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Inside Champagne’s wine investment market

  • Champagne has enjoyed rising popularity as an investment in recent years, which has been reflected in its price performance.
  • The Liv-ex Champagne 50 index has considerably outperformed industry benchmarks.
  • While quality is important, brands and age are the most significant drivers behind its performance.

Champagne has enjoyed rising popularity as an investment in recent years, which has been reflected in its price performance. The Liv-ex Champagne 50 index, which tracks some of the most sought-after wines including Krug Vintage Brut, Bollinger La Grande Année, Dom Pérignon, Louis Roederer Cristal, and Taittinger Comtes de Champagne among others, has significantly outperformed global benchmarks. Over the last decade, the Champagne 50 index is up 108.9%, compared to 41.4% for the Liv-ex 100 and 64.3% for the broader Liv-ex 1000 index.

These numbers clearly demonstrate that Champagne is a smart addition to any diversified investment portfolio and should no longer be considered just a celebratory indulgence.

Champagne’s price performance

Much of Champagne’s remarkable performance happened between mid-2020 and the end of 2022, when the index appreciated 90.9% (May 2020 – October 2022). This period was marked by great uncertainty, from the Covid-19 pandemic, through war in Ukraine, rising inflation and recession. As the ultimate ‘luxury good’ in the fine wine market, Champagne performed particularly well and its rising prices did little to temper demand.

Since then, prices have calmed but demand remains strong. Champagne dominated the list of the top-traded wines on Liv-ex in 2023, with Louis Roederer Cristal 2015 leading the value rankings, and Dom Pérignon 2013 – by volume.

Champagne vs fine wine indices

Supply and demand dynamics

Demand for Champagne has led to increases in its overall production from 50 million bottles in the 1970s to over 300 million today. Of these, Moët & Chandon contributes over 30 million bottles per year, making it the world’s largest Champagne producer.

Despite relatively healthy production volumes, the availability of vintage Champagne is limited (due to its staggering consumption market, which includes hospitality and entertainment industry buyers). This further enhances its desirability as an investment.

As it ages, its quality improves; as it is consumed, its supply decreases. This dynamic brings about an inverse supply curve – the ideal scenario for investors.

Smaller initial costs are another positive, as Champagne offers both new and experienced investors relative affordability. Although prices have moved considerably in recent years, the average case of top Champagne costs less than a case of the top wines of Bordeaux, Burgundy, California or Italy. Meanwhile, the region offers better returns.

What makes Champagne investment unique

The fine wine market has long been influenced by major critics. While critics do play a part in the evolution of Champagne prices, brands and age have proven to be more significant performance drivers.

Champagne houses that have an established and historically proven identity are already ahead of the game; however, endorsements from sources such as royal weddings, celebrities and high-visibility restaurants have paved the way for emerging cuvées.

Champagne is a more direct market than ones like Bordeaux as there are no négociants; the structure in Champagne is such that over 90% of producers are now also distributors.

Thanks to its artisanal qualities, ‘grower Champagne’ is a newly expanding sector (small estates where the brand identity is centred around the vigneron themselves). Leading this group are the likes of Jacques Selosse, Egly-Ouriet and Ulysse Collin.

An added benefit to Champagne’s appeal is its drinkability. If an investor simply cannot resist popping the cork, Champagne can be readily consumed much earlier than premium investment wines, further diminishing supply and driving prices up.

To find out more about the investment market for Champagne, read the full report here.

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Inside the USA’s wine investment market

US wines

The following article is an extract from our USA regional wine investment report.

  • Today, the USA is one of the key fine wine investment regions.
  • Its share of secondary market trade has risen from 0.1% in 2010 to around 8% this year.
  • Demand has been stimulated by a string of good vintages in the past decade, high critic scores, and expanding distribution.

Today, the USA is one of the key fine wine investment regions. Its share of secondary market trade has risen from 0.1% in 2010 to about 8% this year, and an increasing number of previously overlooked wineries are now showing investment-worthy returns.

Inside the USA’s investment market

California has long been the driver behind the USA’s ever-growing presence in the fine wine investment landscape, accounting for roughly 99% of the country’s secondary market trade. Buying demand has been largely UK and US-driven and centred around the top names: Screaming Eagle, Opus One, Dominus, Harlan Estate, Promontory, and Scarecrow.

Price differentials

California is the second-most-expensive fine wine region after Burgundy, based on the average price of its leading estates. However, there are big differences in pricing between the region’s top names.

At the time of writing, the average case price of Screaming Eagle Cabernet Sauvignon is £39,117, compared to £7,399 for Promontory, £3,764 for Opus One, £2,773 for Dominus, and £2,719 for Ridge Monte Bello. To explore average trade prices, visit our indexing tool Wine Track.

Price performance

Prices for Californian fine wines have risen slowly and steadily. Over the last 15 years, the Liv-ex California 50 index which tracks the price movements of the last 10 physical vintages across five of the most traded brands (Dominus, Opus One, Harlan, Ridge, and Screaming Eagle) has outperformed both the Liv-ex 100 and Liv-ex 1000 indices. The California 50 is up 166.2%, compared to 71.6% for the Liv-ex 100 and 116.6% for the Liv-ex 1000. Moreover, over the long and short term, California has fared better than Bordeaux as an investment, yielding higher returns.

