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Aesthetic Investments

Are aesthetic investments other than gold (such as art, gems, stamps and wine) viable portfolio options? These blog entries address investing in these alternative asset classes.

Art as a Crypto-asset

Are non-fungible tokens (NFT) the future of music and art valuation? In his April 2021 early/incomplete draft entitled “Virtual Art and Non-fungible Tokens”, Lawrence Trautman describes the new market for digital art, explores the evolution of the digital world and virtual property, explores NFTs and offers a few thoughts about the future of digital property. Based on a survey of relevant technology commentaries and law, he concludes that: Keep Reading

Private Property as an Investment Class

What returns and risk should investors expect from private property (real estate, privately owned infrastructure, collectibles and non-corporate business equity), characterized by infrequent trading, inexact market values and noisy returns? In their March 2021 paper entitled “Real and Private-Value Assets”, William Goetzmann, Christophe Spaenjers and Stijn Van Nieuwerburgh survey current research on private property returns and risks. They provide a rough value of U.S. private property and summarize research findings from 11 papers, focusing on: measurement of risk, return and liquidity; and, (2) drivers of variation in valuations and investment behavior. Based on relevant government and association data and recent/current papers, they find that: Keep Reading

Are ESG ETFs Attractive?

Do exchange-traded funds selecting stocks based on environmental, social, and governance characteristics (ESG ETF) typically offer attractive performance? To investigate, we compare performance statistics of seven ESG ETFs, all currently available, to those of simple and liquid benchmark ETFs, as follows:

  1. iShares MSCI USA ESG Select ETF (SUSA), with SPDR S&P 500 ETF Trust (SPY) as a benchmark.
  2. iShares MSCI KLD 400 Social ETF (DSI), with SPY as a benchmark.
  3. iShares ESG MSCI EM ETF (ESGE), with iShares MSCI Emerging Markets ETF (EEM) as a benchmark.
  4. iShares ESG MSCI USA ETF (ESGU), with SPY as a benchmark.
  5. Nuveen ESG Small-Cap ETF (NUSC), with iShares Russell 2000 ETF (IWM) as a benchmark.
  6. Vanguard ESG U.S. Stock ETF (ESGV), with SPY as a benchmark.
  7. Vanguard ESG International Stock ETF (VSGX), with Vanguard FTSE All-World ex-US Index Fund ETF (VEU) as a benchmark.

We focus on average return, standard deviation of returns, compound annual growth rate (CAGR) and maximum drawdown (MaxDD), all based on monthly data. Using monthly dividend-adjusted returns for all specified ETFs since inceptions and for all benchmarks over matched sample periods through June 2020, we find that: Keep Reading

Return on Collectible U.S. Coins

Are collectible (mint state, brilliant uncirculated or proof) U.S. coins attractive to investors as an alternative asset class? In their October 2019 paper entitled “U.S. Coins Market: Historical Performance and Anomalies”, Khaled Obaid, Kuntara Pukthuanthong and David Maslar measure historical returns within the multi-billion dollar collectible U. S. coins market and determine what investors should require and avoid when selecting coins. They also examine whether collectible coins are effective diversifiers of conventional asset classes and are useful as an inflation hedge. They construct their sample manually from bid and ask prices of U.S. penny, nickel, dime, quarter, half dollar and dollar coins as listed in the first CDN Publishing Greysheet of each calendar year. They assume that the average of bid and ask for a coin is a sale price. Using price data for 2,063 coins during 1967 through 2015, they find that:

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Neural Network Software Valuation of Fine Art

Given the uniqueness of fine art objects and uncertainties in demand (at auctions), can investors in paintings get accurate estimates of market values of holdings and potential acquisitions? In their March 2019 paper entitled “Machines and Masterpieces: Predicting Prices in the Art Auction Market”, Mathieu Aubry, Roman Kräussl, Gustavo Manso and Christophe Spaenjers compares accuracies of value estimates for paintings based on: (1) a linear hedonic regression (factor model), (2) neural network software and (3) auction houses. For the first two, they employ 985,188 auctions of paintings during 2008–2014 for in-sample training and 104,404 auctions of paintings during the first half of 2015 for out-of-sample testing. Neural network software inputs include information about artists and paintings (year of creation, materials, size, title and markings), and images of the paintings. Using information about artists/paintings and images and auction house estimates and sales prices for the specified 1,089,592 paintings by about 125,000 artists offered through 372 auction houses during January 2008 through June 2015, they find that:

