Alternative investments

Question 1

Works of Art & Collectibles

Answer 1

• Don’t usually generate income
• Often cost money to keep
• Value dependent on limited supply & fluctuating demand
• Authenticity is very important

Question 2

Works of Art & Collectibles - viability

Answer 2

• Difference in buying and selling prices greater than for conventional investments
• Need to ensure authenticity
• Tastes change
• Difficult to diversify

Question 3

Hard/soft commodities

Answer 3

Hard = extracted such as gold and gas
Soft = typically grown eg coffee

Question 4

commodities characteristics

Answer 4

• Most trading is done through commodity-related futures and options
• Either on an exchange or directly between producers and manufacturers
• Taking positions in commodity futures is very risky - prices are volatile
• Historically not a practical investment for most investors
• However, Exchange-traded commodities (ETCs) are pooled investments listed on the LSE that
track performance of an underlying commodity or commodity index
• Could also invest indirectly via funds or by buying shares in commodity companies
• Historically seen as a hedge against inflation

Question 5

commodities risks

Answer 5

• Volatility/frequent imbalance between supply and demand
• Market is dominated by big companies and traders
• Demand affected by business cycle
• But can offer useful diversification
• Commodity prices tend not to move in same direction as other asset classes