What was meant to be a quick sale of a rare antique turned into a sobering reminder of the hidden risks of so-called alternative assets.
Grande tête mince, a bronze sculpture by Alberto Giacometti, failed to meet expectations at a recent Sotheby’s auction. Industry insiders and art experts estimated that the sculpture was worth $70 million, however the auction failed after the highest bid maxed out at $64.25 million, according to the New York Times.
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This high-profile flop highlights some of the risks of storing wealth in collectibles. On average, ultrawealthy families across the world have allocated roughly 13.4% of their assets to artwork and collectibles, according to Deloitte. However, the market is notoriously opaque and illiquid, which means many of these collectible items might not be worth as much as their owners believe.
Investors looking for an asset that isn’t exposed to the same market dynamics as stocks and bonds have better options than art. Here are three alternative assets that could be more attractive than ancient sculptures or oil on canvas.
Gold
Gold has been around longer than any piece of ancient art and its collectors include central banks and sovereign nations. The market for this precious metal is also much more transparent and robust.
Gold’s reputation as an uncorrelated, safe haven has been cemented in recent months. As President Donald Trump’s ongoing trade war whips up volatility in stocks, bonds and cryptocurrencies, the price of gold has surged roughly 25% over the past six months.
Adding some exposure to this hard asset could be a good idea if you’re worried about economic growth, inflation or interest rate volatility over the medium to long term.
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Real estate
Tangible land and property has strikingly different dynamics than either stocks or bonds. According to an analysis by J.P. Morgan , direct real estate as an asset class tends to have low or even negative correlation with the S&P 500.
To be clear, J.P. Morgan focused on direct real estate deals. An analysis by Guggenheim Investments found that real estate investment trusts (REITs) had higher correlation with the S&P 500. That means if you’re a homeowner or landlord with direct ownership, you’re less exposed to the stock market’s volatility.
You could also consider a crowdfunding platform to get access to niche real estate deals.
Infrastructure
Infrastructure assets such as toll roads, bridges, cell phone towers and airports have many of the same dynamics as real estate. However, these assets are more rare and could have great earnings potential.
According to KKR, private infrastructure assets across the world performed better than stocks and bonds in 2022, when inflation and interest rates were rapidly rising. That makes these assets an ideal “shock absorber” for a typical investor’s portfolio.
If you’re looking to add some exposure to this niche asset class, consider the iShares U.S. Infrastructure ETF or the SPDR S&P Global Infrastructure ETF. You could also take a closer look at infrastructure stocks such as wireless infrastructure manager American Tower, pipeline owner Enbridge or electric vehicle charging operator ChargePoint Holdings.
Pipelines and cell towers might not be as exciting as rare exotic artwork, but they’re likely to be more lucrative and less volatile.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
