With the Covid-19 pandemic raging across the globe, financial markets were in a state of panic in the month of March 2020. There was broad-based selling across asset classes as risk aversion spiked. Equity markets lost between 30 per cent and 40 per cent from their peaks and bond yields surged as large stimulus were rolled out by all countries.

Alternate assets ― which are different from conventional assets such as stocks, bank deposits, small savings, and cash, among others

 ― are expected to perform better than conventional assets in such periods. It’s because they are expected to be less correlated with traditional markets and provide a hedge against volatility. 

So, how did alternatives perform in the January to March 2020 period?

Gold shines and diamonds sparkle

Gold is one of the alternative assets that investors use as a hedge against financial market turbulence and for portfolio diversification. It did sell off towards the end of March, but recouped fast, to sport a strong 12 per cent gain in rupee terms in 2020; the rupee depreciation of 7 per cent YTD also helped. This follows strong gains of 24 per cent in rupee terms in 2019. With all countries resorting to monetary expansion and global growth set to contract 3 per cent in 2020, prices of gold could remain elevated through this year.

Diamond prices, on the other hand, seem to have largely held their ground in 2020. The diamond price index, disseminated by diamondse.info that takes into account the average retail price per carat of loose diamonds from jewellers around the web, was largely flat in the first four months of 2020. With major consuming countries such as China in a slump, traders are said to have held on to their inventories. Diamond prices had however, been weak through 2019 as well, losing 3 per cent since the March 2019-peak. 

If an investor has to choose between gold and diamond, gold clearly wins hands down, due to greater trading interest, more investment options and its position as a reliable safe haven.

Crypto assets gyrate

Many of the rebel investors, who are disgruntled with fiat money and monetary policy of central banks have been vociferous about crypto assets being the alternative to conventional investment avenues. But these assets have been quite volatile in 2020 so far.

Bitcoin, the most popular crypto asset, had been sliding lower since the peak at $12,575 hit in July 2019. With many countries clamping down on trade and usage of these assets, bitcoin prices hit the low of $6,584 last December. Surprisingly, there was a steep crash in bitcoin prices in the second part of March, dragging it below $5,000. This could be due to global deleveraging by funds, across asset classes.

While bitcoin is once again attempting to recover, trading around $7,500, it is clear that crypto assets cannot be a hedge against volatility since they are weighed down, too heavily, by regulatory concerns.

Wine index on a high

If you are one of those investors who believe in collecting wine, you may have seen very little erosion in the value of your holding. The Live-ex Fine Wine 50 index that tracks the price changes in the most traded commodities in the fine wine market ― the Bordeaux First Growths ― lost 4.11 per cent in the first three months of 2020.

The Liv-ex Fine Wine 100 index that is the industry benchmark tracking the price changes of the 100 most popular fine wines in the secondary market, is down a lower 1.06 per cent in the first quarter of this year.

Art prices have however, not escaped unscathed in the current turmoil. Art price index compiled by Artmarket.com SA, one of the benchmarks for art prices, fell sharply in mid-March and has stayed flat after April. This shows that as asset prices crashed across the globe, art was also sold to generate liquidity. But with stability returning to financial markets in April, prices have stabilised, but there is no rebound, yet.

So, wine seems a better bet among exotic alternatives. If nothing else, it can at least help you drown your sorrows caused by financial loss.

Alternate investment schemes

Globally, alternative investment schemes such as hedge funds are recommended to investors to shield themselves during turbulent times. That is because these schemes follow complex strategies and invest in a broad spectrum of assets. They also give absolute returns, not benchmarked to any indices. Eureka Hedge Fund Index shows that global hedge funds lost 7.49 per cent in the first quarter of 2020, following 8.67 per cent gain in 2019.

Domestic portfolio management schemes have however, not fared too well. This is probably due to fewer options available to domestic PMS managers. They have parked a bulk of the money in equity, mutual funds and bonds, and hence, most of them have suffered deep losses in March 2020.

For instance, ASK Investment Managers’ discretionary portfolio management services that manages around ₹17,000 crore of assets, recorded 23.6 per cent loss on weighted average basis for all clients in the month of March 2020. PMS schemes of Philip Capital, Spark Fund Managers, Motilal Oswal Asset Management Company and JM Financial Services have also lost over 20 per cent of their value in the month of March 2020. 

These PMS returns show that you should have a serious discussion with your PMS manager about where he intends to park the funds. If all the money is parked in conventional assets, then your aim of seeking a hedge against volatility may not be served. 

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