20
Mar

By Diego Sánchez de la Cruz, IE Master in International Relations Alumnus

 Diego-SDLC2013.jpg(1)Since the beginning of the Great Recession, uncertainty and volatility has spiked interest in safe haven assets. This “flight to quality” does not respond to short-term concerns, but rather to serious doubts about our economy’s fundamentals. Currencies are at the center of this crisis of confidence, as paper money shows its inability to maintain its value over time.

 If we measure the evolution of the euro throughout the last decade, we can see that the European currency has lost almost 80% of its original value. Similarly, while the price of oil in dollars and euros has skyrocketed over the last decade, the pricing in gold has remained constant. Hence, instead of obsessing about the euro/dollar relationship, we take a broader approach and acknowledge the fact that paper monies keep losing value year after year.

What safe haven assets can help investors avoid such destruction of wealth? Of course gold and commodities are the first examples that come to mind, but other creative alternatives are also available. For instance, the wine marketplace has seen yearly gains of 15% since 2000, and its strength has grown larger through the on-going crisis. Global demand for wine keeps growing at a faster pace than the industry’s supply capabilities, which assures rising prices. Specialized investment boutiques are certainly taking advantage of the wine boom: Spain’s March Vini Catena has accumulated a profitability of 36% since 2009.

Artwork has also become a serious alternative for nervous investors. Yes, it is illiquid, it carries large transaction costs… but picking the right art works can yield very large returns that stand the test of inflation. The industry certainly has had its share of ups and downs throughout history: leading art auction firm Sotheby’s suffered the DotCom crash but, since 2009, it has multiplied its traded value – by eight times!

Besides wine and fine art, other sectors and products have also experienced large gains in spite of the financial crisis. Guns and ammunition, farm land, watches, timber, stamps, diamonds… are some examples. In the end, it is all about safeguarding wealth in a context of monetary and financial instability.

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