The best brands for investment

Among the most popular labels, Ridge Monte Bello has been the best-performing Californian wine, up 121.9% in the last decade. It has been followed by Screaming Eagle Cabernet Sauvignon with a 103.3% rise and Harlan, up 91.1%. All the wines in the chart below have risen over 80% in the last decade.

US wines performance

However, other producers beyond the most traded names have also been making waves. Caymus Cabernet Sauvignon has risen an impressive 154.8%, while Dunn Howell Mountain Cabernet Sauvignon is up 137.5% in the last decade. This data suggests that there is a significant number of American wines beyond the most popular names that can deliver healthy investment returns.

California: A 100-point region

Price performance has been influenced by ‘cult’ status and vintage quality. California regularly tops critic rankings as the region with the most 100-point wines. Relatively consistent climate has led to less vintage variation than in other dominant fine-wine producing regions. Major critic publications like Wine Advocate and Wine Enthusiast highlight 2001, 2007, 2012, 2013, 2015, 2016, 2018, 2019, and 2021 as particularly good.

To find out more about the investment market for US wines, read the full report here.

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Navigating currency volatility in the fine wine market

Currency volatility and fine wine
  • Buying demand for fine wine is impacted by the global economy, where currency volatility plays a significant role.
  • Fine wine indices are frequently quoted in sterling (GBP), making the currency’s strength or weakness a pivotal factor affecting both domestic and international transactions.
  • A stronger pound makes UK-sourced fine wines more expensive for foreign buyers, potentially dampening demand and leading to falls in the indices.

Although uncorrelated to mainstream markets, the fine wine market does not exist in a vacuum. Buying demand and investment interest are impacted by the global economy, where currency volatility plays a significant role.

For investors, understanding the impact of currency movements, especially in a market where prices and indices are often denominated in sterling, is crucial. Here’s how currency volatility influences the fine wine market and strategies investors can employ to navigate these turbulent waters.

The impact of currency volatility

Currency volatility refers to the fluctuations in the value of one currency relative to another. For the fine wine market, which is global, these fluctuations can have a pronounced impact. Prices and indices for fine wine are frequently quoted in sterling (GBP), making the British currency’s strength or weakness a pivotal factor affecting both domestic and international transactions.

When the pound weakens against major currencies like the dollar or euro, fine wine prices in the UK become more attractive to foreign buyers. This increased demand from abroad can drive up prices, as buyers look to capitalise on favourable exchange rates to purchase high-quality wines at lower relative costs. Conversely, when the pound strengthens, as is the case currently, fine wine prices can seem more expensive to foreign buyers, potentially leading to a decrease in international demand and a stabilisation or even fall in the indices that track them.

Real-world implications

Consider the aftermath of the Brexit referendum in June 2016, when the pound experienced a significant drop against the dollar and euro. This scenario offered a golden opportunity for foreign investors, particularly from the US and Asia, who found that their purchasing power had increased overnight. As a result, demand for fine wines priced in sterling surged, driving up fine wine prices.

The Liv-ex Fine Wine 1000 Index, which is the broadest measure of the market and tracks the price movement of 1000 of the most sought-after fine wines, showed upward price movement of 14% in the six months following the referendum. Its rise in sterling was uninterrupted until August 2017. In just over a year, the index rose 21.7%.

This trend was largely fuelled by foreign investors taking advantage of the weaker pound to expand their collections.

Sterling’s strength and its effects

On the flip side, periods of sterling strength present a different picture. A stronger pound makes UK-sourced fine wines more expensive for foreign buyers, potentially dampening demand. This has contributed to a fall in the Liv-ex 1000 index, denominated in sterling. However, when seen in other currencies, the fall in fine wine prices is less sharp.

Liv-ex 1000 index in different currencies

The Liv-ex 1000 index peaked in October 2022 in sterling; since then, the index has dipped 17.5%.

But the losses since its peak have been smaller in alternative currencies. The index hit its highest point in euro in June 2022 and has fallen 16.4% since. In US dollar, the index peaked in March 2023; since then, it has fallen 14%. In Japanese Yen, the Liv-ex 1000 peaked in May 2023 and has fallen 10% since.

A global market with local prices

While fine wine prices may be quoted in sterling, the global nature of the market means that prices inherently hold their value in alternative currencies. This resilience is partly because the value of fine wine is not solely dependent on currency movements but also on factors such as vintage quality, brand reputation, and scarcity.

For instance, a classic Bordeaux vintage will maintain its allure and value to collectors worldwide, regardless of short-term currency fluctuations. This universal appeal ensures that while prices in sterling may rise or fall with the pound’s strength, the intrinsic value of fine wines remains recognised across currencies.

Strategies for investors

Investors can leverage currency volatility to their advantage by staying informed about global economic trends and currency forecasts. Purchasing fine wines when the pound is weak can offer significant value, while selling during periods of sterling strength may maximize returns.

Currency volatility is a double-edged sword in the fine wine market, presenting both opportunities and challenges. Whether taking advantage of a weaker pound to acquire coveted wines or diversifying investments to mitigate risks, the key lies in informed decision-making and a keen eye on the ever-changing economic landscape.

Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

 

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The importance of wine storage

wine storage
  • Storage is arguably the most important factor in preserving the quality of a fine wine and is thus fundamentally linked to its value as an investment.
  • A well-documented history of storage and ownership can significantly increase a wine’s value, serving as proof of its authenticity and condition.
  • Storing wine in-bond has multiple benefits, including deferred taxes, easier international trading and guaranteed provenance.

Wine storage has undergone significant transformation over the years, evolving from traditional cellars in private homes to sophisticated, climate-controlled facilities that cater to the needs of serious collectors and investors. The way wine is stored can greatly impact its quality, and by extension, its value as an investment.

Why is wine storage important

A large part of fine wine’s performance as an asset is down to its ability to improve as it ages. If the quality increases in time, so does its value.

Storage is arguably the most important factor in preserving the quality of a wine. If a bottle is stored improperly, the opposite can happen. Fluctuating temperatures, exposure to sunlight, vibrations and humidity can all degrade the quality of the wine and lead it to lose its value.

By storing your assets in professional dedicated wine storage facilities, you can guarantee that when the time comes to sell, it will be in the best possible condition. This will give the final consumer confidence that the wine is of the expected quality, defending its future value.

The evolution of wine storage solutions

Historically, wine storage was the domain of underground cellars, designed to provide the cool, stable temperatures and humidity levels that wine needs to age gracefully. These cellars, often part of private homes in wine-producing regions, set the standard for ideal wine storage conditions: darkness, consistent temperature around 12-14°C (55-57°F), and relative humidity around 60-70%.

In recent decades, technology has revolutionised wine storage. Climate-controlled wine cabinets and refrigeration units can replicate the conditions of a traditional cellar, making it possible to store wine in any environment. Innovations such as dual-zone temperature controls, UV-protected glass doors, and vibration reduction technology have further enhanced the ability to preserve wine at optimal conditions.

Moreover, professional wine storage facilities offer a level of sophistication and security beyond what most private cellars can provide. These facilities are equipped with state-of-the-art climate control systems, backup power sources to protect against outages, and high-security measures to guard against theft. They also offer inventory management services, ensuring that wines are stored properly and can be easily accessed or audited by their owners.

For investors, the use of such facilities can enhance the value of their collection, as provenance – the history of wine’s ownership and storage – becomes increasingly important in the secondary fine wine market.

The role of provenance in wine investment

Provenance is a critical factor in the wine investment market. A well-documented history of storage and ownership can significantly increase a wine’s value, serving as proof of its authenticity and condition. Professional storage facilities often provide detailed records that can be invaluable in establishing provenance, making wines stored in these conditions more desirable to collectors and investors alike.

In contrast, wines stored in private cellars may lack comprehensive records, potentially diminishing their market value, regardless of their quality or rarity.

In-bond storage

Bonded status is what unlocks the secondary market for fine wine.

Storing wine in-bond means that the wine is kept in a secure warehouse under government supervision without the payment of duty or tax. For wine investors, this presents a significant advantage, as it allows for the storage of wine without the financial burden of taxes until the wine is either sold or removed for personal consumption. Typically, wines can be stored in-bond at their point of entry into a country or transferred to a bonded warehouse specifically designated for wine storage. The wines stored in-bond are trade-ready; they sit within the secondary market ecosystem and can be made immediately available for sale and collection.

Implications for wine investment

The ability to store wine in-bond has several implications for investors.

Deferred taxes: Investors can defer tax payments, improving cash flow and reducing initial investment costs. This is particularly beneficial for wines intended for resale, as the duty and VAT (value-added tax) are only paid if and when the wine enters the domestic market.

International trading: In-bond storage facilitates easier trading of wine on an international scale. Wines can be bought and sold multiple times while still in-bond, without incurring tax liabilities until they are finally withdrawn for consumption. This can significantly enhance the liquidity of wine investments.

Provenance and condition: Bonded warehouses are not only secure but are also designed to provide optimal storage conditions, similar to professional wine storage facilities. The rigorous documentation and oversight in these warehouses ensure the provenance and condition of the wine, crucial factors in maintaining and enhancing its value.

Market value: Wines stored in-bond are often more attractive to buyers, especially in international markets. The assurance of proper storage conditions and the ease of transfer without immediate tax implications make these wines more desirable, potentially increasing their market value.

Storing wine with WineCap

WineCap use London City Bond’s newest storage facility, Drakelow. Three and a half miles of tunnels were blasted out of solid rock, as part of the lavish refurbishment of this former nuclear bunker, which started operating as a dedicated wine storage facility in 2023. Highly secure with entirely natural permanent temperature control supported by the latest dehumidification equipment, Drakelow is the natural choice for maturing reserves.

Every wine in our storage facility gets its own unique identification number (UIDS), thus ensuring that each case has clear ownership.

The practice of storing wine in-bond in bonded warehouses represents a critical aspect of the wine investment landscape. As the wine market continues to mature, the importance of professional storage and provenance documentation is likely to grow, influencing both the strategies of investors and the broader dynamics of wine collecting and investing. Whether opting for a meticulously maintained home cellar or entrusting a collection to a professional storage facility, understanding the impact of storage on wine’s quality and value is essential for any serious wine investor.

Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Passion investing: personal interest or financial opportunity?

passion investing
  • Passion investing refers to collecting items you love and want to keep for the long term.
  • Some of the most popular passion assets that can yield substantial returns are rare stamps and coins, art, classic cars, luxury watches and fine wine.
  • Passion investing offers a unique blend of personal fulfilment and financial opportunity, allowing investors to engage deeply with their interests while potentially earning returns.

Passion investing represents a unique and emotionally rewarding approach to building wealth, diverging from traditional investment avenues like stocks, bonds, or real estate. This investment strategy is grounded in the acquisition of tangible assets that spark personal joy and enthusiasm, ranging from art and vintage cars to rare stamps, luxury watches, and fine wines.

Such investments not only have the potential to appreciate in value over time but also provide intrinsic satisfaction and a deep sense of personal fulfilment. This article offers an overview of passion investing, highlighting the diverse assets involved and the unique benefits they offer, with a particular emphasis on the allure of fine wine.

The spectrum of passion assets

Some of the most common passion investments are art, classic cars, luxury watches and fine wine.

Rare stamps and coins

Collecting stamps and coins is one of the oldest forms of passion investing. Rare specimens, especially those with errors or historical importance, can fetch significant sums. Collectors revel in the history and stories behind their acquisitions, adding a layer of intellectual engagement to the financial investment.

Art

Investing in art involves purchasing pieces from emerging or established artists with the expectation that their value will increase over time. Art investors often enjoy the aesthetic and cultural significance of their collections, providing an emotional return that transcends monetary gains.

Classic cars

Classic car enthusiasts invest in rare and historic automobiles, driven by a passion for automotive design and engineering. These vehicles often appreciate in value, especially well-maintained models or those with historical significance, offering financial rewards alongside the thrill of ownership and driving.

Luxury watches

The market for luxury watches has seen substantial growth, with vintage and limited-edition timepieces appreciating significantly. Enthusiasts appreciate the craftsmanship, history, and prestige associated with high-end watches, making this a passion investment that combines personal enjoyment with potential financial returns.

Fine wine

Fine wine stands out as a particularly intriguing passion investment. Beyond the potential for appreciation in value, wine collectors derive pleasure from the nuances of wine tasting, the history of vineyards, and the art of winemaking. This section will delve deeper into fine wine as a case study in passion investing.

The unique appeal of fine wine investment

Fine wine embodies the essence of passion investing by offering both tangible and intangible returns. As a consumable asset, its value can appreciate due to factors like rarity, vintage quality, and global demand. Fine wine investment attracts those who are not only looking for financial gains but also for the enjoyment of collecting, tasting, and learning about wine.

Diversification and stability

Fine wine has demonstrated a relatively stable investment performance, often showing resilience in the face of economic downturns. Adding fine wine to an investment portfolio can provide diversification, reducing overall risk and smoothing out volatility.

Enjoyment and experience

Investing in fine wine is as much about the experience as it is about the potential financial returns. Collectors often take pride in hosting tastings, visiting vineyards, and immersing themselves in the rich culture and history of wine-making, which adds a deeply personal dimension to the investment.

Inflation hedge

Tangible assets like fine wine can serve as a hedge against inflation. As the value of money decreases, the value of physical goods can increase, protecting the purchasing power of the investor’s capital.

Passion investing offers a unique blend of personal fulfilment and financial opportunity, allowing investors to engage deeply with their interests while potentially earning returns. Successful fine wine investing requires knowledge and expertise. Investors should familiarize themselves with the wine market, including factors that affect wine prices and the best practices for buying, storing, and eventually selling wine for profit. Proper storage is crucial to maintain the quality and value of the wine, and provenance plays a significant role in its appreciation.

To find out how investment in fine wine works in practice, read our in-depth Fine Wine Investment Guide.

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How could 2024’s interest rates impact fine wine?

  • If interest rates increase or stay the same, there may be golden opportunities for savvy investors to fill their wine cellars for lower-than-average prices.
  • If the Bank of England starts to drop interest rates consecutively around May, we would expect the fine wine market to show signs of growth around autumn.
  • Rather than focus on short-term economic events, we encourage investors to buy high quality fine wines, and ideally hold them for at least a decade.

Today’s interest rates are 5.25% in the UK. That is a lot higher than most of us are used to. For example, in 2019 they were just 0.75%. But it is reassuring that they have not been cranked up even more over the past months. Consensus among most economists is that the rates will surely come down again in 2024. The question is, by how much?

Unlike the US Federal Reserve, the Bank of England is warning markets not to expect big cuts. As Reuter’s reports, its ‘policy stance assumes a slow fall in interest rates to 4.25% in three years’ time’. However, many economists think that the rates will fall sooner.

Contrary to the central bank, Goldman Sachs predict rates will dip below 4% by the end of the year, marking a drop of more than 1.25%. Experts at Deutsche Bank are almost aligned, anticipating a 1.0% dip in the same timeframe. Andrew Goodwin, chief UK economist at Oxford Economics consultancy, expects the bank to start lowering rates in May. However, other economists suggest that June is more realistic.

In this article, we consider what these different scenarios mean for fine wine investors. When to buy, when to sell and when to hold are all critical questions as we dive into 2024.

