Category: Learn

Categories
Learn

How Climate Change Affects the Value of Fine Wine

Fire in forest outside Bordeaux as viewed from the water

The greatest risk for many investors today is – undoubtedly – the climate crisis. Each year the planet warms by 0.018 degrees Celsius[1]. And the past six have been among the hottest since records began. The resulting floods, fires and changing biodiversity are impacting nearly all asset classes and investment types. By 2050, climate change is anticipated to restrict global GDP by 14%[2].

For investors in fine wine, the rising heat could signify the end of an era for some of the greatest flavours, adding further scarcity to valuable bottles. On the other hand, the changing temperatures could offer interesting opportunities elsewhere.

In this article, we’ll uncover the major threats and opportunities for fine wine investors.

Scarcity will make much-loved bottles more valuable

Vineyards across Southern Europe and wine regions of North America are facing an uphill battle trying to mitigate the effects of climate change. In August 2022, an unprecedented hailstorm tore through Châteauneuf-du-Pape vineyards in France. The 120 mile-per-hour wind destroyed up to 90% of the vines in some of the most celebrated plots. So extreme was the storm that one vineyard owner described the scene as ‘completely shredded’ and ‘not a leaf is left'[3].

On the other end of the spectrum, extreme heat waves combined with drought in the summer provoke catastrophic forest fires. While only a small number of vineyards are caught up in the blaze, the resulting smoke can disrupt the delicate flavours and quality of the wine. Smoke taint – the ashy taste that lingers – can render entire harvests useless, leaving assets stranded. Even prized and world-famous regions like Bordeaux are feeling the painful financial impact.

It seems inevitable that many of the most-loved wines will become less and less available in the future. What this means for investors is that already-rare bottles are likely to become even more scarce and sought-after. Fine wine is already a limited and depleting asset, which climate change exacerbates. What’s more, as hungry new collectors enter the market, demand could even further outstrip supply, further raising the value of fine wine.

What’s more, according to 2021 data from Knight Frank, the average fine wine investment has returned a staggering 127% over ten years. Sticking to the strategy almost always pays off.

New flavours may be hard for investors to stomach

Even for regions without droughts or forest fires, climate change can seriously impact the flavour of wine. This is because the lack of water irrigation, combined with heat waves creates more sweetness and less acidity in the grapes. To avoid the wine becoming too sweet, producers may need to harvest early, which risks missing out on characteristic and valuable secondary flavours.

Not only could iconic wines now start to lack their defining volume, but the added sweetness could mean different varieties taste more alike. For wine lovers, who may enjoy certain brands or pride themselves on detecting notes, this development could be hard to stomach. There is a serious investment risk that future bottles could lose value, compared to their ancestors.

To avoid this cultural and financial damage, some regions are now lifting regulations to allow irrigation. In August 2022, for example, the Institut National de l’Origine et de la Qualité gave special dispensation for three sites in Bordeaux to water their vines. What this means for investors is still unclear. Depending on the success of regulations and irrigation systems, future harvests may yet retain their distinctive taste and value.

Another intriguing development triggered by climate change is the renewed focus on hybrid grapes. As famed vineyards look to adapt and mitigate against extreme weather, producers are working side-by-side with scientists to create more resilient grapes. While many critics remain sceptical, hybrid grapes could help vineyards restore some of their former glory..

Exciting investment opportunities are entering the scene

There are not many silver linings to the catastrophic climate situation. However, for investors in fine wine, there is a unique and exciting opportunity to buy new varieties early. As the planet warms, new terrains are opening, in previously unthinkable places.

Incredibly, vineyards are popping up in the UK, Belgium, Norway, and Sweden. In the UK, the wine real estate market is enjoying unprecedented growth, with land selling for £25,000 per acre[4]. English land dedicated to winemaking has more than doubled in the past eight years and looks set to continue[5]. As increasing numbers of producers and investors snatch up these pockets of land, it seems likely that the British wine scene is about to mature. Sparkling wines in particular, such as those produced in Sussex are exploding in popularity, with some critics describing the taste as comparable to Champagne. As of July 2022, sales of English and Welsh wine have surged by 69% from 2019[6]. Whether this boost will translate over to the fine wine market has yet to be seen, but with the warmer climate, British bottles could prove to be an interesting investment opportunity.

Vineyards with a sustainable focus look promising

Of course, the impacts of the climate crisis go far beyond the physical weather changes. Consumers are increasingly looking at the sustainability of their products too and thinking about how their money affects the planet. According to 2022 research, 48% of US alcohol drinkers say that they’re more likely to buy bottles if they see the company has sustainable or environmental initiatives[7].

