Fisher Investments UK Reviews Non-Financial Alternative Assets

Based on financial publications Fisher Investments UK reviews, non-financial alternative assets such as art, whisky, wine and collectibles receive much hype for their supposed investment potential – particularly compared to publicly traded securities, like equities and bonds. However, we think these assets offer no investing edge over public securities – and they may have some unique drawbacks that we think investors benefit from being aware of.

Fisher Investments UK has encountered several common opinions about investing in this quirky category – opinions we think gloss over some potential problems. For example, we have seen some commentators argue certain non-financial assets’ value always rises over time due to their increasing scarcity. Take wine, which ages over time – allegedly becoming more desirable and, hence, pricier, particularly as the supply of highly sought-after vintages decreases. Or, consider the work of a deceased artist – which supposedly rises in value amidst limited (and perhaps dwindling) supply of originals that can never be recreated. Whilst there is some logic to this, the theory itself has holes worth considering – as we will explain shortly.

Another opinion Fisher Investments UK has seen is that these assets provide portfolio stability. They don’t tick up and down like publicly traded security prices. Since they don’t have minute-by-minute pricing like public securities, these assets’ values don’t appear to fluctuate – flawed logic, in our view. Furthermore, because these assets are tangible – versus being displayed as a set of numbers on a computer – we have found some investors think they can’t vanish entirely thereby maintaining at least some value (unlike shares of a failed public company).

Based on Fisher Investments UK’s research, examples refuting these viewpoints abound. For one, we have found these non-financial assets’ value can erode, stagnate or fall to zero – like any investment. Take collectibles. When hype surrounding a given collectible fades, we have seen price declines follow. Notoriously, Beanie Babies – the colourful stuffed animals with individualised nametags – once received widespread hype in publications Fisher Investments UK follows. Around the late 1990s, Beanie Babies’ average online sale price reached six times their retail value – with some even fetching six-figure prices (in US dollars) due to their perceived rarity and expectations of higher future returns.ⁱ Now? Most Beanie Babies sell for less than the price of a sandwich.ⁱⁱ Whilst this is one example of a collectible, artists, wines and antiques can also cycle in and out of favour.

Then, too, we think these types of alternative assets don’t provide added stability compared to public securities. These assets’ prices may not move up and down on exchanges – giving an air of stability. But this is because they are illiquid – hard to sell. So, investors can’t get a market price as easily as they would on a publicly traded firm – but that doesn’t mean a price doesn’t exist. For example, the value of an investor’s home isn’t knowable unless they are receiving bids in real time. Like any asset, supply and demand (i.e., a buyer’s willingness to pay) determine a home’s value. Those prices fluctuate whether or not a home owner knows their real estate’s precise value – hence, in our view, any perception of stability is an illusion. Fisher Investments UK thinks the same principles apply to art and other collectibles.

Finally, the theory tangible items can’t disappear like public securities is easily disproven, in our view – real-world items can be lost, destroyed or stolen. One tragic example illustrating this occurred in the UK last year when a robber stole a 72-year-old man’s £5,000 stamp collection whilst he was out walking.ⁱⁱⁱ

In Fisher Investments UK’s view, non-financial alternative assets can expose investors to unique risks. For example, illiquidity reduces the opportunity for price discovery. Whilst public security markets provide prices constantly and broadly, we have found non-financial alternative assets are relegated to much smaller, less transparent markets. This increases the likelihood, in our view, that a buyer overpays or a seller accepts too little (compared to what they could have received from a different buyer), especially if the latter needs liquidity in a hurry. Consider this undesirable hypothetical scenario: someone needs cash to cover an unforeseen life expense, but they struggle to find a buyer – or even fail to sell their asset at all.

Additionally, the lack of transparency tied to illiquidity – combined with relatively minimal, if any, investor protections and legal oversight – increases investors’ susceptibility to fraud, in Fisher Investments UK’s view. One example: after purchasing several casks of whisky between 2020 and 2022, one UK investor discovered his dealer’s valuations were far too high – leading to the investor overpaying. Furthermore, the investor found he hadn’t received proof of ownership of the casks – adding another headache and unforeseen costs.^iv

We have also found owning these types of assets can incur additional costs not associated with public securities. Art ownership, for example, may require insurance, maintenance and storage costs – amongst other expenses.^v Whisky, meanwhile, has tax complexities, including unique taxation rules for cask versus bottled whisky.^vi Whilst Fisher Investments UK isn’t inherently for or against owning non-financial alternative assets, we think investors can benefit by understanding their risks – and conducting thorough due diligence before buying.

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