Joe Roseman is a former economist at Moore Capital Management. In a recent article (Investment Week, 23/09/2011) Joe coined the acronym SWAG, arguing that investors should include a proportion of Silver, Art, Wine and Gold in their portfolios. The article has lead to his new book ‘SWAG Alternative Investments for the Coming Decade’, which explores this new asset class in more detail. Joe very kindly agreed to a short interview with us:
We know you were an economist at Moore Capital Management for 20 years which obviously gave you exposure to alternative assets; could you give us some background and how your interest grew?
I have always been interested in wine and art. Wine because I enjoy drinking it and art because I love art galleries. My interest in the concept of SWAG assets, however, really only happened when I started to realise that certain asset types were doing much better than others. For the last decade, equities have gone nowhere, yet I noticed that the price I was paying for the wines I love was going higher and higher. This realisation happened to coincide with some news story about (yet another) world record price for a piece of art. It suddenly dawned on me that certain asset types were acting in a very different way to the traditional assets types.
The interest from the original article defining SWAG in Investment Week was very large, did this lead to your new book, SWAG-Alternative Investments for the Coming Decade?
Actually, you are spot on. My original article for Investment Week was really only my observation of what had happened to SWAG assets along with some initial thoughts on why it may have happened. The response to that article was staggering, with many people asking for more details and deeper research.
What proportion of a portfolio do you think should be made up of SWAG and do you believe each asset should be invested in equally?
I don’t think any asset, in itself, is too risky. I do think risk is all about how much one allocates to any specific asset. I don’t think the four SWAG assets should represent more than 20% of a portfolio, and for simplicity reasons I would just split that evenly between the four.
Should the proportion of SWAG assets in a portfolio increase during times of economic uncertainty?
Well, I would be inclined to take a longer term view. I think trying to time markets is a very difficult game. With assets like SWAG, one should tend to take a very long-term view and hold the assets for many years. In this sense, I think I would tend not to try to time perfect moments to buy SWAG. Instead, I would make a decision on what type of weight I would be happy to attach to SWAG, and then hold the assets for a long period.
We have certainly seen a large global increase in interest for fine wine investment helped by the media and articles such as yours in Investment Week. Do you think that SWAG assets will benefit from this growing demand derived from their own success?
Well, the good news is that the financial markets have real trouble accepting SWAG as a serious asset class. SWAG assets do not have the same sophisticated quantitative analysis applied in the same way that stocks like Enron did (haha)…. SWAG assets are attractive because of their demand-supply dynamics. They are also attractive because we now live in an era of financial repression where central banks indulge in money supply printing on a regular basis. This, in itself, makes SWAG assets attractive. However, investors are not stupid. They recognise that assets like wine are attractive to hold and this is forcing the financial markets to look. So, I think the answer to your question is that SWAG will benefit from the growing demand – it is after all one of the key reasons that they have outperformed over the last decade.
We have seen during the recent pullback in the fine wine market that wine is perhaps more correlated to the global markets than we expected. How do you think the looming Eurozone crisis will impact SWAG assets?
There are times when wine appears correlated and times when it doesn’t. The academic research that has studied correlations since 1996 suggests that the correlation is very low. The price retreat over the last 6-12 months may not have been directly caused by the fall in equity prices. Rather, coming off the back of two tremendous vintages in 2009 and 2010, it may well be the case that the more pedestrian vintage of 2011 has allowed some of the price gains from previous years to settle back. I am not convinced that there is a direct causality between the equity markets and the price of fine wine. Having said that, if there is a major crisis within Europe, all asset classes will likely suffer. The key question to ask will be how policy makers will respond to such a crisis. In my view, another bout of intense money printing and quantitative easing is the most likely response. If that is the case, then it is SWAG assets that need to be held. Not cash. Not bonds.
Your article mentions the fantastic returns in Lafite over recent years, what is your favourite wine?
So many answers to that question. On a lovely warm summer evening, sitting outside in the sun….I would have to say a Chateaneuf-du-Pape takes some beating for me. It brings back great memories of a holiday in the region. Am I a Bordeaux or Burgundy man? Definitely the former. I love both sides of the river, and would say that Palmer, Pichons, La Conseillante and VCC are all particular favourites.
We would like to take this opportunity to thank Joe for taking the time to speak with us and we wish him the very best with his new book SWAG Alternative Investments for the Coming Decade and his website http://www.swaginvestor.co.uk/