Viewpoint inVestments of passion
Taste for the finer things
For the right (wealthy) investor, wine, art and other ‘passion’ investments are often seen
as valuable because of their lack of correlation to stock markets. But, as they are proving
to be inextricably linked, how should investors look at these niche investment areas?
“
Wine does have
correlation to the
equity markets but it
is only very low. I am
not saying put 100%
of your money into
wine; no one should
put all of their eggs
into one basket. But
to not include wine,
or not to take
it seriously, is
almost a sin
”
gary West, director, Port funds
by helen burggraf
With the FTSE 100 Index
trading some 32% lower
than it began the year, and
the Dow Jones Industrial
Average more than 5,000
points below its 2007 peak,
it is perhaps not surprising
that even some alternative
asset classes, long touted
for their lack of correlation
to equities, are beginning
to suffer.
Prices for wine and art,
two of the most popular of
the unconventional alternative
assets favoured by
wealthy individuals, have
begun to fall, and few
people in either sector are
eager to predict when the
declines will stop, noting
that the current economic
downturn has consistently
defied attempts by all
manner of experts to call
the bottom.
Although wine and art
industry experts note that
it takes more than even a
hefty financial setback to
cause a Russian oligarch
to switch from Château
Lafite Rothschild to plonk
at his dinner table, or to
begin buying his artwork
at John Lewis, the fact that
the former chief executive
of Lehman Brothers, Dick
Fuld, was among those
selling artworks at Christies
in New York last month
did not escape notice.
Fuld’s consignment
reportedly had been
arranged before the New
York investment bank’s
problems became widely
known, but the executive’s
fame as a result of
Congressional hearings in
October into the Lehman
Brothers collapse made
the fact of the sale of far
greater media interest.
l Short-term loss
The result, say wealth managers
and other investment
experts, is that this may not
be a great time to buy into
what some call the ‘investments
of passion’ category,
which as well as art and
wine includes such arcane
assets as watches, coins,
antiques, and other collectables.
That is unless, they
say, your passion is such
that you do not mind if you
lose money on the deal, at
least in the short term.
“If you are not passionate
and you are considering
entering that space,
I would recommend that
you do not do it now”,
observes Gilles Dard, head
of continental Europe at
the global wealth management
division of Merrill
Lynch, which is said to
have coined the ‘investments
of passion’ expression
a few years ago.
“The wine and art markets
look just as much a
bubble to me as emerging
market equities and
22 PORTFOLIO ADVISER [www.portfolio-adviser.com] DEcEmbER 2008
property did a year ago,”
adds Robert Pemberton,
investment director at HFM
Columbus Partners.
Others are more tempered
in their assessments,
noting that the law of
supply and demand ensures
that certain assets, whether
they be paintings, wine or
antique violins, will always
retain their value because
of their sheer rarity.
There is also a new breed
of rich investor in China,
India and Russia acquiring
a passion for such investments,
they note.
l Relatively unscathed
For now, some say the
declines in art and wine
prices over the past six
months have been relatively
mild compared to
the bloodbath in equities,
real estate and commodities.
Fine art prices are said
to be about 5% off their
levels at the beginning of
the year, while wine prices
at the end of October were
7.5% softer, according to
fine wine index vs mainstream indices
%
150
120
90
60
30
-30
0
-60
Liv-ex 100 FTSE 100 S&P 500 Nikkei 225
*To 31 Oct ’08. **Dec ’02 – Dec ’07. Source: Liv-ex
the Liv-Ex Index (see graph
below). The Liv-Ex is an
industry benchmark that
monitors the price movements
of 100 of the most
sought-after fine wines,
95% of which originate in
Bordeaux, France.
Cynics say asset classes
such wine and art traditionally
lag equities in their
corrections as well as their
recoveries, while experts
in both fields focus on
the fundamentals that they
contend enable them to
endure even when times
are tough.
“If you look back over
the past 20 years, wine has
genuinely outperformed
the FTSE, the Dow Jones
Industrial Average and
gold,” says Gary West of
Port Funds, which manages
the Wealth and Fine
Wine Fund, a fund of wine
funds, among others.
“Wine does have correlation
to the equity markets
but it is only very low. I
am not saying put 100%
of your money into wine;
no one should put all of
’08 YTD*
5-year return**
Gold
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