This year, inflation has left investing in stocks and bonds in the black. So investors have increasingly concentrated on all types of assets, from private equity to investment in real estate stocks. However, some alternative asset classes have managed to maintain a much lower profile. Some offer the kind of benefits we're looking for right now. So let's take a look at these alternatives to investing in stocks since we can invest in them.
Music copyright
You are probably already familiar with music copyright. It's how people in the music industry get paid, generated based on the types of royalties that go into creating a song. The most common are streaming rights, which are paid every time a song is heard on a platform such as Spotify or Apple Music. It's a good time to invest in music because digital streaming has taken off in the last decade, making music more lucrative again. And because spending on music is not particularly correlated with consumer income, royalties tend to be insulated from the risks of recession or inflation. We can take advantage of this alternative to investing in stocks by looking at listed song funds like Hipgnosis Songs Fund (SONG) to take advantage of those rights streams and the long-term revenue they provide, or curate your own music catalog through platforms like ANote Music o Royalty Exchange. Just keep in mind that the income stream will be higher in the first few years, and then gradually stabilize at a stable, lower level, similar to annuities.
Hypothetical income from the rights to a song. Source: MusicRoyaltiesSinc
Carbon credits️
If you believe that companies should drastically reduce their environmental footprint, carbon credits allow us to put our money in this alternative investment in shares. A carbon credit gives a company the right to emit one ton of carbon dioxide or its equivalent. They get a set number of credits that they consume over time, and they have to buy more credits (or face a huge fine) if they emit more carbon than their credits allow. Europe currently has the largest market for carbon credits, as the EU Emissions Trading System determines the price of carbon based on the supply and demand of credits. The legislation automatically reduces the supply of credits each year, meaning that the price of carbon credits behaves like that of raw materials. And although the carbon market can be affected by external economic factors, it does not have much correlation with equity investment markets, making it a good tool to diversify our portfolios.
The easiest way to take advantage of this carbon credit stock investment alternative is through ETFs, such as KraneShares Global Carbon Strategy ETF (KRBN), SparkChange Physical Carbon USA ETC (CO2), or WisdomTree Carbon (CARP).
WINE
Enjoying a good bottle of Rioja wine on a Friday night while reading the Fi Newsletter is a great plan, but it can also be a great investment… This is the next investment alternative in stocks. If you want to invest in wine, it is because you believe that your bottle of wine will be worth more in five years, something similar to investing in real estate stocks. But, as in the case of real estate, it can be very profitable, especially since the growth in demand and the limited supply of quality wine have contributed to increasing profitability in the last two decades. Just look at the index Liv-ex 1000: The index, which tracks the 1.000 most traded wines in the world, has seen its value rise by 26% in the last year alone, surpassing the S&P 500 by almost 40%.
Liv-ex Fine Wine 1000 Index. Source: Liv-ex.com
Fine wine prices have historically been less volatile than stock investment prices, meaning they serve as a good hedge in times of inflation. It also helps that wine is exempt from capital gains tax in some regions. And it is not necessary to have your own winery to invest: platforms like Vint, Wine vest y Cult Wine Investment They offer specific funds.
Litigation financing⚖️
This is the definitive alternative to investing in shares: we can always choose to finance lawsuits as a third party in a process known as litigation financing. This means we are improving access to the legal system for those without sufficient financial resources, while potentially offering us a good return. We would provide capital to the plaintiff involved in the litigation in exchange for a proportion of any settlement or payment. The result of our stock investment alternative is binary, very similar to investing in options. If the plaintiff loses the lawsuit, we will lose our investment. But if the plaintiff wins, we win a proportion of the claim, which will be substantially greater than the cost of the lawsuit.
Financing versus the amount of the claim in a typical case. Source: Burford Capital
Diversification is important in litigation finance, and it pays to have a portfolio of several cases at any given time. But trial results are typically uncorrelated with equity investment markets, which can help reduce the overall volatility of our portfolios. And since lawsuits are usually resolved within a year or two, our capital is not tied up for as long as it might be with wine, for example. We can invest in publicly traded companies that specialize in litigation finance, such as Burford Capital, or we can build our own portfolio through litigation finance platforms such as Axia Funder o LexShares.