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1、ALTERNATIVE INVESTMENT REPORT04 WHY ALTERNATIVES?05 WHICH ALTERNATIVES FOR THE CURRENT ENVIRONMENT?06 FINE WINES CREDENTIALS 11 FINE WINES IMPACT ON A PORTFOLIO12 APPENDIX 1,2&3CONTENTSCULT WINES|WINEINVESTMENT.COM3A healthy investment portfolio will have a range of assets to target diversified sour
2、ces of return and to provide stability.Increasingly,investors are incorporating exposure to so-called alternative assets into their investment portfolios.Some studies expect alternative assets to grow by nearly 10%per year over the next five years.In this report,we look at the potential benefits of
3、alternative assets and examine how fine wines performance track record and market dynamics make it an attractive option to include in an alternative asset exposure.EXECUTIVE INTRODUCTIONKEY HIGHLIGHTS:Alternative assets are growing in prominence as they offer diversification,hedges against tradition
4、al market risks and enhanced return opportunities.Real assets can be particularly attractive amid expensive equity and bond markets that are susceptible to shifts in government and central bank policy.Fine wines track record of low volatility and low correlation to equity markets make it a suitable
5、option for an alternative asset allocation.The supply-demand dynamics,accessible entry points,and ongoing growth of the fine wine market support its credentials as an alternative investment.CULT WINES|WINEINVESTMENT.COM4cryptocurrencies and non-fungible tokens are also gaining acceptance as viable i
6、nvestment alternatives by wider audiences.The various alternative assets can have very different qualities and investment characteristics but many of these assets often have lower liquidity than mainstream markets,can be traded privately as well as publicly,and might have limited data or verified tr
7、ack records of performance.While these traits bring with them unique risks,the potential benefits of alternative assets can make them natural and important elements of long-term investment planning.HEDGE AGAINST MARKET RISKSAlternative assets different drivers of performance often mean the risks fac
8、ing equities or bonds will not impact them in the same way.This is not to say alternatives are completely insulated from market risks,but their different market dynamics can provide a degree of separation from volatility in mainstream financial markets.POTENTIAL ENHANCED RETURNSAlternative assets ca
9、n offer new frontiers for investors to identify alpha opportunities and boost the return potential of their portfolio.The market for many alternatives is often less developed and less efficient than traditional financial markets,opening the door for selective investors to uncover growth and arbitrag
10、e opportunities.EXECUTIVE INTRODUCTIONWHY ALTERNATIVES?Alternative assets are any asset other than the traditional equity,bond and currency investments.One type covers financial instruments that take alternative approaches to investing such as hedge funds,private equity,or distressed funds.Another c
11、ategory involves real or physical assets ranging from commodities,precious metals,real estate,as well as collectibles such as art,antiques,watches,classics cars and,of course,fine wine.Today,BENEFITS OF ALTERNATIVE ASSET ALLOCATIONS:DIVERSIFICATIONAlternative assets can help de-link an investment po
12、rtfolios performance from the ups and downs of the economic cycle.Traditionally,investment portfolios typically include a mix of equities and bonds,often along the classic 60-40 benchmark ratio.Investors can add diversification through foreign currency assets and by spreading investments across diff
13、erent industry sectors or geographic regions.However,this may not provide performance diversification if the asset classes remain correlated to each other.Alternative assets returns often have lower correlation to the traditional asset classes.CULT WINES|WINEINVESTMENT.COM5ALTERNATIVESThis means the
14、y can be harder to quickly buy or sell.While this does have downsides,reduced liquidity can also provide an advantage by insulating assets from panic selling.While a piece of news can alarm investors to such an extent that a stock or even a whole market can lose a significant portion of its value in