In many ways, fine wine investments are already good for the environment, which is good news for the market. And it seems that those vineyards with extra sustainable initiatives in place could be even better positioned to capitalise on this trend.

 

[1] Source: Visual Capitalist

[2] Source: SwissRe

[3] Source: Wine Spectator

[4] Source: Spears Wealth Management

[5] Source: Wine GB

[6] Source: Wine GB

[7] Source: IWSR

Categories
Learn

3 Rules for Fine Wine Investors During Market Turbulence

Stocks on large screen

As a perfect storm of pandemics, war, inflation, climate change and unsteady politics collide, many investors are feeling the impact in their portfolios. With currencies, bonds and even equities zig-zagging downwards, it can be a stressful time.

For investors in fine wine, however, the tumultuous environment provides an opportunity not just to preserve wealth but to enhance it. In this article, we’ll uncover three essential rules to help maximise returns and avoid pitfalls.

1. Avoid emotional investing with a steadfast strategy

While most wine investors are deeply passionate about the industry, for the best returns it’s important to avoid emotions when trading.

When an asset is plunging, many investors fear that it will lose even more value unless they sell quickly. This reaction can lead to terrible investment decisions, like selling at the lowest possible prices. Likewise, when other assets are growing, many investors want to jump on the bandwagon to boost their returns. This fear and euphoria style is known as “emotional investing” and it costs investors around 3% of their returns each year[1]. During high-stress periods, like recessions or market downturns, emotional investing losses can increase to 6% or 7%[2]. Market noise and herd behaviour can ramp-up the emotional pressure exponentially.

To avoid suffering from needless losses, investors should try to stay cool when a market storm is brewing. In the words of world-leading investor, Warren Buffet, “To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.” Experts agree that the best way to do this is to create a risk-adjusted strategy, diversify and – no matter how you may be feeling that day – don’t deviate from the plan.

It can also help to remember that investments in fine wine have proved to be resilient against market shocks over the long-term. The Liv-ex Wine 1000, for example, has grown in value by 50.8% over the past five years. And since its inception in 2004, prices are up nearly five-fold.

Graph showing the Liv-Ex 1000 growing since 2004

Source: Liv-ex

What’s more, according to 2021 data from Knight Frank, the average fine wine investment has returned a staggering 127% over ten years. Sticking to the strategy almost always pays off.

2. Remember fine wine can be a useful shield in recessions

It can be easy to get caught up in the mayhem of the outside markets, especially when there is so much noise and uncertainty. But investors should remember that fine wine is an alternative asset – and so it’s unlikely to be impacted.

Alternative assets are investments which derive their returns away from the public stock markets. Many will even increase in value during recessions. For example, while stock markets tumbled during the pandemic, fine wine enjoyed significant growth. Over the past two years, the Liv-ex Fine Wine 1000 has performed exceptionally well, delivering returns of 34.9%[3].

Other alternative assets include crypto assets, private equity, private debt, derivatives, collectables and precious metals like gold. Examples of less mainstream assets include litigation finance, art, domain names, whiskey, comic books, music royalties and of course, fine wine. These investments can help shield investors’ wealth from market shocks.

At the high-end, fine wine derives its value from two key streams: intrinsic factors and a self-contained marketplace.

Intrinsic factors include things like the quality of the vineyard, year of production, storage, or label. While the self-contained market is made up of a niche group of collectors and investors. These are often extremely wealthy and passionate people, who are probably less affected by inflation or interest hike scares. It’s also a global market, rising above any one region.

One of the superpowers of fine wine is that it’s a famously recession-resistant asset. During market downturns, it can be helpful to have a few premium bottles in a wealth portfolio.

3. Take advantage of fine wine’s inflation-shielding properties

Across the world – and especially in the UK – inflation is reaching record highs. In September 2022, the Consumer Price Index (a measurement of the change in prices) hit a whopping 8.8%[4]. What this means for investors is that debt, cash, and cash-like assets will erode in value faster than normal. But that’s not all.

To slow the economy and prevent lenders from abandoning their investments, central banks usually raise interest rates too. This can have a ripple effect across the markets, sometimes causing businesses to buckle and mortgages to falter. Many of the traditional “60% equity, 40% bonds” investment portfolios may suffer from losses during these turbulent times. Fine wine, however, is different.

This is because the value of fine wine – unlike debt, equity, and even property – is not directly impacted by inflation. As a sought-after and tangible asset, fine wine retains its worth. This makes it an excellent diversifier for investors, who are looking to shield their wealth from inflation.

