Investors are increasingly looking to wine as a desirable asset class and the fundamentals do stack up, writes Arun Kakar
Even before the global explosion of the wine industry during the 90s, wine investment has been common practice among collectors looking to hold onto an extra vintage for a few years to pass on. As this segment professionalises even further, it has now evolved into an asset class that wealth managers are looking to with increased interest. A new report by wine experts, Cult Wines, finds that 66 per cent of wealth managers are saying ‘certain’ investors should consider diversifying their portfolios through fine wine.
Why now? The premise is simple. Of the 110 advisers surveyed by wine investment platform Cult Wines, 75 per cent said that investors are weighting their portfolios too heavily towards equities, thus leaving them over-exposed to increased levels of volatility. Fine wine on the other hand, has proven more stable, according to data from the London International Vintners Exchange's Liv-ex fine Wine 1000, an index measuring the performance of the top 1000 wine-producing regions.
Over a ten-year period, the Liv-ex 1000 experienced less than a third of the volatility of the MSCI World index and compares favourably with the FTSE All-Share and gold futures indices. During both the lowest levels of the financial crisis from 2008-10, the Liv-ex 1000 returned slightly less than zero, compared with losses of 25 per cent and five per cent for the FTSE All-share and gold futures respectively. At the heights of the 2015-17 recovery periods, the Liv-ex returned 10 per cent compared to 9 per cent for the All-Share and eight per cent for the gold futures.
‘With global equity markets potentially facing the end of a record bull market, financial advisers are increasingly recognising fine wine’s ability to help investors avoid downside risk,’ says Tom Gearing, managing director of Cult Wines. ‘Fine wine can act as a defensive asset class in times of economic crisis but also benefit from periods of economic growth.’
Indeed, the fundamentals stack up. Three quarters of advisers surveyed pointed to its low correlation when compared to traditional asset classes, and 57 per cent cited a strengthening of demand from emerging makers such as China, which are limited in supply and drive prices higher as a result. Fine wine priced in sterling is also proving a boon for foreign investors, too.
The ascendancy of premier crus has been a significant driver of this success. Burgundy has seen its prices rise by 257 per cent in the last ten years and champagne has risen by 283 per cent. Their upward trajectories showing no signs of abating yet, as auction houses continue to break records for top-end lots.
While 69 per cent of advisers expect their peers to become more familiar with the role of wine in portfolios, it is unlikely to take a central role in investment strategy anytime soon. Like most alternative investments there are additional risks to consider.
‘Returns can be volatile and there is obviously far less regulation or due diligence available regarding these asset classes than on traditional equities,’ says Robert Szechenyi, investment director at Rathbones. ‘There is a great deal of specialist advice out there for anyone interested in investing in wine as a pastime – but again, you should treat it as a hobby rather than a way to achieve your investment goals.’
It’s for these reasons that prospective investors can often find the field bewildering. Scams are common and understanding quirks such as the speculative en primeur market – in which wines are bought before they are bottled – are reasons to seek advice.
Many collectors’ often find themselves as portfolio managers simply because they have accrued more wine than they will ever be able to drink. It’s for reasons like these that 82 per cent of advisers surveyed see that performance data as key to increasing awareness as the industry continues to evolve. As Spear’s Staff writer Olenka Hamilton reported in March, ‘if invested in carefully and with a long term view, it can bring good returns for those looking to diversify away from stocks’.
It’s always worth remembering too that wine investment carries its intrinsic rewards: it is certainly among the most pleasurable ways of generating returns. Now that’s something worth raising a glass to.
Arun Kakar writes for Spear's