15、 a single day,less liquid assets wont be affected at the same speed or even to the same extent.Inflation is another risk that can erode the real return on any investment.The sharp bond market selloff in early 2021 illustrates the need to provide a hedge against inflation.Although oil and other commo
16、dities are more known as inflation hedges,many passion assets,such as fine wine,can help in a rising inflation backdrop as well.As real assets,collectibles have an inherent value and typically a more stable supply and demand dynamic.Passion assets carry their own set of risks,as they are often less
17、regulated than mainstream markets,have shorter track records or less data available for transparent decision making.They also can require higher entry points than traditional investing.It is of the utmost importance for investors to conduct rigorous research before selecting which alternatives match
18、 their specific requirements.Below,we analyse the potential benefits of fine wine for an alternative investment exposure.The case for incorporating or expanding an allocation to alternative assets is stronger than ever.We believe collectible passion assets can help with many of todays investing chal
19、lenges.Since the global financial crisis(GFC),accommodative monetary policies have propped up equity markets and kept bond yields low or even negative.The COVID-19 pandemic has exacerbated this situation in many ways.Equity valuations are increasingly stretched,despite economic hardship,and increasi
20、ngly concentrated in tech,meaning a mixed equity portfolio may not be as diverse as it first appears.Many real assets form an attractive option in this backdrop as they are less susceptible to changes in economic outlook or shifts in macro policy than alternatives based on financial instruments,such
21、 as hedge funds.Even some real assets,including real estate and commodity prices,rise and fall with the economic cycle,with research showing how global equity,bond and commodity markets have grown more correlated since 2018.Gold,as a perceived safe-haven asset,will also see prices influenced by sent
22、iment in mainstream markets.Additionally,collectible or passion assets are typically characterized by lower liquidity than mainstream markets or even other alternatives.WHICH ALTERNATIVES FOR THE CURRENT ENVIRONMENT?CULT WINES|WINEINVESTMENT.COM6FINE WINES CREDENTIALSThese internal market dynamics f
23、orm the primary drivers of fine wine prices,enhancing its suitability for many of the objectives of alternative asset investing in both the current backdrop and for the longer term.Fine wines main advantages include the following:LOW DOWNSIDE CAPTURE Fine wine returns display remarkable stability co
24、mpared to a range of other asset classes during market downturns.For example,when the COVID-19 pandemic hit in early 2020,fine wines downturn was both shorter and less severe than most mainstream financial assets.At its 2020 low on 21 March,the Liv-ex 1000 had only declined by 4%compared with double
25、-digit losses in most equity markets.Things looked similar during the GFC of 2008-2009.The Liv-ex 1000 dropped roughly 10%from its peak in August 2008 to a low in December.At this point,it began a steady recovery,recouping all its losses by the end of 2009.By contrast,major equity indices plummeted
26、by over 30%.Fine wines more consistent recovery from a shallower dip means it posted a higher total return over the full breadth of the GFC period(see Figure 1).TYPICALLY,THE VALUE OF A BOTTLE OF FINE WINE REFLECTS A NUMBER OF KEY FACTORS:SUPPLY AND DEMAND BRAND RECOGNITION AND PRESTIGEVINTAGE QUALI
27、TY AND VOLUMECRITIC SCORES DRINKING WINDOWRELATIVE VALUEFINE WINES CREDENTIALSCULT WINES|WINEINVESTMENT.COM7Source:S&P,Liv-ex,Bloomberg,iShares.Data as of 31 Mar 2021FINE WINES CREDENTIALS:CALM DURING A CRISISFIGURE 1 Calm during a crisisFine wine and major financial asset performance during GFC and
28、 COVIDLONG-TERM STABILITYFine wine prices demonstrate long-term consistency through a range of market backdrops.The result,illustrated in Figure 2 below,is fine wines notably lower long-term volatility compared to mainstream financial markets and even to other alternative assets,including commoditie
