Time to take profits in alternative assets

By Senior Writer Jody Clarke Aug 29, 2008

Jody Clarke

Stockmarkets are down, commodity prices easing and property in freefall, but alternative assets are still attracting buyers. Prices for fine wine, fine art and collectables just keep rising. The Mei Moses Fine Art Index, for instance, was up 20% in 2007, against a 5.5% gain for the S&P 500. The Liv-ex 100 Index, which tracks bottled wine prices, is up 9.5% over the past 12 months.

But now's the time to take profits on any alternative asset funds you hold, because it can't last. The trouble with assets like fine wine, art and stamps, is that unlike property or stocks, they don't produce any income. So if you buy them with the aim of making money, rather than for pleasure, you're relying purely on capital gains. Prices for collectables are affected on the supply side by scarcity, but more important in setting prices in recent years has been the demand side – the amount of money chasing them.

For example, with money flooding into wine, even a weak review from top wine critic Robert Parker hasn't hurt the price of the 2007 Château Lafite Rothschild en primeur, says The Economist. Despite scoring a "relatively low 90-93 points out of 100", cases still went for £2,500 each. Three years ago, when he gave the same wine a similar score, cases fetched just £950.

But this investment money is likely to dry up as the global economy turns down. As Ben Yearsley of independent financial adviser Hargreaves Lansdown tells The Independent, "buyers of alternative investments, especially at the top end, are more often than not spending City bonuses," which are vanishing as the credit crunch takes its toll. That means the wealthy Chinese and Russian buyers who are often credited with cushioning these markets will have fewer rivals to bid against. And as their own economies slow, there may well be fewer wealthy emerging market entrepreneurs with the money to spend on prestige wine labels and trendy artists.

Some niche areas are already suffering. Ted Owen of celebrity memorabilia auction house The Fame Bureau, tells Bloomberg that while "demand for the rarest things is still very strong... the middle market is more difficult." Yet London's Marquee Capital, which invests in pop memorabilia, with a "strong focus" on Madonna, is planning to launch a structured investment fund "early next year", according to the newswire. Meanwhile, Anchorage Capital Partners is trying to raise more than $100m to invest in vintage guitars. This looks a sure sign of a market top. By all means buy a pointy bra or a Fender Stratocaster to hang above your mantelpiece. But don't put them in your pension.

Published in Investments | More articles by Jody Clarke

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