If interest rates increase or stay the same

Continued high rates would probably be unwelcome news for most fine wine investors. Dovish policies like this usually led to a stronger pound, making wine more expensive for international buyers if sourcing from the UK market.

Asian and American buyers are a significant part of the fine wine market and cutting them out would probably lead to a dip in prices, as supply outstrips demand.

High interest rates could also temper domestic demand. After all, when the economy shrinks, there is less money for luxury goods. Buyers may opt for better ‘value’ purchases.

The compelling interest rates of savings accounts could also tempt investors away from illiquid assets. Over the short-term, putting cash into a bank account could seem like a safer bet. Even though, of course, over the long-term, the inflation risk is severe.

Ongoing high interest rates would likely create a buyer’s market. For the first few months of the year, until May, we could expect this to continue happening. Around this time, there may be golden opportunities for savvy investors to fill their cellars for lower-than-average prices.

If interest rates decrease by 0.25% – 2%

The most likely scenario is that the Bank of England will gradually reduce rates, starting from late spring or early summer. Most analysts (including Deutsche Bank, Goldman Sachs and Fidelity) seem to be anticipating a drop of at least 1.0%, and the markets have already priced this into products and forecasts. As seen in the news recently, inflation seems to be cooling, creating the right environment for interest rate cuts. For fine wine investors, this makes for reassuring reading.

Shrinking interest rates will make other low-risk investments like gold or savings accounts less compelling. Investors will probably start to feel the pull of more assets with more generous risk premiums. During the second half of the year, if interest goes down, fine wine prices might slowly increase.

A growing economy usually comes with more money to pop Champagne and see the year through in style. We’d expect the fine wine market to perk up in this environment.

Lower interest rates would probably be welcome news for international investors, as this usually signals better exchange rates. In 2021 and 2022, the weak pound and strong dollar stimulated Asian and American markets, boosting fine wine prices.

If the Bank of England starts to drop interest rates consecutively around May, we would expect the fine wine market to show signs of growth by around autumn. Prices would probably begin to creep up and continue rising with each rate cut. This would balance out the market, likely creating more demand and opportunities for sellers.

If interest rates plunge by 2% or more

It seems unlikely that interest rates will ever return to their pre-pandemic lows. Some experts, like those at Fidelity, argue that the previous rates were even kept ‘artificially low’, and overdue a correction. However, as recent years have taught us, unexpected things can happen.

If interest rates nosedive by more than 2% over 2024, it would probably be exceptionally good for fine wine investors. Both global and local demand would likely increase, as we saw in 2021. With the cost of borrowing plunging, we could expect to see more budgets allocated to luxury products like fine wine, creating more of a sellers’ market.

Fine wine investors in 2021 already enjoyed the rewards that come with a weak pound and low interest rates. International buyers leap into the market, creating a surge in demand.

If the interest rates cascade down to 3% or less by the end of the year, we would expect to see demand outstrip supply, leading to a hike in fine wine prices. This would be welcome news for sellers looking to cash-in their returns.

In the long-term, does it matter?

These predictions cover interest rate hikes over the next twelve months. But the real returns of fine wine tend to come in the longer run. As the Liv-ex 1000 index shows, fine wine prices on average have nearly doubled since 2014.

Rather than focus on short-term economic events, we encourage investors to buy high quality fine wines, care for them properly, and ideally hold them for at least a decade. For us, this is the true beauty of wine; its value is mostly intrinsic.

If you’d like to talk to an expert about buying or selling fine wine, we are just a call or an email away.

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Four years since Brexit: is the UK still an investment hub?

  • British businesses have suffered declines in EU trade.
  • Billions-worth of investment assets have left the UK, opting for EU states.
  • Bucking the trend, fine wine prices soared to heights of 43%.

By the end of 2019, 70% of Brits were already nauseous of the word ‘Brexit’. But behind the fatigue, there was real fear in the air too. As the customs rules came into effect in 2021, gridlocked lorries clogged the roads to Dover, paperwork mounted, and supermarkets shelves began to look increasingly bare. The end of the single market had begun. The past years have been sobering time. According to the latest poll in January 2024, 61% of Brits would vote to rejoin the EU, up from 55% in summer 2023.

But what about the investment markets, and the performance of fine wine? In this article, we are diving into some of the main impacts of Brexit so far.

Added complexity dampened profitability

81% of UK businesses are still struggling with Brexit admin. For wine traders, the paperwork for a single bottle can stretch to over 90 pages, adding significant workloads. UK manufacturers are particularly suffering, with 96% reporting that the new rules have ‘badly disrupted trade with the EU’.

More compliance means more costs. It is estimated that businesses have spent an average of £100,000 each just trying to export goods over the border in the past years.

The complications have also led to once-loyal European customers jumping ship, with the average enterprise missing out on £96,281 since 2020. Two in five UK manufacturers have experienced declines in export volumes.

‘Brexodus’ carried talent (and investment) out of the UK

It is little surprise therefore that busloads of businesses, staff and operations decided to relocate. Welsh wine exporter Daniel Lambert, for example, moved his company to France in 2022. Lambert supplies some of the biggest British supermarkets, including Waitrose and Marks & Spencer.

