It’s good to drink it, but it seems good to sit on it too.

Fine wine, yielding double-digit returns, is low risk and good diversifier given its weak correlation to the return of asset classes — according to a fund which invests in fine wine.

The Wine Investment Fund says investors are receiving returns (after all fees and expenses) equivalent to 13.01% per annum over the last 5 years.

“This year’s payout represents a real return in excess of 70% or 10% per annum when allowing for inflation.  By comparison, over the same period the FTSE’s real return is -3.5% and a typical savings account would have generated a real return of less than 10%.  Fine wine has produced positive and consistent returns for decades now.  It really is proving its worth and we see more professional investors using it as a valuable diversification tool within a properly managed investment portfolio,” says Andrew della Casa, director of the fund.

The fund invests predominantly in wines from Bordeaux, which is housed in a “UK government bonded” warehouse and is insured at replacement value.

Minimum investment in the fund, which says fine wine maybe the only asset class with a perfect inverse supply curve, is 10,000 pounds and avoids buying fashionable or trophy wines.

(Photo: Natsuko Waki)

Recent moves in Indonesia, including plans by one province to stone adulterers to death, have raised concerns about the reputation of the world's most populous Muslin country as a beacon of moderate Islam.

The provincial assembly in the westernmost province of Aceh -- at the epicenter of the Indian Ocean tsunami that killed 170,000 people there nearly five years ago -- this week decreed the ancient Islamic penalty of stoning to death for adultery.

(Photo: Indonesian Muslim women support sharia, 19 Sept 2006?Supri Supri)

The decision could still be overturned once Aceh's new parliament is sworn in next month. But many, including Aceh's governor, the central government in Jakarta, and local businessmen, are concerned about the impact a broadcast public execution by stoning could have on Indonesia's international reputation.

The Aceh case is one of several showing how hardline Muslim groups are influencing policy in Indonesia. Local governments, given wide latitude to enact laws under Indonesia's decentralization program, have begun to mandate sharia regulations, including dress codes for women.

One ethnic Chinese Indonesian businessman, a practicing Christian who asked not to be quoted by name, said he feared if the trend continued it could lead to capital flight by the wealthy Chinese, Christian minority. "A lot of regional laws are going in that direction. It's already alarming the way it's going. It's a minority who are doing this, but the problem is that the silent majority just keep silent."

Read the whole story here.

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London’s premier department store Selfridges has already opened a Christmas shop with festive decorations and accessories (Christmas comes 141 days early), so it is no surprise that some fund managers are already looking ahead for next year onwards.

David Miller, head of alternative investment at Cheviot Asset Management, thinks investment in the period 2010-2012 will be driven by the impact of demographic trends, such as Generation Y — those born since 1978, all of whom grew up with the Internet.

However, as far as investment markets are concerned Baby Boomers (1946-1964) are still in the driving seat both as spenders and savers.

“Their priorities will continue to drive markets for a few more years yet,” he says.

Miller thinks the risk-free rate of return will remain close to zero while governments will underwrite corporate risk for as long as they can afford to and will do nothing to disturb the recovery, which would keep interest rates low for years rather than months.

In the UK, many companies will find it hard to increase profits and those that do will command a higher premium than at present, while dividend-paying companies (such as BP, Royal Dutch Shell and Vodafone) will be in greater demand.

Fund managers come back to this recurring question — is it better to invest passively, tracking benchmarks, or manage your money actively, taking risks?

Standard & Poor’s five-year data shows the S&P 500 index — a plain vanilla bet on U.S. stocks — outperformed 62.9 percent of actively managed large cap funds.

The S&P Midcap 400 index outperformed 73.4 percent of active mid-cap funds and the S&P SmallCap 600 outperformed more than one in two actively managed small funds.

On an asset-weighted average however, the results show a more level playing field, with active managers level or ahead of benchmarks in most categories except mid-caps and emerging markets

“Passive management believers can point out that indices have outperformed a majority of active fund managers across all major domestic and international equity categories; with real estate being the lone exception. Conversely, proponents of active fund management can point to the asset weighted averages,” says Srikant Dash, global head of research & design at Standard & Poor’s.

The five-year data is unequivocal for fixed income funds. Across all categories, except emerging market debt, more than three fourths of active managers failed to beat their benchmarks. Similarly, five-year asset weighted average returns are lower for active funds in all but two categories.

Oxford SWF Project, a university think tank on sovereign wealth funds, is looking at reports that the latest entry in the field could be Scotland. The project has a new post about the Scottish government floating the idea of an oil stabilisation fund to use oil and gas revenues.  It cites Scottish cabinet secretary for finance John Swinney looking abroad gleefully:

“We want to harness the benefit of oil revenues now for future years. An oil fund can provide greater stability, protect our economy and support the transition to a low carbon economy. Norway’s oil fund is worth over £200 billion – despite the first instalment being made as recently as the mid 1990s – and Alaska’s oil fund even gives money back to its citizens every year.”

The SWF project reckons the idea is a good one, but wonders if something other than meets the eye is at play. It had two questions.

