How Do Alternative Assets Perform in a Recession?

Quinlyn Manfull
July 12, 2022

Inflation in the United States is at a 40-year high, US stocks have fallen 22% this year, and borrowing costs are surging with the Federal Reserve raising interest rates by 0.75 percentage points in June 2022. It’s understandable that investors may be concerned about an impending recession.

How Do Alternative Assets Perform During Recession? 

Historically, during a recession, investors have shifted asset allocation away from stocks and into bonds, gold, or cash. Now, alternative investments have become an essential part of that discussion for some. Assets such as wine, fine art, and farmland have become more accessible to retail investors, and new alternative assets have been created such as cryptocurrency and NFTs. 

As the alternative asset market has shifted, some traditional thoughts on what assets outperform may need to be reexamined as well. To do this, indices were chosen to represent the performance of 8 different asset classes over the two most recent market downturns against the S&P 500 and the bond market. 

  • January 2022 – May 2022 (current recession)
  • February 2020 – April 2020 (COVID-19 recession) 

Alternative Asset Performance in 2022 Downturn (January 2022 through June 2022) 

The National Bureau of Economic Research (NBER) has yet to announce any business cycle dating for 2021 or 2022, but recessions are typically declared retroactively, after they’ve ended. 

Despite not being an official recession yet, the markets have been falling all year. The current stock market downturn began in January 2022 with talks of a bear market beginning in March. The S&P 500 Index was down over 20% by the end of June, with many other assets following along. Crypto is the worst performing at the moment, with Bitcoin down over 56% YTD. 

Not all asset classes have been hit the same way stocks have. A number of alternative assets have faired quite well in the first half of 2022. The top performer by far in this downturn has been oil (+34.16% in 1H22). This is unsurprising as the Russian invasion of Ukraine has caused a global shortage of oil reserves.

Following oil, residential real estate (+13.48%), investment-grade wine (+10.93%), and whisky (+8.46%) all returned solid figures in the first half of 2022. 

Trading cards (+4.27%) offered moderate returns, while art (0%) remained stable during stock market volatility, still managing to outperform the S&P 500 by 2,400 basis points (bps) and 2,000 bps respectively. 

The top performance in oil markets is unsurprising given traditional inflationary pressures that make oil and commodities attractive, and the Russian invasion of Ukraine causing the global supply of oil and commodities to drop. 

Trading cards, art, and rare wines and whiskys are the more surprising numbers to note in this downturn. While stocks and crypto have been suffering in the first half of 2022, the art market has been breaking records at auctions. Sotheby’s, Christie’s, and Phillips sold over $2.6 billion worth of works in just 2 weeks in May during the spring auction season. 

While fine wine has outperformed global equities and most other commodities, Liv-ex has said that market momentum has been “much more subdued” in the second quarter of 2022. Burgundy was the top performer in Q2, increasing by 8.1% year-over-year but still down from 14.6% annual growth in Q1. 

Alternative Asset Performance in COVID-19 Recession (February 2020 through April 2020)

The COVID-19 recession is the shortest recession the US has experienced on record, lasting just 2 months from February 2020 to April 2020.

In that time, the S&P 500 fell over 19%, seeing some growth after the trough in mid-March 2020. The COVID-19 pandemic hit almost every industry and almost every asset class, including alternatives such as silver (-22.60%), whisky (-2.10%), and oil (-43.12%). Bitcoin also fared poorly, returning -10% during the pandemic recession. 

The bond market was one of the only winners during this period, with 7-10 year Treasury bonds returning 7.18%. Art and gold were not far behind bonds, returning 6.86% and 6.14% respectively.

This recession was unique in that it was caused by a global pandemic that shut down nearly every part of the global economy. So it makes sense that more asset classes were hit by this recession, even assets that do not traditionally correlate with the stock market. 

Although all asset classes took a hit, there were areas of the market that were able to maintain positive returns — art and gold. In-person art auctions, the primary market for fine art, were put on hold indefinitely at the start of the pandemic.

Christie’s, Sotheby’s, and Phillips responded to the closure by opting to combine their May and June sales into virtual sales, which ended up being hugely successful. The Sotheby’s June 2020 live-streamed sale of Modern and Contemporary art generated $363.2 million with a sell-through rate (the proportion of lots sold) of 93%.

Residential real estate, trading cards, and investment-grade wine all displayed slight growth, proving to be resilient assets against the global pandemic and economic recession. 

Wine markets steady performance in 2020, with investment-grade wine growing 2.25% during the Covid-19 pandemic and continuing to grow after. The Knight Frank Luxury Investment Index (KFLII) measured that all fine wine grew 13% in 2020, back vintages of Champagne grew 14%, and older vintages of super-Tuscans grew 18%. 

Fine Art During Recessions

Using the Artprice Contemporary Art Index to view price movements over recent recessions and market downturns, blue-chip art remained one of the most consistent out-performers of the stock market. The Artprice Contemporary Art Index includes a basket of blue-chip art created by artists born after 1945 including Jean-Michel Basquiat, Banksy, NFT artist Beeple, and others. 