Dublin has been one of the major hotspots for financial services, snatching-up the UK’s crown as the English-speaking bridge to the EU. This ‘Brexodus’ as it came to be known was great news for European cities. Germany, for example, enjoyed a 21% increase in direct foreign investment in May 2023.

However, it did not bode well for the UK. By March 2022, 7,000 jobs within financial services moved to the EU. Investment funds left too, with 24 firms planning to transfer £1.3 trillion of assets. Funding for British markets faltered.

As a biproduct of Brexit, the supply of skilled EU workers dwindled too. Today, recruiting European talent is 44% more difficult for UK companies. December 2023 saw the launch of even stricter measures designed to curb the flow of foreigners, although it also introduced higher minimum wages for skilled workers.

Slow growth turns off investors

Brexit was accompanied by the Covid-19 pandemic, political instability, and war overseas. While it is difficult to untangle the impact of Brexit, the UK has been notably slow to recover compared to peers. The Eurozone, for example, has grown at more than double the UK pace.

Increasingly, data suggests Brexit threw a wet towel on the UK’s growth prospects. As Jonathan Portes, Professor of Economics and Public Policy at King’s College London, highlights, ‘both aggregate data and survey evidence strongly suggest that Brexit is at least in part responsible for the particularly poor performance since 2016, with investment perhaps 10% lower than it would otherwise have been’.

2024 analysis by the National Institute of Economic and Social Research corroborates, stating, ‘UK real GDP is some 2-3 per cent lower due to Brexit’. Each household is now £850 worse-off following Brexit, rising to £2,300 by 2035.

The retail wine market has suffered but not fine wine

Since Brexit, supermarket wine has had an estimated price increase of £3.50 per bottle. Perhaps in response, the government recently announced measures to ‘cut red tape’. The definition of wine will change to allow for wine mixing, lower alcohol volumes, and even pint-sized measurements.

The prices of fine wine went up too. Investment grade bottles, such as those traded on WineCap, performed exceptionally well during the turbulent Brexit periods. Many investors found fine wine hedged their portfolios against losses elsewhere.

The graph below shows the performance of the broadest fine wine market measure (Liv-ex 1000) over the past five years.

Fine wine vs FTSE 100

In the run-up to the customs changes, fine wine prices rose during mid-2020. Over the following two years, they saw an increase of 43%. This is in stark contrast to the performance of the FTSE100.

The returns didn’t end there. Because of fine wine’s unique tax status as a ‘wasting chattel’ in the UK, nearly all bottles are exempt from costly capital gains taxes. For those earning over £50,271 a year, this means savings of up to 28%.

To invest or not to invest?

Despite taking hits from Brexit, the UK is still an investment hub. Tourists are returning to London, businesses are battling through the headwinds, and gradually it is becoming clear that there needs to be more cooperation with the EU.

Throughout this turbulent time, fine wine has reached new heights. The (potentially Brexit-induced) combination of the weak pound and high dollar opened the floodgates for foreign fine wine investments. And the UK’s thriving tech scene also created inroads for savvy digital investors to trade fine wine. Investors have made the most of these glimmering opportunities to batten-down the hatches and shield their portfolios against some of the other Brexit difficulties.

If you are looking for a smooth way to invest in fine wine, our experts at WineCap are happy to guide you through the journey. Unlike Brexit admin, we are just a call away.

 

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Changes to Capital Gains Tax: what does this mean for fine wine investors?

  • Capital Gains Tax is a tax on the profit when you sell an asset that has increased in value.
  • From 6 April 2024, investors will pay up to 28% tax on profit over £3,000.
  • As a ‘wasting asset’, fine wine is exempt from Capital Gains Tax.

When should you start paying tax should you pay on profit? Apparently, it depends on the year you’re in. Pre-2022, investors paid tax on anything above £12,300. However, the past few years have seen the threshold slashed in half twice. In a bid to plug the “fiscal black hole“, Chancellor Jeremy Hunt announced limit cuts in the 2022 Autumn Budget. From 6 April 2024, investors will pay up to 28% on profit over £3,000.

However, there are some exceptions. Those who take advantage of Individual Savings Account (ISA) tax wrappers, for example, can invest up to £20,000 without paying Capital Gains Tax (CGT). Another exception is fine wine with a shelf life of less than 50 years.

Why is fine wine exempt from CGT?

Fine wine is usually classed as a ‘wasting asset’ or ‘wasting chattel’. This unflattering name is a blessing in disguise. It means that the HMRC do not consider it to be an investment where the profit should be taxed.

Other assets in this same category include personal machines. If you collect classic cars, vintage watches or antique clocks, you could also benefit from CGT-free returns. An added benefit is that these passion investments are inflation busters that tend to ride high despite economic worries.

How much profit can fine wine investors keep?

Provided the fine wine has a shelf life of less than fifty years – which is almost every fine wine – investors can keep all the profit. As we touched on in the section above, this can amount to significant sums. Some of last year’s top-performers, for instance, rose as much as 88% in a year. On average, fine wine prices have risen 14.1% in the last five years, and 62.7% in the last decade.

For other investments, which do attract CGT, such as buy-to-let property, gold, shares, bonds, art or commodities, investors must pay tax after £3,000. If they are basic taxpayers, the CGT comes to 18%. And for higher tax bands, it’s 28%.

