In recent years, High-Net Worth's (HNW) and large institutional investors have increased their allocations to alternative investments as part of multi-asset portfolios. Alternative investments tend to fulfil a different role in a diversified portfolio than traditional asset classes such as fixed income, gold or stocks, and their returns were historically found to be less correlated to financial markets performance.
Nowadays, the alternative investment market is broader and includes niche sectors such as fine wine, collectables (coins, stamps, antiques) and art. What was once a unique asset class serving only HNW individuals now serves a broader range of investors. The growing interest in these relatively modern alternative investments is creating new opportunities for retail investors and gaining exposure this asset class has now become easier.
In this report, we will provide evidence and make the case that allocation to alternative investments, and particularly to fine wine, not only can improve overall return of a portfolio, but also increases stability and reduces volatility. Investing in a different mix of alternatives provides different risk/return profiles, with exposure to hedge funds and fine wine combined with stocks and bonds providing the highest risk-adjusted return.
Allocating some alternative investments to an equity/fixed income centric portfolio reflects investors’ need to reduce their exposure to assets whose performance is directly linked to the economic cycle.
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