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Investing in whisky yields an average annual return of 17.52%, outperforming traditional assets such as the S&P500.
Gertjan Verdickt’s research suggests adding collectables such as whisky and Lego can reduce portfolio risk.
Alternative assets are less liquid and regulated, requiring long-term commitment and knowledge.
University of Auckland finance lecturer Gertjan Verdickt has released new research into alternativeinvestments, including Lego, instruments, classic cars, wine, whisky and baseball cards.
It is co-authored by Jürgen Hanssens, a senior manager at KPMG in Belgium.
If you are an investor trying to get the best return, you might be better off putting your money into whisky than the sharemarket, a new book suggests. Photo / 123rf
Verdickt said he wanted to help people navigate the markets.
“I’ve noticed that a lot of people, especially since the pandemic, are moving away a bit from traditional assets and are looking to what is called alternative assets.
“Therefore I was wondering, if you take wine for instance — that resembles a lot of traditional assets such as corporate bonds, there are a lot of similarities … Why are these wine prices moving over time?”
He said he started collecting data sets with more than 4 million observations that tried to pin down that question.
“I started off with wine and from wine came whisky and then the same actually applies to art, to watches, to handbags.”
Of all the investment options, whisky came out on top with an average annual return of 17.52% over 10 years to 2022. In second place were baseball cards, which posted an average annual return of nearly 13% between 1987 and 2023.
The S&P500 has returned just under 12% a year over 20 years.
Verdickt said the wine returns included every country in which wine was traded.
“For others, we mostly focused on the US perspective and compared it with US stocks, which were one of the best markets across the world.”
"If a wine has a higher rating, it has a better return", says University of Auckland finance lecturer Gertjan Verdickt. Photo / 123rf
Research suggested adding collectables such as whisky, baseball cards, or Lego to an existing stock portfolio could reduce overall portfolio risk, he said.
Verdickt said alternative assets could be less predictable and harder to understand.
“There are some themes which are very clear, if a wine has a higher rating, it has a better return. If it’s closer to maturity, it’s a better return. Stuff like that is somewhat predictable.
“For jewellery, we say there’s a difference between a ring and a diamond. A ring is something that you have to like its style, there’s a lot more volatility in that sense relative to a diamond you can use for so many other things.”
He said he would expect those returns to continue.
“We went back a long way to get boom and bust cycles. Whisky gives on average 17% but does that mean next year will be 17%? No. But moving forward it’s still going to be the best-performing asset for the reasons we highlight. There are not a lot of whisky-producing countries in the world, not a lot of supply but there is demand.”
While passion investing could be lucrative, Verdickt said it was also less regulated than traditional markets, increasing the risk of fraud.
Verdickt said the assets were also a lot less liquid.
“Unlike stocks, which can be sold at the click of a button, luxury assets are illiquid. A work of art is resold only once every nine years on average. Wine appreciates over decades. These are long-term investments that demand both knowledge and time.
“If you want to sell your asset right now, forget about it. It takes time.”
He said Lego was more accessible and required less upfront capital. It was also more liquid because demand was high.
Verdickt said people needed to be aware of how fashion and trends could influence their investments, too.
“What is the best-returning art is the more timeless pieces, the pieces with more story, historical stuff. Rather than the new hip artist that maybe generates a nice return in the short run but not so much from a long-run perspective.”
He said there was a blurry line between consumption and investment in some asset classes.
“You can wear your watch, you can use your handbag, you can use your Lego. The value doesn’t drop to zero ... that is something people should know. If you have a Lord of the Rings figure, one of those orcs that sold for a retail price of $16. If you use it it’s worth $25 now but if it’s in perfect condition it’s $36. Both have a positive return but there is a huge difference.”