How to tax-exempt assets like fine wine impact investment portfolios?

As the expression goes, investors should never put all their eggs in one basket. Spreading wealth across a variety of different assets, known as diversification, is at the heart of modern portfolio theory.

Investing in wasting assets like fine wine, alongside stocks, bonds, property, commodities and cash adds some advantages. One of these is that the tax savings can help balance out the increased taxes and fees from elsewhere. Buy-to-let properties for example are facing a double-whammy of increased taxation and hiked mortgage rates. Off-setting some of these expenses against the profits of wine can help to keep the whole portfolio in check.

Another benefit is that wasting assets generally tend to be inflation resistant, as their value comes from within. This can help to smooth out the inflation erosion of bonds and cash over the long-term.

Finally, wasting assets like fine wine tend to move slowly. While the market ebbs and flows, changes take months. This couldn’t be more different from high-risk stocks or crypto assets, which can soar and plummet in moments. Investing in fine wine can have a calming effect on the overall performance of a portfolio. This could be welcome news for investors who may not relish turbulent performances.

Where can you find out more?

Get a full picture of how fine wine taxation works with our complimentary guide. You can also speak to one our experts completely for free. Simply book a thirty-minute consultation with no strings attached, for a personalised conversation.

 

 

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How to use fine wine as a hedge against inflation

fine wine hedge against inflation
  • Fine wine can effectively hedge against inflation, often outperforming traditional assets like gold and stocks.
  • Investment in fine wine requires consideration of personal ethics, liquidity needs, and a long-term strategy.
  • Strategic timing in fine wine investment, such as early purchases, can lead to significant profit taking.

Since 1914, the price of bread has seen inflation of around 11,000%. In the roaring 20s, a loaf cost under a penny. Fast forward to today, the average bread costs around £1.35. This price rise is not due to an increase in the quality of bread but rather a reflection of the decreasing purchasing power of money over time. In the words of the French writer and Burgundy lover, Hugo Voltaire, ‘Paper money eventually returns to its intrinsic value – zero’.

As well as playing havoc with our savings, inflation can be the undoing of fixed-income investment portfolios too. Unless the interest rates outpace the loss of purchasing power, repayments will be worth less and less each year. In these tense economic times, investors may be tempted by hedge funds and hedging assets like derivatives. While these can offer reassurance, they’re also complicated and expensive. So-called ‘safe haven’ assets like gold and property are also effective inflation-hedges. But right now, they are trading at a premium. This article explores an alternative option: fine wine as a hedge against inflation risk.

Assess your inflation exposure in your investment strategy

If you invest in liquid and fixed-income investments like cash or bonds, your wealth is probably exposed to inflation. This tends to be more typical for those closer to retirement, as they may need access to regular funds. Start by identifying these assets in your portfolio. Pay close attention to bonds which last more than five years, as the interest payments (or coupons) could be more at risk of losing value over time.

Once you’ve identified the riskiest assets, refer to your strategy. There may already be a plan for how to deal with periods of high inflation. Most managers will build-in hedging assets from the beginning. But many will also deviate from the strategy tactically from time to time. For example, in high inflation environments, they might sell some bonds and buy stocks – known as going ‘overweight’ or ‘underweight’ from the original allocations. This is what you may need to do if you have too much inflation risk in your portfolio. Depending on your financial needs, fine wine could be a sensible alternative investment for you.

Consider if fine wine is right for you

Fine wine is a truly excellent hedge against inflation. However, it may not be suitable for everyone. If you do not want to invest in fine wine because of religion or personal reasons, you should follow your ethics. Wine is not the only inflation-resistant asset, and you may be better suited to art, luxury watches and collectible cars.

You should also consider your liquidity needs. Fine wine is a long-term asset with intrinsic value. Investors can only collect returns after the bottles have been sold. And for the best results, that could take upwards of five years.

Investors should also be aware that fine wine is traded on the private market. Nowadays, this is much easier than it used to be. Instead of attending physical auctions and joining exclusive clubs, you can find fine wine investment platforms online.

Find a wine to suit your time horizon

The value of fine wine typically increases with age. Investors often buy fine wine at least five years in advance, with some opting for En Primeur purchases.

In this world, timing is everything. And if you can get it right, you stand to make a handsome profit. Over ten years, Domaine Arnoux-Lachaux Nuits-Saint-Georges Rouge, for example, has delivered returns of 525% and counting.

Before you begin, consider carefully what type of time horizon you are comfortable with. Ideally, you’re looking to plug the inflation gaps in your portfolio, without landing yourself into an illiquidity issue. For example, if you’re concerned about the inflation risk of some five-year bonds, you could look into ‘brands on the move’ that have historically delivered faster returns.

Understand the fine wine market

Fine wine attracts a diverse range of buyers, from enthusiasts to those purchasing for business or personal milestones. Understanding buyer motivations and regional preferences is key to strategic investing. Seasonal trends, like the heightened demand for Champagne towards the end of the year, also play a role in maximising returns.