The fine wine market is over-brimming with potential

The fine wine market is an exciting and vibrant space. Filled with passionate investors and recession-resistant bottles, it’s over-brimming with opportunities.

If you’re interested in finding out more about how you can diversify your wealth and shield against inflation, we’d love to hear from you. We offer complimentary 30-minute consultations where you can ask questions and discover more.

 

[1] Source: Oxford Risk and Financial Times

[2] Source: Oxford Risk and Financial Times

[3] Source: Liv-ex

[4] Source: UK ONS

Categories
Learn

How Does Fine Wine React in a Recession?

Bottles of wine in rack

It’s impossible to know how exactly any asset – including fine wine – will react in a recession. Commonly defined as two consecutive quarters of shrinking Gross Domestic Product output, recessions can have many different causes and implications for the investment markets.

Fine wine, however, has a fascinating trend when it comes to economic downturns. Its characteristics make it a uniquely recession-resistant investment.

In this article, we’ll uncover some examples, and explore how the characteristics of fine wine make it such a useful asset during turbulent times.

A track record of performing well in recessions

Throughout history, as stock markets plummet, fine wine has tended to preserve or even grow in value.

For example, during the COVID-19 pandemic, the Liv-ex Fine Wine 100 index grew in value every month from June 2020 until June 2022. As stock markets around the world tumbled and economies cascaded into recession, the value of fine wine grew over 36%[1].

We saw a similar turn of events with the 2008-09 Financial Crisis. Between August 2008 and February 2009, prices in the S&P 500 index nose-dived by 52%[2] – the largest drop since World War II[3]. By contrast, after a brief dip, the fine wine market began rallying in November 2008. The positive performance of the Liv-ex market lasted until May 2011 and returns ballooned by 70%[4].

Throughout history, analysts have noticed this fascinating correlation. Fine wine and drinkable assets in general seem to be recession-resistant. Sometimes, they even flourish in these environments. So, what makes this delicious investment so robust? Experts have identified five key properties which could help to explain this fascinating success.

Characteristic 1: Tangible asset

Tangible assets – like fine wine – tend to do well in recessions, as investors look for reassurance in “real” valuables they can hold. They can also provide an excellent hedge against inflation over time.

Precious metals like gold, for example, tend to shine out for investors when the outside markets look gloomy. Recently, we saw this during the turbulent 2020-2022 coronavirus pandemic. On the 1st of January 2020, a kilogram of gold cost investors £36,807. By the 9th of September 2020, it had rocketed to £48,151, a 31% increase[5].

Another tangible asset is property. While there have been government stimuli such as Stamp Duty cuts at play, we can still infer that people tend to veer toward physical property or “real” estate during a recession. For example, the average cost of a UK home was £247,000 in January 2020[6], by July 2022, this rose to £292,000[7].

Because fine wine is a physical asset it can be extremely reassuring for investors. What’s more, as it is a scarce asset, with each vintage diminishing over time, it usually grows in value.

Characteristic 2: Scarcity

Owning something rare has always been appealing to investors. And when the object is depleting a little more every day, it can become even more precious. Fine wine certainly falls into this category, as a limited number of bottles are produced each year and then slowly consumed.

What’s more, investors in fine wine tend to be passionate. They care deeply about what they’re buying, so unlike many antiques or other collectables, the value isn’t just theoretical. Fine wine investors are often willing to pay a premium for sought-after vintages. If the bottle is rare enough, it can even venture into hundreds of thousands of pounds at auction.

Scarcity – when demand far outstrips supply – is one of the major characteristics of fine wine. And it could be part of the reason why the asset tends to shrug off recessions. Regardless of the stock market outside, when a bottle is deeply sought-after it remains valuable. As vineyards are increasingly grappling with the logistics of climate change these bottles may become yet more scarce.

Characteristic 3: Edible asset

Edible assets such as food staples and alcohol tend to remain strong, especially in recessions. Even when consumers tighten their purse strings and steer away from luxury spending, they will still need to buy food from their local supermarket. And, when it comes to alcohol, this holds true as well. Recessions don’t stop people from drinking alcohol. Some studies even suggest that consumers ditch beer in favour of hard liquor in these tough times[8].

Fine wine is no exception. During the COVID-19 lockdown, many people were forced to create their own vacation and special occasion experiences at home, leading to a boost in fine wine sales. According to one survey cited by The Drinks Business, 73% of participants reported spending more on fine wine than at the start of the lockdown[9].