Collectibles During Recessions 

Sports trading cards showed an impressive ability to hold stable, proving to be a better safe haven asset than bonds and cash during these recessionary periods. Sports cards specifically have been on a historic bull run in recent years, with the top 500 cards appreciating more than 130% annually every year since 2017

The PWCC 2500 index includes a basket of collectible sports cards. PWCC also offers other indices for more specific subsets of the larger market including modern basketball, top 500, or pre-war baseball. The PWCC 2500 index shows sports cards returning an average of 28.8% annually over the past 10 years. 

Gold and Precious Metals During Recessions 

Gold has long been the “gold standard” for protecting assets during times of market volatility. Between October 2007 and March 2009, the S&P 500 fell nearly 57% — but gold rose 26%.

In the aftermath of the dotcom bubble, the S&P 500 dropped 49% and gold gained 12.4%. This resilience remained true in the past two recessionary periods, but at a considerably lower rate. 

Silver, on the other hand, behaved similarly to the stock market, having downturns in both 2020 and 2022 along with the S&P 500 – albeit not showing as dramatic of a dip. 

Real Estate During Recessions

Despite REITs being one of the alternative assets with the highest correlation to the stock market, the US national home price index performed positively during the mentioned market dips.

This is likely because REITs are traded on public markets which makes them more likely to follow public market patterns, while residential real estate is not publicly traded. 

Commodities During Recessions

Commodities are considered to be defensive assets, meaning they tend to fare well in inflationary environments. Although this article looks at oil specifically, other commodities such as farmland and agricultural commodities are also defensive assets. 

Commodities, in fact, are a source of inflation – as the price of natural resources or agricultural products rises, all assets that rely on oil, agriculture, and farmland increase because cost of production has risen. This relationship makes commodities a potential hedge against inflation.  

Fine Wine & Whisky During Recession 

The Liv-Ex investables index shows that fine wine has a compound annual growth rate of 10% over the last 30 years along with fairly low correlation to the stock market. Fine wine investors are often wine lovers, people passionate about wine.

Supply chain issues that have occurred during recent recessions have only increased demand for wine. Champagne, for example, increased in value by 41% in 2021 in part because wine drinkers were worried it wouldn’t be delivered to shelves. 

Both fine wine and rare whisky are physical assets, which is part of the appeal of alternative assets as a whole. Unlike bonds or stocks, whisky and wine are finite commodities that are made to be consumed, ultimately increasing the value of the remaining casks and barrels of certain ages and distilleries.

As commodity prices rise, the cost of producing assets such as fine liquors and wines increases, which can have a hamper on supply, while demand remains equal or increases. 

Why Diversify with Alternative Investments? 

The aim of diversification is to help limit exposure to significant losses in the market, not necessarily to boost performance. Diversification will not ensure gains or guarantee protection against losses, but it can provide a way to help manage risk. 

Low Correlation 

Correlation in financial markets refers to the relationship between the returns of two investment assets. Correlation values can fall between -1 (perfectly inversely correlated) and +1 (perfect linear correlation).

The correlation value is largely dependent on sources of returns for the investment vehicles. The factors that affect equity market prices differ from what affects fixed income prices, and so on.

According to a 2022 CitiBank report, alternatives (art, commodities, real estate, private equity, and hedge funds) offer a lower correlation to traditional markets because they source returns differently. This can make alternatives an appealing portfolio diversifier.

Alternative Asset Performance – Trailing 1 Year and 5 Years

Data Sources on Alternative Assets 

Data sources for alternative assets are relatively new, tracing performance back to the mid 2010s to correspond with recent shifts in the alternative investment space. This article focuses on the two most recent recessions because most of the following indexes do not include data for the previous recession – the Great Recession of 2007-09 – and because the landscape of alternative investing has shifted dramatically since 2008. 

Below are the indices used to represent the different asset classes discussed in this paper. 

  1. Stocks – S&P 500 Index 
  2. Bonds – iShares 7-10 Year Treasury Bond ETF (IEF) 
  3. Oil – Invesco DB Oil Fund (DBO) 
  4. Silver – iShares Silver Trust (SLV) 
  5. Gold – iShares Gold Trust (IAU) 
  6. Art – Artprice Contemporary Art Index 
  7. Sports Trading Cards – PWCC 2500 Index 
  8. Wine – Liv-ex 1000 Index 
  9. Whisky – Rare Whisky Apex 1000
  10. Residential Real Estate – S&P/Case-Shiller U.S. National Home Price Index

*All Data Retrieved for 02/20/2020 – 04/30/2020, and 01/01/2022 – 06/30/2022; data retrieved on 07/05/2022 

This content is provided for informational and educational purposes only.  It is not intended to be investment advice nor should it form the basis of an investment decision. Diversification and asset allocation do not ensure profit or guarantee against loss. There are significant differences between art and other asset classes.  Investing involves risk, including loss of principal.


Quinlyn Manfull
Quinlyn Manfull is a a New York based finance writer covering alternative investments, crypto, and NFTs. Previously she worked as an Investment Analyst for HSBC Private Bank covering capital markets. Her byline has been featured in the Anchorage Daily News, and her university newspaper, The Willamette Collegian. Quinlyn earned a B.A. in Economics from Willamette University and holds her FINRA Series 7 License.