A precious and depleting asset with intrinsic value

If you’re looking to shield your wealth from the erosive effects of inflation, fine wine could be the answer. It is a precious and depleting asset, with intrinsic value. As one academic paper recently found, ‘fine wine has outperformed almost every other major financial index over the past two decades’. However, to get the best results, you’d probably need to buy, hold and think long-term.

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Can fine wine investment balance crypto volatility?

Cryptocurrency
  • 31% of Brits are setting resolutions to organise their finances in the new year.
  • One of the most talked-about investments – cryptocurrency – attracts with the potential for high returns but also carries high risk.
  • Offering smoothness and stability, fine wine can balance crypto volatility.

As we welcome in the new year, 31% of Brits are setting resolutions to organise their finances. For many this will mean investing. But where should they invest? And how risky is too risky?

In this article, we dive into one of the most talked-about high-risk investments – cryptocurrency. We explore the pitfalls and what investors can do to mitigate them. We also look at how fine wine – our favourite asset – can complement volatile investments like crypto to help smooth overall performances.

11,000 cryptocurrencies… and counting

Most people are familiar with Bitcoin and Ethereum, the two most popular digital coins. However, there are nearly 11,000 cryptocurrencies, with more issued every day. Some are eye-wateringly volatile. At the time of writing, for example, KILT-USD has jumped nearly 25% in just three months. Meanwhile, others are much steadier.

StableCoins are considered the sturdiest as their market value is pegged to mainstream fiat currencies like the US dollar. This means that their worth should – in theory – be the same as the everyday money in our wallets. But the reality can be different.

StableCoins and de-pegging events

Even the most trusted StableCoins – Tether, USD Coin, Multi-Collateral Dai, Binance and USDP dollar – stray away from the dollar value from time to time, known as ‘de-pegging’.

SPGlobal identified 13 core triggers: market volatility, liquidity stress, reserve impairments, mismanagement, demand and supply imbalances, loss of investor confidence, competitor performance, design flaws, hacking, operational risk, limited adoption, regulatory uncertainty and market events can all de-peg StableCoins, leading to erratic and volatile performances.

Risk and return profile of StableCoins

StableCoins are full of promise, but they are also incredibly young. The oldest StableCoin, Tether, is just nine years old. Although regulators are scrambling to offer investors more security, they are still some way off.

Buying asset classes before they have matured presents both risks and opportunities. Higher risk opens the door for higher rewards, but when things go wrong, the fall-out can be fatal. Famously, in May 2022, Terra’s StableCoin crashed dramatically, costing investors $450+ billion. Shortly after came FTX fall, plummeting a further $200+ billion. The aftermath left thousands of investors badly out of pocket with little to no regulatory protection.

For years, regulators like the FCA have been warning investors not to invest too much in crypto, as worrying surges of people lose their entire life savings to this digital asset.

A dire need for diversification

To avoid losing everything in one sweep, investors should spread their money across assets with distinctive characteristics and revenue streams. This process, known as diversification, means the gains from some investments cancel out the loses from others.

Without personal financial advice, it is impossible to say how much of a portfolio should be invested in crypto. However, as a rule, experts have warned against investing more than 5% of wealth. Some even cap the limit at 2%.

Similarly, investors should probably limit other risky assets too. Meme stocks, commodities, derivatives or trending collectibles can all derail a portfolio if they make up more than 10%.

Pairing fine wine and crypto

Unlike digital assets, fine wine moves slowly but surely. Since the end of 2003, the performance of the top 1000 fine wines (according to the Liv-ex 1000 index) has crept little-by-little up by a whopping 315%. But since the rise is smooth and gradual, it does not feel volatile or erratic.

Month-on-month the average fine wine index value rarely changes by more than 5%. By contrast, between the 25th of September and the 25th of October alone, Bitcoin fluctuated by over 30%.

These properties could make fine wine an excellent partner for crypto assets, like StableCoin. The steadfastness of fine wine can help to slow and flatten the rollercoaster effect of crypto has on a portfolio.

Contrasting sources of value

Aside from smoothing volatility, there are other reasons why fine wine could pair well with crypto. One of the strongest is the value source.

Crypto is not backed by a real asset. Some experts argue that the energy used to create a coin is its value. But it is generally agreed that the value of crypto comes from the wider market and the potential that others see in it. So, when the market is in turmoil, prices plummet.

By contrast, fine wine gains its value intrinsically. Put simply, the premise of wine investment is that as fine wine ages, its quality improves, and prices rise. The market operates with its own dynamics based on vintage quality, scarcity and global demand. Whether it’s bullish, bearish or something else, fine wine is still treasured and sought-after.

In this respect, crypto and fine wine investments could pair beautifully. Fine wine offers smoothness and stability. Meanwhile, crypto offers investors higher risk-reward potential and quick liquidity.

Investing responsibly

StableCoins are surging in popularity. Governments, institutional investors and regulators all dipped their toes into crypto over the past months, indicating that further expansion could be around the corner.

This might lead to more growing pains and continued volatility. For those who chose to invest in this young asset, diversification is crucial. Examples of assets which are less affected by the stock market include property, gold or fine wine. We feel that the characteristics of fine wine pair especially well with crypto, helping investors to hedge against volatility risk and smoothen their overall performances.

If you would like to talk to us about investing in fine wine, we’re just a few clicks away.