Reasons to consider fine wine as an investment
There are a number of reasons why investors should consider fine wine as part of a diversified portfolio of investments.
A Mature Approach
Since the 2008 financial crisis, exponents of alternative assets have devoted their time and energy to building portfolios of fine wine and rare whisky. Serious investors and collectors are choosing this approach to protect their wealth away from the risks associated with an increasingly leveraged global economy.
|First Growth||Second Wines||Second Growths||Third Growths||Fourth Growths||Fifth Growths||Right Bank|
|Haut Brion||Clarence H-B||Cos d’Estournel||Palmer||Beychevelle||Lynch Bages||Angelus|
|Lafite||Carruades Lafite||Ducru Beaucaillou||Duhart Milon||Cheval Blanc|
|Latour||Forts de Latour||Lascombes||Figeac|
|Margaux||Pavillon Rouge||Montrose||Le Pin|
|Mouton||Petit Mouton||Pichon Baron||Pavie|
|Leoville Les Cases|
The London International Vintners Exchange, known as Liv-ex, represents the largest pool of professional fine wine buyers and sellers globally. Liv-ex produces a number of fine wine indices that track prices for a given group of wines, with the broadest measure of the market being the Liv-ex 1000 index, which tracks 1,000 wines from across the world using the Liv-ex mid-price.
The Liv-ex fine wine 1000 index comprises seven sub-indices, being the Bordeaux 500, the Bordeaux Legends 50, the Burgundy 150, the Champagne 50, the Rhone 100, the Italy 100, and the Rest of the World 50.
Over the past five years the Liv-ex 1000 index has risen by 43.56%, with the stand-out sub-index being the Burgundy 150, which has risen by 105.05%. On both a one year and a five year timeframe, each sub-index was up.
A Favoured Asset With High Net Worth Individuals
A 2012 study by Barclays Wealth and Investment Management found that 28% of high net worth individuals had a wine collection, with 2% of their wealth tied up in wine.
Reduced Volatility vs Other Asset Classes
Fine wine markets have shown negligible correlation to both emerging and global equity indices, thereby demonstrating the defensive attractions of holding tangible alternative assets. Investors are increasingly seeking safe haven assets like fine wines to offset the risks associated with an increasingly leveraged global economy.
Finite Supply And Increasing Demand
With there being only in the region of 50 producers globally of wine deemed to be investment grade, the supply of fine wine is limited. Wine is unique amongst treasure assets in that it is made to be consumed, unlike assets such as precious metals, coins, fine art, and antique furniture etc… This has the effect that as a vintage is consumed over time, supply decreases, which serves to support price appreciation. Furthermore, the quality of the wine improves with age, lending itself to increased consumption and increasing the rarity and desirability of remaining stock. With growing demand from Asia, the demand for fine wine looks set to remain strong going forward.
A Tax Efficient Asset
Fine wine can be considered as either a “wasting asset” or “chattel”, ensuring that Capital Gains Tax does not apply. Furthermore, provided the wine remains stored “in bond”, then prices are exclusive of both Duty and VAT. Further information can be provided by your consultant at London Barrelhouse, but we would nonetheless strongly recommend that you obtain your own advice from your tax specialist or financial advisor.
Liquidity is provided through the global trading network of merchants on Liv-ex.com, of which London Barrelhouse is a member. As of October 2018, bids and offers on Liv-ex totalled over £50 million, with a bid:offer ratio of 1.09. There is a growing secondary market for fine wine, and there are now a record number of wines traded on Liv-ex. London Barrelhouse will also endeavour to provide liquidity to its investors, thereby providing an additional liquidity medium.
Being a tangible asset, wine offers physical diversification away from paper assets such as stocks and bonds. To properly protect against the shocks and turmoil from events like financial crises and cyber warfare, investors should strongly consider diversifying a portion of their wealth into physical assets with a high intrinsic value such as fine wine. There is no time like the present to take defensive action by acquiring nondigital assets like fine wine.