Fine wine investment continues to outperform stock markets and other ‘passion assets’ as people look to add diversity and reliability to their portfolios
The concept of alternative investing is far from new. From classic cars to contemporary art, UHNWIs can not only make a smart investment but also feed their passion. The same goes for fine wine and now, perhaps more than ever with global markets in turmoil, the time is right to consider adding wine to your investment portfolio.
In the long-term, fine wine investment has performed incredibly well over the years. As Forbes stated in October 2020, if you had invested $100 in fine wine in 1952, your investment would now be worth $420,000. If you had instead invested in the stock market, you would be looking at $100,000. “Many of the biggest names in investment are turning to a little-known alternative investment with huge potential. Endorsed by Warren Buffet himself, wine offers a safe yet profitable haven for your capital, with very low correlation to the stock market,” said Forbes.
That’s all very well, but any new investors would especially like to know how this asset has performed recently in the face of Covid. Peter Shakeshaft, Chairman and Founder of fine wine investment specialists Vin-X, says that despite global turmoil in stocks and commodities markets, wine has been more than holding its own.
“Stable fine wine has, true to form, weathered the storm, delivering stability and growth throughout the Covid-19 era to date, avoiding the volatility of financial markets and commodities,” he said. “The key fine wine benchmark, the Liv-ex 100 has grown 4.7% across the year to 30th November. Individual wines have delivered double-digit growth and Champagne has been the top performing region with the Liv-ex Champagne 50 up 8.27% YTD to the end of November.
“Fine wine has demonstrated its key investment appeal in 2020, to hold steady during periods of economic distress, provide predictability during extreme volatility and the opportunity to diversify and strengthen an investment portfolio.”
According to data from Live-ex.com (at time of writing), Dom Perignon P2 1998 increased in value by 18.97% between May and December 2020. Chateau Mouton Rothschild 2019 rose 18.04% from June to December, while Dom Perignon David Lynch 2000 increased in value by 58.56% in a single year to December 2020.
In the longer term, over a five-year period to December 2020, Chateau Lafite Rothschild 2010 rose 42.43% and Screaming Eagle Cabernet Sauvignon a staggering 71.12%.
Katie Souter from Vin-X believes that fine wine investments are booking right now as more investors look for a stable alternative with a track-record of performance.
“Fine wine investment has demonstrated its ‘worth’ and benefits to investors in 2020 – delivering stable growth and protecting capital, whilst financial markets and commodities have experienced extreme volatility and lost billions in value,” she said.
“As the economic conditions have led to the worst UK recession on record, tragically some companies have failed, leaving investors with nothing to show for their hard-earned cash. In contrast, fine wine has demonstrated its worth as an important asset to diversify and strengthen investment portfolios.”
Souter outlines her argument by comparing fine wine asset performance to other benchmarks to see the value of including fine wine in investment portfolio planning.
For the year up to the end of October 2020, the Live-ex 100 index showed 3.8% growth while the FTSE 100 fell by 21.6%
Not only have fine wine trends stayed strong but the market has grown with Liv-ex reporting record and sustained levels of trade by volume and value during the period.
Souter says fine wine’s key performance characteristic is stable growth which does not directly correlate with volatile financial markets and has historically delivered stronger returns over the long term than equities and other investments. Wine investments also allow investors to hedge against recession, inflation and currency devaluation.
“Fine wine’s ability to hold its value during recession and be resistant to the negative impact of inflation makes it a valuable means of strengthening an investment portfolio,” says Souter. “As a globally traded commodity it also allows for protection against currency movements.”
Less than 1% of the world’s wine production has the quality, brand recognition and secondary market interest to qualify as investment wine. The fine wine investment market has broadened beyond iconic Bordeaux and Burgundy in recent years to recognise a limited number of additional key wines mainly from Champagne, Italy’s Tuscany and Piedmont regions, California, Spain and Australia.
A finite amount of wine is produced each vintage and this has to satisfy growing global demand. For example, Chateau Petrus produces only 60,000 bottles per year and DRC Romanee Conti just 5,000 bottles. Wealth Managers report an increasing number of their clients now including fine wine investment in their portfolio planning and growing demand supports stable growth over time as individual wines becomes increasingly rare once it inevitably starts being drunk. This dwindling supply and increasing demand dynamic is an important characteristic of fine wine performance.
One of the key selling points for some investors is that fine wine is a tangible asset (like art and classic cars) that can be seen and experienced, not simply stocks and shares.
With ‘experience’ being increasingly important for generations like Millennials, fine wine offers the ability to visit the chateaux and wine estates, enjoy tastings and acquire wines from the same producers to drink.
Souter says that the ability to trade in fine wines through the internet has also provided a boost to liquidity. Liv-ex.com was established in 1999 as a ‘stock exchange’ for fine wine and now has nearly 500 international merchant members posting pricing information and trading through the platform.
“This has been a key industry development, providing transparency and efficiency to the market delivering a growing number of channels for investors to buy and exit opportunities for sale,” says Souter.
Fine wine investment specialists like Vin-X provide their clients with valuable performance data derived from Liv-ex which facilitates comparisons with other assets and helps them to understand the value of incorporating wine in portfolio planning and to then assist them to create rewarding fine wine collections.
