Whisky, Art, and Farmland: Alternative Assets in Retail Portfolios
Stock Analysis & Ideas

Whisky, Art, and Farmland: Alternative Assets in Retail Portfolios

Story Highlights

Alternative investments are exploding in popularity, with retail investors joining the previously closed club catering to institutions and the ultra-wealthy. The rise of fintech innovation enables individuals to invest in assets that are uncorrelated with global markets, harnessing their potential ability to stem volatility and increase income.

Major global stock benchmarks – the S&P 500 (SPX), the NASDAQ, STOXX Europe 600, MSCI EM, and MSCI ACWI – have all tumbled by double digits since the beginning of the year. Meanwhile, bonds don’t offer any salvation from the stock market bloodbath, as they have been selling off as well. It looks like there’s no place to hide for retail investors, at least in the “traditional” markets. No wonder more and more retail investors are searching for ways to enter the alternative investments sphere. 

Alternative Democratization 

Alternatives have been a popular diversification route for institutional investors and high-wealth individuals for years; institutional investors allocate between 10% and 20% of their portfolios to alternatives. Now, thanks to rising demand, they are becoming more accessible to individual investors. Not only are the means of investing in alternatives expanding, but the alternative universe itself is much wider than it used to be just a few years ago.

source: Altsgomainstream

Formerly, alternative investments meant either hedge funds, real estate, or private equity; now, they also include managed futures, venture capital, structured non-OTC products, e-sports, cannabis, cryptos, crowdfunding, P2P lending, collectibles, art, alcohol, third-party funding, NFTs, and more. The increase in the number of alternative asset classes demands the expansion of access to retail money that would flow into them, and that’s what we have seen in recent years, with an understandable boost in interest following the 2022 bear market in traditional public assets. 

Uncorrelated with the Fed and Inflation

Traditional assets are dependent on the movements of global markets, which are influenced by macroeconomic and geopolitical factors. Alternative assets have little or no correlation to stocks and bonds, which makes them attractive to investors, specifically in times of turmoil. Even in “normal” times, alternatives often have higher return potential than stocks and bonds. 

Source: JP Morgan

On the other hand, “alts” aren’t publicly traded, which may make them less liquid and transparent. Alternatives often require higher minimum investments and cost much more to manage than traditional investments. Alts might involve the use of leverage and complex investment structures, which may pose higher risks to investors. Besides, while alternative investment returns are less influenced by general market trends, they are determined by the inherent strength of each investment, which makes understanding, analysis, and valuation even more important than with traditional assets – making for another entry barrier to the unsophisticated investor. 

According to the latest report published by Preqin, the alternatives data and research firm, alternative assets’ assets under management (AUM) are set to reach $23 trillion by 2026, up from $13.3 trillion at the end of 2021, with retail interest fueling the next wave of industry growth. The CAIA Association (an organization of alts analysts) predicts that alternative assets will make up 18% to 24% of the global investment market by 2025. A lack of products tailored for retail participation has been one of the key barriers up until now, but that is beginning to change as the industry innovates.

This innovation in the investment universe, like many others, is led by financial technology, aka the global fintech industry. The fintech advancement provides the solutions to many of the caveats of investing in alts, such as costs, transparency, analysis, etc. Now, technology-enabled platforms are giving individual investors access to the kinds of alternative investments that were previously only available only to institutional and high-net-worth individuals. 

Investing in a Piece of a Masterpiece 

These platforms offer transparent alts investing through multiple channels, including alternative funds of funds open to the retail public with fractional investment options;. Many of them solve liquidity issues by providing access to the secondary market. Besides, Fintech firms disrupt antiquated processes of the traditional financial industry, leveraging new digitalized and scalable technologies that allow a new level of efficiency, significantly reducing costs and increasing transparency.

While crypto-asset platforms such as Coinbase (NASDAQ: COIN), Binance, and others are widely known, at least by name, other types of alt-platforms are often flying under the radar as there are regulatory restrictions on private asset advertisement. However, for an investor searching online, there would be no difficulty finding a platform for almost any asset they can think of. 

Some platforms are designated to a specific asset, and some offer a wide range of alternatives (pun intended). 

For example, for investors looking to diversify into alcohol investments, there are platforms such as Vinovest or Whiskeyvest, which offer individuals passive portfolio access to the world’s finest wine or whisky. There are platforms like Collectable, allowing anyone to purchase fractional shares of some of the most iconic items in sports history, or the PWCC platform for sports trading cards. By the way, it’s not only fun for fans but also a profitable investment, as the PWCC 500 index has outperformed the S&P 500 since 2008. 

There are platforms facilitating individual investor access to farmland, such as FarmTogether, which offers crowdfunding investment in agricultural real estate. Other platforms, such as DiversyFund, let retail investors participate in REITs with much lower initial investment amounts than traditional real estate trusts.

For art lovers, there are ways to buy shares in masterpieces on the platforms such as Masterworks and potentially make money, too, as contemporary art prices have appreciated yearly at over 14% since the nineties. Or, investors can trade in even more contemporary art pieces – the NFTs – on OpenSea or other digital art asset platforms.

For gold bugs that don’t appreciate the gold ETF’s performance, there’s even a platform for investing in physical gold called Vaulted.

Besides that, there are digital platforms where investors can crowdfund startups or fund someone’s small business. Or, they can lend to companies or individuals for interest. 

Source: Nomura Connects

Diversify Like A Millionaire 

In addition to the vast number of designated platforms, there are also those offering exposure to a number of assets. For example, Yieldstreet offers a variety of individual deals covering assets like cryptocurrency, artwork, private equity, real estate, and structured notes; the platform also has a fund holding these assets and offering shares to retail investors.

There are even sorts of “funds of funds” for alternatives that fit retail investment capabilities. As an illustration, the Hedonova hedge fund offers access to platforms trading in startups, NFTs, emerging markets, real estate, art, cryptos, and many more types of assets, through its diversified portfolio.

source: Hedonova

Alternative assets allow investors diversification, inflation protection, and income that is independent of stock and bond market trends. Different types of alts offer different returns, which don’t always fully correlate with the level of risk taken by investors. As with traditional investments, it is highly necessary to understand and evaluate these risks. However, in times like these, it may be worthwhile to assign a part of your investment portfolio to assets offering some kind of buffer to the stock markets’ tantrums.


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