with 6.9 percent for the S&P 500 and 8.9 percent for the FTSE 100.

“As a physical asset, fine wine tends to perform well in periods of uncertainty…and is also not linked to the prices of other assets in most circumstances,” said Andrew della Casa, Founding Director of The Wine Investment Fund.

…returns on classic cars jumped 17 percent, coins generated 6 percent while jewellery delivered 4 percent.

But over a five-year period, cars, coins and jewellery returned 161 percent, 73 percent and 63 percent respectively, eclipsing Britain’s FTSE-100 stock index, which was up 15 percent since the start of 2011.

This isn’t the first time these sort of investments have “caught investors’ eyes.” Remember Bloomberg Vomiting Alternative Investments a while back. What’s not to be intrigued by? Bragging to your friends about your newly devote passion into rare sports cars AND it gives you a diversified return!

But, back to reality. We can’t say this isn’t an actual possibility – some people have made solid returns on these types of “investments.” But if you haven’t already thought of the hundreds of downsides to that reality, let’s point out a few:  One, Wealth Management cites indices for cars and wines, while your single investment into a specific car or wine doesn’t mean you’re going to get the same return as index that tracks 200 wines.  If you think hedge fund indices have survivorship and selection bias issues – we wonder what would be found peeling back the curtain on those indices. Two, these aren’t exchange traded futures. And they’re not even illiquid private companies. We’re talking super niche markets here where you have to find a buyer for these things to get a return back. You aren’t likely to see rare Ferraris on the list of most liquid markets any time soon. Finally, none of these articles about these types of investments actually talk about what kind of money you might lose, or how long you might have to wait before the “real assets” you purchase pull out of a drawdown.

Andrew Shirley, author of the Knight Frank Wealth Report lays it out pretty simply:

“You should still only be buying the investments of passion that you will enjoy owning and will give you pleasure even if their value goes down – there is certainly no guarantee that values will continue to rise.

“There is an argument that such investments add diversity to portfolios, provide a hedge against inflation, and unlike equity-based investments, offer a degree of tangibility… but like gold they tend not to generate any income and can also be illiquid, and subject to changes in taste and fashion.”

The takeaway? Only consider these sort of “investments” if you’re at peace that the most you could get out of (car, wine, coin, jewelry) is bragging about it, not because you want it to provide an estimated return for retirement. For that, we recommend reading our whitepaper about the basic questions you should answer about Alternative Investments before investing.

 

 

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  1. […] Collectibles are for enjoyment, not investment. (managed-futures-blog.attaincapital) […]

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Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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