Sotheby’s – the renowned global auction house that specializes in high-end investments – also has a dedicated wine division. Sotheby’s Wine offers a selection of the world’s best wines for collectors and connoisseurs. The Sotheby’s worldwide headquarters in New York includes a fine wine retail store where wines can be bought for consumption or cases for investment purposes.
Sotheby’s Wine is however better known as the place where auctions of rare fine wines takes place in New York, London, and Hong Kong. These auctions have naturally moved increasingly online, as outlined in their latest Wine Market Report 2020.
This move to more technologically advanced and accessible auctions has also attracted a new generation of bidders and collectors – with money to spend and a passion for fine wine.
According to the Wall Street Journal, ““Sotheby’s said more than 30% of its clientele is now millennials—and their exuberant bidding during the lockdown helped push the house’s online sales to US$285 million, tripling its online total for all last year.”
This was backed up by reporting in The Times, which stated: ““There were encouraging signs for Sotheby’s that it is attracting new, younger customers. More than 30 percent of bidders and buyers had not transacted with the auctioneer before and a similar proportion were aged under 40, it said, with interest shown in areas including luxury watches, wine and art.”
During the COVID period, Sotheby’s Wine presented 5 single owner auctions totalling over $26 million, representing 58% of sales, selling at 50% above the low estimate, confirming the enduring value of great condition and provenance.
Sotheby’s also highlighted the strength of demand in Asia, the attraction of new bidders, and the younger audience attracted to wines and spirits.
Sotheby’s said 20% of bidders were new, and bidders in their 30s and 40s made up more than 60% of those new bidders. Bdders under the age of 50 made up half of the total amount of bids worldwide, and 75% of first-time bidders in New York Wine sales.
What to look for
Cult Wines was established in 2007 in the UK and has gone on to become an award-winning provider of expert insight and fine wine investment.
Cult Wines is a family-run company with a team of specialists providing the necessary expertise, tools and market insight to enable investors to build a profitable fine wine portfolio tailored to their own personal investment goals.
The company has a wide-reaching global influence, with offices in Hong Kong, Shanghai and Singapore as well as new headquarters in London. The company’s guide to investing in fine provides unique insight and a valuable introduction to the art of investing successfully in fine wines.
According to Cult Wines, there is an increasing number of ways to invest in fine wine.
“While seasoned collectors will enjoy the thrill of pursuing and obtaining a particular bottle or case themselves, there are plenty of lucrative options open to those whose fine wine knowledge isn’t up to the same standard or simply do not have the time to build and manage their own portfolio,” they say.
One way of gaining exposure to the wine market is to directly invest into the publicly traded stocks and shares of companies in the industry. For example, LVMH Moët Hennessy Louis Vuitton SE, better known as LVMH, owns a number of high-profile investment grade wineries including Cheval Blanc, Chateau d’Yquem and Champagne House Krug.
The downside of this method is that your investment is a purely financial instrument and will not be directly linked to the underlying tangible asset. Furthermore, by buying shares you are immediately more correlated to the performance of the financial markets.
Alternatively, investing in a wine fund outsources all responsibility for selection to a fund manager. This saves time and effort, but removes any ability for the investor to tailor a portfolio to his or her needs. With a wine fund you do not own the underlying asset and are only trading on the value of the market.
For those with significant capital to invest in this market, there is the option to actually buy and own a winery. In the past few years, this has become increasingly popular with the world’s rich and famous – with Brad Pitt, Angeline Jolie, Alibaba founder Jack Ma and Arsenal Football Club owner Stan Kroenke all purchasing wine properties as part of their investment portfolios.
“The very essence of a passion asset, investing directly in a bottle or case of wine for safekeeping in your own possession can sometimes prove the most straightforward – and effective – method of getting involved with wine investment,” says Cult Wines. “This method also provides interesting tax, ownership and structuring advantages due to the easily transferable status of a case of wine.”
Element of risk
As with any investment, there is a degree of risk associated with fine wines, which is why it is important to deal with trusted experts and conduct due diligence.
Cult Wines says there are numerous examples of short-term trends yielding impressive gains within the fine wine market, but an investment should be viewed as a mid to long-term one, with a period of at least five years.
The wine investment market is unregulated so investors are not protected in the same way that they are when investing in regular financial products. As such, it is important for investors to do their due diligence, and only buy from established merchants and deal with reputable investment houses to ensure you get the expertise you need.
Due to passion assets such as fine wine being subjectively valued, some experts say making a valuation is difficult and sometimes impossible until the point of sale. However, experienced wine investors using online tools like Liv-ex are able to draw on significant data to make better judgements.
As with most tangible luxury assets, there will be a need to ensure the provenance and authenticity of the asset to avoid counterfeits – especially as these are becoming increasingly sophisticated and harder to spot to the untrained eye. Most wine brands have adopted the Prooftag system which allows for tracing and validation of bottles.
However you decide to invest, fine wines are looking like an appealing addition to any portfolio, and their performance in turbulent times is reassuring as well as rewarding.