US markets are hurting, and investors are panicked.
Stocks have entered a bear-market territory as recession fears gained steam. Inflation rates remain at 40-year highs, interest rates are increasing, geopolitical chaos and supply chain kinks still loom and major CEOs are warning of an economic “hurricane.”
But not all economic downturns are the same, and luxury markets somehow remain afloat. Savvy investors are now looking at alternative assets like wine and art as ways to keep their money invested in appreciating assets during tough times.
Fine wine has a compound annual growth rate of 10% over the last 30 years, according to the Liv-Ex investables index which tracks the going rates for fine wines. It also has a fairly low correlation to the stock market, making it a valuable hedge against swings in stock prices. Physical assets also tend to withstand inflation fairly well.
The Liv-Ex index shows fine wines gained about 10.3% in value between January and June. During the same period, the S&P 500 fell more than 13%. In 2008 during the fiscal crisis, the S&P 500 fell by about 39% while wine prices declined by less than 1%. Plus, you can’t drink shares of Apple.
Traditionally alternative assets should make up between 5% and 10% of an investor’s portfolio, said Atul Tiwari, CEO of wine investment firm Cult Wines Americas, “but the traditional 60/40 portfolio isn’t performing well right now and we’re seeing clients who are upping the amount that they’re putting into alternative assets because they tend to be great diversifiers.”
Cult Wines advises, purchases, stores and sells fine wine on behalf of investors looking to get involved with a minimum investment of $10,000.
“There’s only a finite amount of investment-grade wine produced every year and through consumption, that amount decreases over time,” said Tiwari. “In the case of fine wine, with more countries becoming wine drinking cultures, as well as wealth being created around the world, the demand keeps increasing.”
Supply chain issues only increase that demand, said Tiwari. Champagne increased in value by 41% in 2021 in part because people were so worried it wouldn’t be delivered to wine shop shelves, he said.
The world may be focused on NFTs but the collection of physical art is still a popular bet for wealthy investors. The entrypoint for fine art, however, is a lot steeper than it is for wine and other alternative assets.
Historic analysis finds that the art market does have some correlation to the stock market, but there tends to be a six to 18 month lag. For example, the 2007-2008 recession didn’t begin to hurt the art market until 2009, said Masha Golovina, director of market analysis at Masterworks, a marketplace for blue-chip art investment. “This decline occurred just as stock prices were beginning to rebound.”
Art prices also usually fall less than stocks. Between 2007 to 2009, auction prices on art fell by about 27.2% while the the S&P 500 fell 57% from its peak, according to data from MeiMoses.
Citi has calculated a correlation coefficient of 0.12 between art and the S&P 500 Index, which is relatively low, and Masterworks estimates that there’s been a 13.8% annualized appreciation of fine art between 1995 and 2021.
Another item that generally retains its value during economic downtimes is a high-end watch. At the height of the Great Recession in 2008, watch auctions for the year totaled $83 million, up from $55 million in 2007. Watch prices also surged in the months after September 11, 2001 and the economic downturn that followed, according to analysis by Sothebys.
Demand and prices for both Rolex and Patek Philippe watches have grown significantly since inflation has reached a 40-year high, according to the watchmakers.
It’s important to be careful when getting involved in new assets that are surrounded by hype. Beanie Babies were once seen as a surefire way to make millions after all.
But sports card trading has been on the rise in recent years. More than $871 million worth of sports cards were traded on eBay in the first quarter of 2021 alone, according to the online retail platform. In total, eBay reported a 142% rise in trading card sales in 2020 over 2019.
Collectible card games like Pokémon also saw sales increase by more than 500% over the same period.