Forex

Britain's blue-chip index plunged into a bear market this week, dropping more than 20% below its peak. The FTSE 100 index closed at 5,260 on Friday, its lowest level for three years and nearly 22% below a high of 6,732 hit in June last year.

With the property market collapsing and commodities at extreme levels, is there anywhere left to make money?

Many advisers have long recommended clients interested in art, fine wine and collectables put a token part of their portfolio in these areas. However, professionals and private investors are increasingly seeing the potential in alternative assets.

City “superwoman” Nicola Horlick plans to let clients invest in music rights in the belief the sector will beat the downturn, while Clem Chambers, chief executive of stocks and shares site ADVFN.com , has sold out of equities and into collectable coins

Gary West of Port Funds, which runs the Wealth and Fine Wine fund, a fund of funds for investment-grade vintages, said: “We're in a bear market and the traditional equity funds which have always taken the core in any portfolio don’t have the right to have that place anymore.

“Alternatives are no longer the abstract 1%-2% of a portfolio; they’re fundamental — into the realms of a 20%-30% split across a mixture of non-correlated alternatives.”

Alternative assets tend to fare well in tough times. Looking back to 1950, the performance of fine wine peaked at 23% a year in the recession-hit 1970s, according to Wine Asset Managers.

The Wealth and Fine Wine fund, which became available to retail investors two months ago, returned 24.5% last year and West expects the sector to deliver annual returns of 20%-plus for the foreseeable future.

“It’s quite simple: as the years pass, the vintage years themselves get more valuable and the stock decreases,” he said.

“Asia is buying huge volumes of investment-grade wine, but they’re not storing it; they’re drinking it. That’ll have a tremendous, long-term effect on the wine market.”

The current economic downturn and boom in commodities mirrors the 1970s, said Chambers — a time when the “only place to hide” was coins and stamps.

“Coins are perfect safe havens because you can take them with you. They went through the roof in the 1970s and are starting to go through the roof now,” he said.