We can also see this trend in the dramatic rise of champagne sales over the COVID-19 period. Trade volumes for Magnums have particularly popped, increasing by a staggering 130% from March 2020 to June 2022[10]. This suggests that the resilience of fine wine market matches the resilience of its drinkers, people will always find a reason to celebrate … or drown their sorrows.

Characteristic 4: A self-contained market

The fine wine market is global, yet niche. In particular, the high-end rises above local and regional indices. And this could be another important factor behind its recession resistance. For example, if the FTSE-100 or S&P 500 takes a tumble, the high-end of the fine wine market shouldn’t be impacted because it is self-contained.

In an environment where so many assets and asset classes are connected to each other, this is a valuable characteristic. As the recession today thunders towards us, investors are expressing concern that traditional alternative investors are starting to behave more like mainstream assets. Cryptocurrency took a devastating blow earlier in the year, showing that in many ways it’s more sensitive and volatile than the public stock markets. And some economists are speculating that gold is also losing its sparkle as it slowly starts to mirror the wider markets.

Finding an asset with an independent self-fulfilling market is a rarity for investors and can offer exceptional diversification. Genuinely alternative asset classes are becoming harder to find.

Characteristic 5: Favourable tax

Another way that fine wine investors stay afloat during recessions is by keeping more of their returns. In the UK, for example, the drinkable asset should be exempt from Capital Gains Tax (CGT). This means that basic rate taxpayers could keep 10% more of their returns, and for higher rate payers that figure rises to 20% (after the annual exemption limit of £12,300 according to 2021/22 tax rules).

There are two main routes for fine wine investors to save on CGT. The first is if the fine wine has an expected life of fifty years or less. If so, it’s considered to be a “wasted chattel”, and is exempt. The second avenue is if the bottle is sold for less than £6,000. In this circumstance, the transaction is also outside the scope of CGT.

It’s worth noting that investors may still need to pay for storage costs, inheritance, and income tax. To find out more, download our complimentary 2022 Guide on Fine Wine Taxation. While this document is intended to be helpful, it is not advice. To find the best solution for you, speak to a tax advisor.

… Looking to get started?

If you’re interested in learning more about the benefits of investing in fine wine, we’re here to support you on your journey.

 

[1] Source: Liv-ex

[2] Source: Data from Yahoo Finance

[3] Source: Investopedia

[4] Source: Liv-ex

[5] Source: Gold price

[6] Source: ONS

[7] Source: ONS

[8] Source: Craft Brewing Business

[9] Source: The Drinks Business

[10] Source: Liv-ex

Categories
Learn

Fine Wine & Sterling: Opportunities for Asian & American Investors

Investor working out sums on calculator

While the plummeting pound may be bad news for many stock market investors in the UK, overseas fine wine collectors can pick up once-in-a-lifetime bargains. In this article, we’ll uncover why the strong dollar and weak pound represent a unique opportunity for investors in the US and Asia.

The pound has fallen, fine wine has not

To avoid dealing with burdensome conversion rates, fine wine is generally traded in sterling. Bottles from all over the world are listed and compared in British pounds on the global market.

This means that as the foreign exchange rates ebb and flow, the prices of the wine can seem more or less expensive to overseas investors. For example, on the 12th of February 2018, a bottle costing £1,000 would have set back US buyers $1,402.60. The following month, on the 12th of March 2018, the same bottle costing £1,000 would have come to $1,394.30 [1]. Usually, with stable currencies, you would expect the differences to be relatively marginal. High-end investors probably wouldn’t give too much importance to a couple of dollars difference when they are spending thousands.

Recently, however, the value of sterling has fallen dramatically against the US dollar. The pound has nose-dived to the lowest value in forty years, which is excellent news for opportunistic investors overseas. Buyers who deal in dollars can pick up exquisite wine for exceptionally low prices. On Tuesday 27th September, the same £1,000 bottle would cost US investors just $1,080. For collectors over the pond, Black Friday has come early in the wine markets.

US & Asian investors surge forward

Data from Liv-ex shows that many overseas investors have already taken advantage of the plunge in prices. As the pound began to tumble on Friday 23rd September, US buyers became more active. By Monday morning, they had accounted for 39.1% of trade, more than double the previous weekend of 16.9% [2].

Investors in Asia also took part in the advantageous market. Some currencies such as the HK dollar are linked to the US dollar, so investors in Hong Kong could also ride the favourable FOREX wave. But even currencies which are not directly linked to the US currency could benefit from the low sterling.

