Since it’s rise in popularity as an alternative asset investment, fine wine has shown to be an effective vehicle to protect investors’ funds alongside generating capital growth. Fine Wine has demonstrated some of the best returns among asset classes over the last 20 years and has consistently shown positive returns at times where other sectors of investment have experienced turbulence and downturns. These returns and the low correlation fine wine shows to traditional markets make fine wine an attractive investment.The Market
In recent years, the transparency of the fine market has greatly improved. Fine wine exchanges such as Liv-Ex have made strides in standardising the market by providing historical price data and various indexed baskets of fine wines. Their benchmark index, the Liv-Ex 100, is composed of the most sought-after fine wine in the secondary market. Since its inception in 2002, the index has posted gains of 231.67% with a Compound Annual Growth Rate (CAGR) of 7.45%. These considerable returns are more impressive when compared with other indices over the same term; the Dow Jones, Nikkei 225 and FTSE 100 have returned 169.77%, 128.97% and 44.99% respectively.
Another facet of fine wine investment is the relatively low volatility observed in the market. Since 2002, the Liv-Ex 100 has experienced an annualised volatility of 9.1%, considerably lower than that of other investable commodities; gold bullion and crude oil have felt annualised volatility levels of 14.1% and 29.5% respectively*.
In addition to the Liv-Ex 100, a number of region specific indices are also published. These indices focus on baskets of wines from Bordeaux, Burgundy, Champagne and Italy. Since their introduction in 2003, all have observed substantial gains and CAGR with low volatility. These figures can be observed in the table below:
|Bordeaux 500||Burgundy 150||Champagne 50||Italy 100|
The UK has long been considered a hub for fine wine. According to the WSTA, the UK is the second largest wine market by trading volume and value with annual economic activity exceeding £20bn. The UK’s position at the peak of the global wine market allows merchants to access the global forum. This alongside the growing popularity of collecting fine wine underpins wines liquidity. Barclays Wealth conducted a survey and found 28% of High Net Worth individuals had a fine wine collection.
It is for the aforementioned reasons that shrewd investors have found considerable returns from wine investment. With the assistance of an industry expert, a tailored investment portfolio can be built, maximising returns and utilising the UK market’s liquidity.Storage and Tax Efficiency
When purchasing fine wine for investment, it is advisable to store your holdings in a government bonded warehouse. The benefits of using purpose-built storage facilities are provenance is guaranteed and wines are stored in optimal maturing conditions. Storing your wine in this way also means purchases have duty and VAT suspended until delivery. In the UK, fine wine is commonly regarded as a wasting chattel, hence under certain conditions does not attract capital gains tax.Growing Global Demand
Fine wine is a luxury good, this means market demand is resilient to macro-economic factors. A contraction in the economy, is less likely to impact the demographic where the demand for luxury goods is greater. This results in consistent demand from Europe and North America who have a historical thirst for fine wine. However, in recent years, the emergence of China as a new global superpower has brought new prosperity and demand for fine wine naturally followed. The UK market has capitalised on this, forging new sales channels to the Far East and subsequently driving demand higher.
The future looks bright for fine wine. New avenues of demand have broadened the market and positive gains continue to be posted across the spectrum of Liv-Ex indices. Fine wine gives investors a good balance between expected returns and volatility. When included in an investment portfolio, these types of commodity can give diversification and mitigate risk from other more volatile investments. It is for this reason coupled with the inverse relationship to traditional markets that fine wine is becoming ever more recognised as not only a safe-haven investment for periods of market contraction, but a valuable addition to investment portfolios.
* Facts and figures correct as of the date of publication (29/10/2018)