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July 11, 2011

Historical Performance

Correlation

Liv-ex Investables – The oldest source of consistent market data

While it is possible to use auction house prices to track fine wine performance over the last 50 years, the oldest source of consistent market data is the Liv-ex Investables index. This is based on select red Bordeaux wines from the leading 24 chateaux (Rated 95+ points) and calculated back to January 1988.

During this period (until Feb – 2011) the index has grown 2074%, representing a CAGR of 14.26 % over 23 years. This is particularly impressive when one considers that for 6 years from January 1988 to May 94 the market saw more reserved growth of 7.24% CAGR. Other periods reflect exceptional returns. From May 1994 to January 1998 the index returned 40.38% CAGR and January 2005 – June 2008, a return of 33.85% CAGR.

The index showed strong resilience to the 2008 market crisis, returning 96% since December 2008 at 36.43% CAGR and regaining the 20% drop it saw from August 2008 – December 2008 in 13 months.

Indices wine

Liv-ex 100 Index

The Liv-ex 100 is a broader basket selection and considered to be the industry standard reflecting the 100 most sought after wines. The Index grew 269% since its launch in February 2002, a CAGR of 15.59% over 9 years.

Liv-ex Claret Chip Index

The Liv-ex Claret Chip index selects only the top-rated first growth wines, with a minimum of 95+ Parker points. It is therefore the closest data set to the IGW universe, which consists of wines that score the highest prices when they reach their drinking windows. As a result, these are the wines most individuals and funds buy and hold for investment purposes. This is reflected in its higher rate of return, 23.11% CAGR and a growth of 345% since its inception in December 2003.

Correlation

Similar to most commodities investment grade wines are sensitive to macroeconomic changes, however, a major benefit of wine investment in a portfolio is diversification, over 9 years the Claret-Chip has had a 0.16 correlation to the FTSE, a 0.23 to the MSCI World Index Net , 0.15 to Oil and a -0.12 to Gold.

Risk

Volatility

The claret-chip index has been less volatile (see graph above left) then the FTSE, Dow Jones, Crude Oil and Gold, since 2003, while outperforming each of them.

Correlation

 Risk

The wine markets strong consistent growth, coupled with its lower volatility and low correlation to other asset classes make wine an extremely attractive investment in terms of risk vs. return.

Investment grade wines have, therefore, performed very favourably compared to other financial indices and commodities over the past 20 years, combining stable returns, low volatility and low correlation to traditional markets. We can confidently conclude therefore that investable wine has a proven track record of sustained growth.

Recently, investable wines have presented very attractive short-term growth, emphasised in 2010 when the liv 100-index returned 40%, in comparison to the FTSE at 9% and short-term positions have and can be very lucrative. However, with this in mind investors should be encouraged to invest within 3 – 5 year time horizons, in order to optimise returns from full market cycles.