Although the Chinese Yuan has also suffered historic lows against the US dollar recently, it’s still doing relatively better than the pound. Buying fine wine in sterling means these investors can also benefit from superior exchange rates. Over the weekend from the 23rd to the 26th of September 2022, Asian buyers also accounted for the larger share of Liv-ex trading volumes. Around 11.7% of all movements came from Asian investors in September, up from 8% in August.

More buyers are (probably) good for the market

As the old economic theory states, when demand exceeds supply, prices rise. Over the long-term, having a more varied and international group of buyers is likely to be a good thing for fine wine investors. It could lead to higher prices and more liquidity, which is almost always welcome.

As new buyers reveal themselves it will be interesting to see how they react to market events. At the time of writing, fine wine is a famously recession-resistant investment. This is partly because the market is niche and not susceptible to stock market fluctuations. However, if too many investors enter, seeking to shield from market shocks with short-term alternative income sources, this could reduce some of wine’s recession resistance.

Overall, however, more buyers – especially those who are less impacted by the value of the pound – are likely to bolster and raise the fine wine market.

How long will the low prices last?

It’s impossible to predict how long the weak sterling will last. What we can say with relative certainty is that the sudden drops over recent weeks have been triggered by internal political events. Specifically, the change of UK Prime Minister, radical tax plans and proposed national deficit increase have spooked investors.

On the morning of the 28th of September, the Bank of England stepped in to buy up government bonds. This saw a small uptick in the strength of the pound, which indicates that it is still possible for the pound to regain some of its power, with the right intervention. We also do not know at this stage if all of the proposed tax cuts and borrowing will go ahead. If they are abandoned, we could see the markets breathe a sigh of relief and the pound could resurface too.

For US and Asian investors looking to buy up exquisite wine at exceptional prices, there’s no time like the present. Precious bottles can also be an excellent shield against inflation, helping investors maintain the value of their wealth in spite of any market turmoil outside.

 

[1] Source: MacroTrends

[2] Source: Liv-ex

Categories
Learn

7 Under-Used Alternative Investments

Man at laptop

Like a nervous first date wondering if they’ve been stood up, cryptocurrency has kept alternative investors biting their nails, on the edge of their seats and glancing restlessly at the door. As a decentralised asset, it shouldn’t have been impacted by rocketing inflation, rising interest rates or other market shocks. But the theory isn’t holding up. When disaster struck, crypto investors behaved in the same way as the stock markets – if anything, they panicked more. Over recent weeks, crypto enthusiasts felt their stomachs lurch as Bitcoin plummeted to less than the value of creating it [1] … It’s a punch in the face for hopeful diversifiers who turned to crypto as an alternative asset.

In this article, we’ll uncover seven fascinating and under-used diversifying investments, that truly steer clear of the market. In theory and in practice. ‘Alternative alternatives’ to inspire you as you build (or re-build) your portfolio.

1. Litigation finance

The up-and-coming investment that almost nobody has heard of. Litigation investors help people to cover the cost of their legal suit and take a share of the damages if they succeed. This type of finance has the potential to do good for society, while offering an alternative source of revenue to investors. Most recently, it’s being used in greenwashing and climate cases, so alternative investors can help protect the environment too. The downsides are that it is risky, not possible in every country and can take a while.

2. Art

An old favourite for seasoned alternative investors, but still relatively unknown in the wider world of investing. Buying art has the double advantage that you can appreciate and enjoy your investment while you own it. Many affluent investors purchase valuable art from museums, auctions and galleries. But if you’re looking for lower price tags, you could take a chance and buy from undiscovered artists directly … It’s certainly riskier, but if you have a good eye, you might just hit the jackpot.

3.   Domain names

Believe it or not, an aptly-named domain can rake in a fortune. Cars.com sold for $872 million. Carinsurance.com swept up $49.7 million. And Insurance.com went for a cool $35.6 million [2]. Not every domain name will be valuable, of course, around a third are never even used. But if you manage to buy a good one, you could reap serious rewards. Better still, this type of investment is completely uncorrelated to the stock market, meaning you can protect yourself from market shocks.

4.   Whiskey

The water of life, as it’s known in Gaelic cultures, doesn’t just taste good on the lips… it can feel great on the wallet too. While whiskey may not offer the kind of eyebrow-raising returns that fine wine has, over the past years it has enjoyed a steady real return of 7.9% from 2011 – 2020 [3].

