Jaded investors turn to options

July 31, 2011 at 12:00a.m.

Chicago Tribune

CHICAGO

With real-estate holdings, savings accounts and the stock market doing little to bolster portfolios in the new millennium, alternative investments are gaining mainstream interest.

The quest to strike gold, or the next hot commodity, has morphed erstwhile pastimes such as wine, art and coin-collecting into legitimate asset classes with their own trading indexes, brokers and specialty funds.

Aficionados and financial pioneers alike are finding some elusive double-digit returns in these less-traditional investment realms. But entry fees can be high and learning curves steep.

WINE

Sparkling returns and increasingly sophisticated platforms have turned fine wine from a cellars market into a seller’s market. Once the province of wealthy collectors, now brokers, wine funds and a global market-index have opened trading to a more egalitarian pool of investors.

With a ticker flashing recent sales, the London-based Liv-ex Fine Wine 100 Index is the industry’s leading benchmark for pricing and trading the most sought-after vintages. Since its inception in July 2001, the index is up 290 percent, crushing the Dow Jones industrial average, which grew about 18 percent over the same period.

The index is composed mostly of French Bordeaux wines — everything from a 2006 Lafite Rothschild to a 1986 Pichon Lalande — and is weighted based on production levels. Wines are removed from the index 25 years after vintage because of scarcity.

“In wine, you really want to be investing in the blue chips. Basically, the top 10 to 20 wines produced in Bordeaux in the best years make the best investments,” said David Sokolin, a third-generation wine merchant and author of “Investing in Liquid Assets.”

ART

Art appreciation is taking on new meaning for a growing number of investors who, drawn by aesthetics and healthy returns, have turned paintings into portfolio mainstays. Though historic returns have been about even, art has outperformed the stock market during the past decade and looks a lot better hanging on a wall than a share certificate.

Specialty funds, consultants and a widely followed tracking index have helped fuel the rise of fine art from collectible of the well-heeled to tradable asset, but it remains a pricey proposition.

Created in 2000, the Mei Moses All Art Index has amassed a proprietary database of 27,000 repeat sales at worldwide auctions to track historic valuations of investment-grade art. The average purchase price across the entire index is $120,410, with a high of $31.4 million. The median purchase price is $12,264.

“We track mature art — we’re not looking at paintings that are sold on the street corner or at an art fair,” said Michael Moses, a retired professor at New York University’s Stern School of Business and co-creator of the All Art Index. “You might find the next Picasso there, and then again, you might not.”

Like most assets, art has had its ups and downs over the years. After returning about 30 percent annually during the late ’80s, the art bubble burst in 1991, with a 39 percent drop in valuations. It took until 2004 to regain the 1990 plateau, according to Moses.

The All Art Index tumbled in lockstep with the economy during the recession, losing 23.5 percent in 2009. Last year, the index recovered with an increase of 16.6 percent, topping the S&P 500 total return, which grew about 15 percent. Through June, the art index has increased 6.2 percent, continuing its modest advantage over the S&P 500 total return, which was up 6 percent.

Though any artwork can appreciate, it takes a track record to quantify returns, making most art-fair purchases highly speculative, said Rachel Edelshteyn, founder of The Board of Investment Art, a 4-year-old, Chicago-based consulting group.

“If you’re not spending $5,000, it’s probably not an investment,” she said.

COINS

Though financial advisers tout complex vehicles for maximizing returns, keeping your money as currency can be a pretty good strategy by itself. Numismatics, the time-honored hobby of coin collecting, has seen annual double-digit returns during the recession, thrusting the studious pursuit into the investment spotlight.

Fueled by the rise in precious metals and an influx of interest, the value of Coin World magazine’s annual rare-coin index increased by 69 percent from 2005 to 2010, including a 10.3 percent gain last year. The S&P 500 went on a wild ride but was essentially flat over the same period.

“Back in 2008, when the stock market lost so much of its value, people were looking for alternatives,” said Beth Deisher, editor of Coin World magazine. “We saw significant money come into the coin market at that time, and it has really built since then.”