First, it wonders whether the plan might just be a political rebuke for the UK government from the ruling (and separatist) Scottish National Party over a perceived lack of savings over the years.  Second, it notes that the UK government floated the idea of a strategic investments fund back in April and questions whether “the Scottish SWF reflects a ‘whatever they have, we should have’ mentality”.

Here’s a third question. Is it not a bit late for an oil fund? UK oil and gas output, most of which is in Scottish waters, has more than halved since 1999.

Direct and indirect foreign investors fled from Africa as the credit crisis sparked a flight to safety, or at least familiarity, but Ayo Salami, manager of the Duet Victoire Africa Index fund believes domestic demand can step in to underpin growth.

Japan's population has peaked and all the projections have it sliding sharply in coming decades, raising questions about investment opportunities when emerging markets, in particular, offer much more obvious growth opportunities.

By 2055 government researchers expect Japan's population to slide 30 percent to below 90 million from around 128 million with mushrooming numbers of retirees to be supported by a dwindling workforce.

Yet Japan will still be an important destination for world investors, argues Hiroyuki Arita, the Japan head of Blackrock, the world's largest money manager.

Women, having not made such a big move into jobs as elsewhere, will cushion the decline in the Japanese workforce by taking up more jobs, he says.

Arita also sees Japan as a continuing oasis of stability in an increasingly volatile world.

Yes, there may be more growth in China and other emerging markets. But where will investors feel their money is safest if Eastern Europe, parts of Asia or other less stable areas suffer a meltdown?

The Japanese yen is already a safe haven for investors in tough times, although Japanese stocks have proven less of a refuge with a record 42 percent drop in the Nikkei share average last year.

Yet, Arita acknowledges that Japanese investors are struggling to have confidence in investing, never mind attracting others to view Japan well.

The hammering of world markets has turned Japanese people even more into a land of savers, rather than investors, Arita told the Reuters Japan Investment Summit, and that might take five years before venturing out from safety to invest again.

Japan's people have around $15 trillion stashed away in overall savings, and asset managers have struggled to get their hands on it.

But Arita has hopes of grabbing more, once memories of the global financial crisis fades. He sees room to double or triple the current funds under management to around 200 to 350 trillion yen (around $2 billion to $3.5 billion) from just 50-90 trillion yen now.

 Photo credit: REUTERS/Issei Kato

Is your investment green enough?

A survey by consultancy firm Mercer, carbon data provider Trucost and environmental organisation WWF finds that greenhouse gas emissions from 118 UK-based investment management firms, with 206 billion pounds in assets under management, range from 209 to 1,487 tonnes per million pounds invested.

The report showed that the funds hold investment to 1.4 percent of the market capitalisation of 2,380 companies, which accounts for approximately 134 million tonnes of carbon emissions. These equate to 22 percent of UK greenhouse gas emissions.

Nine of the 10 main contributors to the overall carbon footprint of the portfolios are in the utilities and oil and gas sectors. The research includes in-depth analysis of the increasingly negative effects that carbon costs could have on carbon-intensive utilities and oil and gas companies.

“Asset managers could dramatically reduce the carbon footprints of their funds through stock selection without the need to alter sector weightings or their overall investment strategy,” the report says.

“Asset owners could take (actions) such as incorporating climate change criteria into their investment policies, encouraging fund managers to actively manage the carbon risk in their investment portfolios, looking for new investment opportunities and supporting mandatory emission disclosure initiatives.”

The credit crisis has hit the world’s super rich, with their financial wealth shrinking by almost a fifth in 2008, but they are flocking to luxury goods and jewellery in a  flight-to-safety.

A survey by Merrill Lynch Global Wealth Management and CapGemini found that the population of high net worth individuals (HNWI), with net assets of at least $1 million, fell 14.9 percent in 2008 from the year before. The population of ultra high net worth individuals, with net assets of at least $30 million, fell 24.6 percent.

Luxury collectibles, which include automobiles, boats and jets, remained the most preferred choice of “passion” investments, representing 27 percent of the portfolio last year, compared with 26 percent the year before.

Art collections rose to 25 percent of the passion portfolio from 20 percent in 2007 while jewellery, gems and watches rose to 22 percent from 18 percent as alternative flight-to-safety investments.

Sports investments, including sports teams, sailing and race horses, rose to 7 percent from 6 percent while miscellaneous — which include club memberships, travel, guns and musical instruments — more than halved to 7 percent.

Opportunistic buyers, lovingly dubbed "tourists" by those in the industry, have moved into the secondary private equity market. They're looking for positions in brand-name private equity funds at knock-down prices. As I wrote in a DealTalk today:

"Pension funds and wealthy middle-east sovereign wealth funds are buying up investments in private equity funds, pushing up prices and sidelining secondary firms that specialise in acquiring the assets.

"The market for second-hand private equity assets -- where private equity investors offload assets to specialist buyers -- has mushroomed as the credit crisis has intensified. And increasing numbers of cash-strapped investors are concerned about meeting their future commitments to buyout funds.

"New investors have been attracted to deals by steep discounts to net asset value, forcing up prices for specialist buyers, such as Goldman Sachs (GS.N) and HarbourVest Partners (HVPE.AS) that last month closed secondary funds after reaching their $5.5 billion and $2.9 billion targets respectively."

Read the full piece here.