29、s and gold.Fine wines stability stems from its internal supply-demand dynamics.As a real passion asset,demand for fine wine goes beyond its immediate benefit as a financial instrument.This does not mean fine wine is immune to downturns but demand for the product itself,rather than just as an investm
30、ent,can temper price fluctuations.Limited and stable supply levels also provide a steadying influence on fine wine.Only specific vineyards in certain wine growing regions have the necessary qualities and recognition to produce top quality wines.Leading producers make a finite quantity in each vintag
31、e as volumes are strictly controlled by the various Appellations dOrigine Controlee(AOC)in France and their equivalent in other countries.Consequently,supply of fine wine cannot significantly change by sudden shifts in policy the same way government and central bank policies can influence financial
32、markets.-202140.0%30.0%20.0%10.0%0.0%-10/0%-20.0%-30.0%11.1%5.5%Bloomberg Commodity S&P 500 LVX 1000 High-Yield Bond Government BondYearly return%CULT WINES|WINEINVESTMENT.COM8FIGURE 2 Low volatility plus healthy returnsComparison of volatility and annualised return across financial ass
33、ets(2007 Mar 2021)LOW CORRELATIONFine wines low correlation to equity markets adds to its diversification credentials.While this type of diversification is useful amid all market backdrops,it is particularly important during unprecedented market environments when there is no comparison of how market
34、s will behave going forward.Figure 3 shows fine wines lower correlation to the S&P 500 than those of other alternative assets over different time periods going back to the beginning of the GFC.Fine wine also has an inverse supply curve,meaning supply shrinks with time as wine in consumed.This trait
35、distinguishes fine wine from both traditional assets as well as many other alternatives and enhances its stability over long time periods.The negative correlation of government bonds means their price tends to move in the opposite direction to equities,whereas the low correlation of fine wine,especi
36、ally during the recent 2016-2021 period,means its price has little relationship to the S&P 500.Fine wine also exhibits low correlation to other asset classes.See Appendix 2 for details.FINE WINES CREDENTIALS:LOW VOLATILITY,HEALTHY RETURNSSource:S&P,Liv-ex,Bloomberg,iShares.Data as of 31 Mar 2021Fine
37、 Wine Government Bond(7-10 year Treasury)High Yield Corporate Bond Gold Commodity S&P 500-10%-5%0%5%10%15%20%Annualised Return(2007 to 2021)Volatility(2007 to 2021)CULT WINES|WINEINVESTMENT.COM9FIGURE 3 Fine Wines low correlationCorrelation to S&P 500 by asset class(2007-2015 vs.2016-2021)ALPHA OPPO
38、RTUNITIESAlternative assets can offer a new frontier for investors to identify alpha opportunities,and fine wines historic returns highlight how it can raise the return potential of a diversified portfolio.Since the end of 2007,the Liv-ex 1000 has posted a total return of 97%with impressive total re
39、turns over different time frames.FINE WINES CREDENTIALS:LOW CORRELATION*Measurement period is taken from Nov.2007 to Nov 2015 *Measurement period is taken from Nov 2016 to Nov 2021Source:Liv-ex,iShares,.Data as of 31 Mar 20210.900.600.30-030-0.50Government BondsHigh Yield Corporate BondCommodityUS R
40、eal EstateFine WineCorrelation(2007-2015*)Correlation(2016-2021*)CULT WINES|WINEINVESTMENT.COM10FINE WINES CREDENTIALS:LONG TERM GROWTHSource:Liv-ex,.Data as of 31 Mar 2021FIGURE 4 Fine wines long-term growthTotal return fine wine vs other asset classesEquities have seen inflated returns in recent m
41、onths on the back of stimulus programmes and a surging tech sector.However,fine wines ongoing growth potential stems from an increased diversity of supply and demand within the wine market.Helped by improving technology,new producers and regions are gaining attention of global buyers and driving the
42、 overall growth of fine wine investments.In 2020,the best performing regions within the Liv-ex 1000 were Italy,Rhone and Champagne rather than Bordeaux or Burgundy,the traditional heavyweights.Liv-ex has reported March 2021 was its broadest month on record in terms of number of distinct wines traded
43、(1,440),surpassing a record set in November 2020.This indicates that many corners of the global fine wine market have yet to be fully discovered by a global audience,creating opportunities for alpha generation.Fine wines entry point is also accessible when compared with many other alternative asset