5.   Comic books

It’s hard not to smile when you imagine the likes of Wonder Woman, Spiderman, or the Joker in your portfolio. But, as well as being a passion investment, comic books have enjoyed a boost in recent years. According to one alternative investment site, ‘Comics continue to trend upwards with very little signs of the market slowing anytime soon’ [4]. Like fine wine and whiskey, these are much-appreciated collectables which become rarer over time.

6. Music royalties

Another fascinating yet little-known alternative investment is in music royalties. When investors own a share of the music rights, they should profit when the sounds are played. For example, in movies, adverts, video games and even cover songs. (Although, of course, there is always the risk that people will use the music without paying up). Investors could also pick up profits from hardware sales, such as the reproduction of vinyl disks or CDs. This is generally one for high net worth investors, as price tags can start quite high. But there are exchange platforms available for cost-conscious players too.

7. Fine wine

Our favourite alternative investment is – of course – fine wine. As well as offering stable, yet strong returns of 12.6% CAGR each year, it’s an excellent diversifier too. Unlike many other high-performing assets, the value of fine wine is not correlated to the stock market. Return is largely based on the vintage year, scarcity and storage, so fine wine owners have a lot more control over the value of their investment. This can help reassure investors in times of economic turmoil. What’s more, one advantage investment-grade wine has over other alternative assets is the availability of market data to analyse and a more regular marketplace. If you’re looking to bolster your wealth against market shocks, a 1-3% allocation of fine wine could help you reduce your exposure.

Finding a truly alternative investment takes time and research. Often investors will need to stray away from the beaten track. And, as we’ve seen recently, they may also need to laser through all the crypto-sphere hype too.

Call us old-fashioned, but we believe that the best alternative investments are the ones that have been around the longest. Proving themselves decade after decade, recession after recession and beyond. If you’re interested in learning more about the benefits of investing in fine wine, we’re here to support you on your journey.

 

[1] Source : Finbold

[2] Source : Alts.co

[3] Source : WhiskyInvestDirect

[4] Source : Alts.co

Categories
Learn

Is Fine Wine Inflation-Proof?

Two men looking at a laptop drinking glass of wine

Rocketing inflation is no longer creeping toward us. It’s striding. Currently at 9% in the UK (jumping from 1.5% in April 2021)[1], inflation rates are set to hit a crisis point. And worried investors are understandably looking for solutions to hedge their exposure.

Investing in wine is one of the most effective inflation hedges because of three main reasons:

• The performance of fine wine is uncorrelated to global markets
• Fine wine is a scarce asset, becoming rarer over time
• The growth of fine wine has been exceptionally stable, even more so than gold

In this article, we’ll explain the inflation-shielding qualities of fine wine as an investment.

The performance of fine wine is uncorrelated to global markets

For many investors, the bulk of their assets will be in marketable securities – publicly-traded stocks, bonds, or currencies. Famously, for generations, the rule of thumb has been to invest 60% in stocks and 40% in bonds. But this style of investing has a huge downside, which many are now coming to terms with. Even with diversification, entire asset sectors and classes are still affected by the same market turbulence.

Inflation is one such market shock. Even at a rate of just 3%, the entire value of cash will erode after just 24 years[2].

At the current rate of 9%, outpacing inflation will be an uphill struggle for investments in bonds and currency. The stock markets – although slightly more resilient – will also feel the force of inflation. As businesses grapple to remain competitive with soaring prices, stagnant wages, and less consumer spending, all sectors are likely to be affected in some way.

Fine wine investments, however, do not derive their value from the broader markets. And shocks like inflation have almost no effect on their worth. This is because the price of the fine wine is determined by a niche, insider group of passionate investors. As the supply and demand come from within, fine wine is almost entirely uncorrelated to the global markets. Interestingly, fine wine continues to grow in value despite market turbulence and soaring inflation levels.

Other value drivers for fine wine include qualities that are personal to the bottle. For example, the brand of wine, the quality, and how it has been stored. None of these drivers have any direct link to the wider markets. While all of them give investors a lot more control over the value of their investment.

Fine wine is a scarce asset, becoming rarer over time

There are many ways to define value, but one of the most enduring is the scarcity of an asset. When there is less supply than demand, the value usually goes up. Fine wine is one of the purest examples of this.

Unlike other treasure assets such as gold or precious stones, fine wine naturally depletes over time as people drink it. Some bottles are so rare they are known as Unicorn Wines. One example is the legendary 1945 Domaine de la Romanée-Conti. The wine is famed for its iconic flavours and complexity. But the fact there are so few left in the world drives up the price exponentially. Only 600 were produced and there are almost none left today. In 2018, two such bottles were sold at auction for over $1 million[3], beating all records along the way. This bodes extremely well for long-term investors.