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Classic Cars as an Alternative Investment

Are some types of cars attractive alternative investments? In their September 2018 paper entitled “My Kingdom for a Horse (or a Classic Car)”, Dries Laurs and Luc Renneboog investigate price determinants and investment performance of classic cars from veteran cars (built 1888-1907) through modern classics (1975-1990). They estimate returns and risks for several classic car price indexes via a hedonic price methodology that accounts for physical attributes (such as engine displacement), condition, rarity, uniqueness and provenance. They then compare results to those for financial and other real asset classes. Using a sample of 29,002 global auction sales with hedonic model inputs, plus U.S. inflation data and price series for other asset classes, during 1998 through 2017, they find that:

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Toys for Young (and Old) Investors?

Are premium toys attractive alternative investments? In their April 2018 paper entitled “LEGO – The Toy of Smart Investors”, Victoria Dobrynskaya and Julia Kishilova study LEGO sets as an alternative investment. A secondary market for these sets with 10,000+ daily transactions, affordable to any retail investor, has evolved since 2000. Brickpicker.com tracks prices for each set (either new or used) as the average of its 30 most recent transactions, updated monthly. The authors focus on new sets for comparability with primary market prices. They consider raw prices and construct both a simple diversified index and an hedonic diversified index that accounts for variation in LEGO set characteristics over time (changing themes, set sizes and release years). Using prices from Brickpicker.com since 2000 and from The Ultimate Guide to Collectible LEGO Sets since 1987 for 2,322 LEGO sets across 44 themes through 2015, they find that:

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Survey of Research on Silver, Platinum and Palladium as Investments

What research is available bearing on silver, platinum and palladium as investments? In their April 2017 paper entitled “The Financial Economics of White Precious Metals – A Survey”, Samuel Vigne, Brian Lucey, Fergal O’Connor and Larisa Yarovaya summarize the body of academic research on the financial economics of silver, platinum and palladium. The survey covers relevant studies of market efficiency, predictability, behavioral influences, diversification benefits, volatility drivers, macroeconomic influences and relationships with other assets. Based on this research, they conclude that: Keep Reading

Contrarian Sports Betting as a Diversifying Investment

Can systematic, contrarian sports betting usefully diversify conventional investments? In their June 2016 paper entitled “Sports Betting As a New Asset Class: Can a Sports Trader Beat Hedge Fund Managers from 2010-2016?”, Lovjit Thukral and Pedro Vergel investigate whether a specific sports betting strategy outperforms and diversifies the Credit Suisse Hedge Fund Index and the S&P 500 Index. The strategy hypothesizes that horse racing favorites are consistently overrated by betting 1% of a hypothetical portfolio against the top four (lowest odds) horses in each regulated race in the UK. Using historical data from Betfair Exchange for 57,000 horse races and contemporaneous annual returns for the Credit Suisse Hedge Fund Index and the S&P 500 Total Return Index during January 2010 through early January 2016, they find that: Keep Reading

Illiquid Asset Returns over the Long Run

Are illiquid assets competitive as investments with liquid financial assets over the long run? In his March 2016 paper entitled “The Long-Term Returns to Durable Assets”, Christophe Spaenjers summarizes long-term returns for three types of illiquid assets since the start of the 20th century:

  1. Houses and farmland.
  2. Collectibles (art, stamps, wine and violins).
  3. Gold, silver and diamonds.

He focuses on capital gains but comments on ancillary costs and potential associated income where relevant. Using available monthly price indexes for these assets from a variety of sources during 1900 through 2014, he finds that: Keep Reading

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