44、investments.Investors can gain access to fine wine markets from as little as a few thousand pounds or even less to begin.Other alternatives such as direct property investments usually require a much larger initial investment.Even other collectibles such as art or classic cars come with larger increm
45、ents of investment.Fine wine investments can also bring flexibility.Many other real assets must be sold at once,whereas wine investments can easily be sold in variable size at different times.Bloomberg Commodity S&P 500 LVX 1000 Gold High-Yield Government Bond Real EstateNov-07 Sep-09 Jul-11 May-13
46、Mar-15 Jan-17 Nov-18 Sep-20300.0250.0200.0150.0100.050.0-CULT WINES|WINEINVESTMENT.COM11FINE WINES IMPACT ON A PORTFOLIOFINE WINES IMPACT ON A PORTFOLIOTo take our analysis further,weve created a model mixed investment portfolio.In our view,a mixed investment portfolio can capture benefits of differ
47、ent alternative and traditional assets.Figure 5 below shows that an example portfolio including fine wine(Portfolio E)would have delivered a similar return since the beginning of 2016 to other portfolio mixes.However,the fine wine inclusion would have meant a lower risk level and a higher Sharpe rat
48、io,which is a measure of the average return of an asset in excess of the risk-free rate and relative to its volatility.In short,the higher the Sharpe Ratio,the higher an assets risk-adjusted return.FIGURE 5 Inclusion of fine wine improves risk-adjusted returnsModel portfolio performance 2016-2021POR
49、TFOLIOEQUITYGOVERNMENT BONDSCORPORATE BONDSCOMMODITIESUS REAL ESTATEFINE WINESHARPE RATIORISKRETURNA60%40%0.918.3%8.5%B45%30%25%0.857.7%7.5%C45%30%25%0.628.3%6.1%D45%30%25%0.679.9%7.6%E45%30%25%1.016.4%7.4%F45%30%6.25%6.25%6.25%6.25%0.797.9%7.1%Source:Liv-ex,.Analysis by Cult Wines Ltd.Data as of 31
50、 Mar 2021When it comes to portfolio construction,there is no single formula to build a comprehensive,diversified allocation to alternative investments.Depending on an investors return objective,time horizon and tolerance for risk,the selection of asset class will vary dramatically.We believe the ana
51、lysis in this report demonstrates that fine wine offers many of the benefits typically associated with alternative assets.With more investors seriously considering entering or increasing exposure to alternative assets,we are confident fine wine will generate growing attention from a global audience.
52、CULT WINES|WINEINVESTMENT.COM12APPENDIXAPPENDIX 1 INDICES Government Bonds-iShares 7-10 Year Treasury Bond ETF High Yield Corporate Bonds-iShares High Yield Commodities Bloomberg Commodity US Real Estate-ishares Core US REITAPPENDIX 2 CORRELATION ACROSS ASSET CLASSESAPPENDIXCORRELATION 2016-2021S&P
53、500GOVT BONDCOMMODITYHY CORPORATE BONDSREAL ESTATE FINE WINES&P 500-0.390.580.790.730.07GOVT BOND-0.39-0.43-0.25-0.11-0.17COMMODITY0.58-0.430.670.510.13HF CORPORATE0.79-0.250.670.720.18REAL ESTATE 0.73-0.110.510.720.16FINE WINE0.07-0.170.130.180.16CULT WINES|WINEINVESTMENT.COM13APPENDIXALTERNATIVESB
54、ENEFITS OF INVESTINGCHALLENGES/RISKREAL ESTATE Diversification Relatively stable income returnRelatively low volatility (if holding direct real estate)Substantial initial investmentMismatch between pricing and valuationLimited transactional informationSimilar level of volatility to equity (if invest
55、 in REIT)Involve substantial operational and maintenance feesCOMMODITYDiversification Inflation protectionVolatilityRisk in losing more than initial amount invested(derivatives)HEDGE FUNDSDiversification across multiple hedge fund strategies availableLong-term commitment requiredUnfamiliarity with d
56、ifferent strategiesManagement FeesFINE WINELong-term stability in different macro environmentsLess correlated to equity marketReal assetUnique supply and demand mechanismPossible tax benefits depending on tax jurisdiction and personal situationPossible difficulties securing allocationLiquidity Marke
57、t still in early stage of developmentARTDiversificationPossible tax benefits depending on tax jurisdiction and personal situation LiquidityPrice discoveryLimited market dataPrice realisationUnregulated marketAPPENDIX:BENEFITS AND CHALLENGES OF INVESTING IN ALTERNATIVESCULT WINES|WINEINVESTMENT.COM14
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