What are the most expensive wines in the world?

There is a clear trend showing how fine wines have increased in value over time. This is great for hedging against inflation. The Liv-ex index is one of the ways investors can track this steady increase. Since it began life in 2004, the fine wine market has grown in value by a staggering 315% (as of the end of 2021). Adjusting for inflation, the real value has grown by 125%. This is compelling growth, especially for those looking to outpace the 9% rates of inflation.

Which wine looks the most promising for 2022?

 

The growth of fine wine is exceptionally stable, even more so than gold

Wine has been on a steady upward trajectory for some time now. In 2021, the collectible saw record gains and topped the Knight Frank Luxury Investment List. Some performed exceptionally well. Cases of Domaine Bizot, Vosne-Romanée, Aux Jachées, for example, soared by a whooping 414% over the past twelve months[4]. And an incredible 3,004% over five years[5].

By contrast, the worst-performing wine on our books – the Château Croizet-Bages 5eme Cru Classé, Pauillac – fell by just 23% over twelve months. And it’s already increasing in value, again. Over a five-year period, the brand has increased in value by an average of 29%.

Discover the biggest risers and fallers this month

This illustrates the promising risk and return outlook for fine wines. Overwhelmingly, wine as an investment has shown growth.

In recent years, the strong performance of fine wine has even caused economists to question if the asset is more steady than gold. For centuries, gold has been considered an inflation hedge. Demand for this asset – and therefore value – has tended to spike during times of market turbulence. However, the flip side of this is that the precious metal can also tumble when the environment calms. Fine wine, to date, has not suffered this volatile fate. Investors in wine tend occasionally buy more during times of turbulence, as we saw in 2020. But there are no signs of mass sell-offs later. Arguably, this makes fine wine even more stable than rock-solid gold – an impressive feat!

How can you hedge against inflation with fine wine?

Shielding against inflation is just one of the many delicious benefits of investing in fine wine. To name a few, fine wine investors benefit from tax perks, compelling growth potential and improved diversification. What’s more, they also support a much-loved industry, filled with passion. And, with fine wine investments, they can even help to protect the environment.

For the best results, experts recommend allocating a small proportion of your investments into treasure assets like wine.

Getting started is simple and hassle-free. For more information, contact us or explore our tips for investing in fine wine.

[1] Source : Y Charts

[2] Source : CNBC

[3] Source : Bloomberg

[4] Source : WineCap

[5] Source : WineCap

[6] Source : Credit Suisse

Categories
Learn

The Biggest Wine Investment Trends in 2022

Rolling hills of a vineyard in the sun

The fine wine market has seen immense growth and broken numerous records in the past year – here we outline four of the biggest wine investment trends to watch in 2022.

Bordeaux investment wines

Bordeaux remains the most important region for investable wines globally. It attracts the greatest liquidity, meaning that its wines, particularly the classified Growths, see consistent levels of trade. Bordeaux is a staple in most investment portfolios, and the annual En Primeur campaign draws attention from collectors and trade year after year.

2022 sees the launch of the 2021 vintage, which critics have largely claimed exceptional for dry and sweet white wines. Many of the new releases offer great value for money but there is also a plethora of exceptional older vintages like 2019 which are already enjoying serious price growth. A category to watch this year is the second wines of the First Growths, which benefit from the same technical expertise as the Grand Vin but represent a lower-priced alternative. These wines tend to deliver some of the biggest return on investment.

Strong competition from Burgundy

On the global fine wine market, Burgundy has emerged as Bordeaux’s strongest competitor. For the first time in 2022, Burgundy has even taken a greater share of the UK fine wine market than Bordeaux. Demand is greater than ever but so are allocations.

Driven by scarcity, early investors in the sector have seen increases of over 2,000% in some wines. Over the past two decades, Burgundy’s leading index, which tracks the price performance of the 150 most sought-after wines, has risen over 740%. Today, the trend is to seek value – and stock – within Burgundy’s appellations, as the region continues to give investors reasons to want more.

Vintage Champagne 

The start of the year was all about bubbles. Vintage Champagne led the charts in our Q1 wine market report – a trend that is set to continue. Looming shortages due to the 2021 grape harvest, which was one of the smallest on record, have only increased global demand and pushed up prices. Consistent returns, stability, brand appeal and unparalleled distribution are just few of the other reasons why Champagne is very much in vogue in 2022.

The rise of other wine investment regions

The ongoing broadening of the fine wine market means that there are plenty of investment opportunities to discover outside the aforementioned French regions.

