Alternative assets: Fine wine vs. Art 

Fine wine continues to provide safe alternative diversification, as suggested by the global investment manager Cult Wines, who says the asset investment provided less volatility and better risk-adjusted returns in the last year than other alternatives.   

It has been offering higher returns for the last ten years, from 2009 to 2018, where it delivered a stronger performance of 9.2 per cent, while other categories like commodities delivered a return of -13.8 per cent and hedge funds delivered  -4.8 per cent. 

• The asset performed well when the other areas were negative. 

• Even during the recession, wines continued to outperform and remain almost stable.  

• Since this remains one of the top choices of investors, scammers are offering lucrative deals related to such categories. 

• In the UK, at least five men were collectively sentenced for defrauding £1m from investors last year. 

• Alternative asset allocations offer mixed results with a low correlation to other assets. 

• Art continues to grab the attention of millennial buyers participating in auctions, fairs, and exhibitions and talking about such assets. 

• The report by Art Markets shows the number of wealthy buyers contacting art dealers, auction houses, and fairs has increased in the last few years. 

• Some private banks are helping wealthy investors get a rare collection.  

The study by Knight Frank finds more than 50 per cent of the collectors in the top 200 belong to the US, where the recent tax changes by the Trump administration led to the removal of art as assets from the 1031 exchange, and this will make the collectors defer capital gains tax by avoiding the exchange of art. 

The modification in taxation will make the older investors hold the artwork, pass it on to the next generation, and avoid a sale to prevent 28 per cent capital gains bills. 

How to recognize the most profitable work?

Auction houses have been promoting exceptional artworks. Christie and Sotheby’s made high-value sales in the sector, whose recent announcements suggest that wealthy collectors are still interested in selling some artworks. 

Original artwork with oil paintings can get higher values than those made in editions or photographs. The scarcity of work raises the demand and value in all investment categories. 

Some investors buy a piece principally for the sale of history or due to the name associated with the piece, but the trends are now changing, and the new rich buyers are seeking new styles. 

Some buyers exhibit the piece of art at museums or exhibitions that can increase the value of the work. Especially the ones in good condition exhibited widely can get a strong reputation in the secondary market. 

Investors should know there are many scammers in this sector. Some small private institutions make use of the market to sell fraudulent schemes. 

Recently, two firms- one in Birmingham and the other in Blaenau Ffestiniog were identified to be involved in abusing at least £1.4m investors’ money into such schemes where the investors were not able to identify the exact nature of the business and were misled or bullied into the schemes.