One such example is California. A string of good vintages in the past decade and high critic scores have elevated the region’s share of the fine wine market from just 0.1% to 7.6% over the past decade – a theme that is set to continue.

Italy is another success story. More Italian regions outside the pillars of Tuscany and Piedmont are delivering value and stable returns.

Want to discuss these wine investment trends in more detail with an expert? Schedule a call with one of WineCap’s investment advisors.

Categories
Learn

The Wine Investment Market: What You Need to Know

necks of wine bottles

The wine investment market is characterised by its stability, increased diversity and high returns, which are particularly valued when traditional markets underdeliver.

Long considered a niche, the global fine wine market has considerably grown in size over the past two decades and has attracted more and more investors. This, in turn, has contributed to greater price transparency (making it easier to discover the price of a wine) and market liquidity (making it easier to sell it), which have facilitated the trade of fine wine. The more wines that have been in demand, the more prices have risen, creating something of a virtuous circle.

But the fine wine market is not without its intricacies. Below we examine the importance of market data, the returns you can expect from wine investment and the reasons why the market is growing.

What is the ROI on wine?

Fine wine prices are currently at record levels so there is arguably no better time to be involved in the wine investment market. The globally recognised Liv-ex Fine Wine 100 index, which monitors the price movement of the 100 most sought-after fine wines in the world, has risen 307% over the past two decades. The broader Liv-ex 1000 index, which tracks 1,000 wines from around the world, has seen even greater returns: 361% since its conception in 2003.

Individual wines have risen by different amounts, like the First Growth Château Mouton Rothschild 2000, which has appreciated over 800% in value since release, or Domaine de La Romanée-Conti Romanée-Conti Grand Cru 2010 – up by over 1,000%. Such rare fine wines impress with their stellar performances, but there are other more widely available alternatives that can deliver your desired return on investment (ROI). There are currently over 12,000 different wines that can be considered investment worthy.

While ROI is dependent on the wines you choose to invest in, there are additional factors such as provenance, storage and the time of buying and selling that will affect your profits. Reliable market data can help you make informed investment decisions.

Is wine a risky investment?

Wine is a low-risk investment. Physical assets like fine wine are stable sources of value in times of uncertainty. While stock markets can crash and share prices can collapse overnight, tangible assets do not cease to exist. As a low-volatile investment, fine wine delivers stability and consistent returns. It is a proven way to strengthen and diversify an investment portfolio. Additionally, wine is not reliant on a single economy and it can be traded internationally.

Fine wine also tends to perform well in inflationary environments due to its inherent tangibility and scarcity. It is a combination of investment and luxury good, which benefit from rising global wealth.

Is wine a good investment? 

Fine wine has a proven track record as an investment. A quick look into the history of the fine wine market shows how it has delivered stability and returns during the 2008 financial crisis, Brexit, the Covid-19 pandemic and other global events that have shaken equities.

As a passion investment, fine wine benefits from global demand. Wine is, after all, one of the oldest beverages in the world and its appeal has never waned. Its inherent value only adds to the strength of the fine wine investment market.

Interested in speaking to one of WineCap’s investment experts, now you know the wine investment market’s fundamentals?

Categories
Learn

5 Ways Fine Wine Investments are Good for the Environment

Rows of vines in a vineyard

When it comes to fine wine investments, the environment probably isn’t the first thing that crosses people’s minds. We’ve taken a closer look at why, we believe, it should be reconsidered as an Environmental, Social and Governance (ESG) or Socially Responsible investment.

With ESG, alcohol is usually one of the first asset classes to get screened out[1]. Interestingly, this could stem from the Quaker movement, who first started the trend of ethical investing about three hundred years before it became mainstream[2]. This famously teetotal religion encouraged investing, but only if it toed the holy line. In the late twentieth century, other investments came under fire too, especially those which profit from war. Today, it’s generally accepted that investments in alcohol, pornography, gambling, and weaponry cannot be “ESG”[3].

But is this approach a little sour? Especially when you can find the likes of British American Tobacco, McDonalds, Coca-Cola, PepsiCo, British Petroleum, Phillip Morris, ExxonMobil and more featured on popular ESG funds[4]? How could fine wine possibly be worse for the environment than junk food or oil companies? And is it time to reset the dial and realise the true environmental potential of this asset?

Here are five sobering reasons why fine wine should be reconsidered as an ESG investment: 

1. Vineyards are a carbon sink

A rugby-pitched-sized area of vineyard soaks up a respectable 2.84 tonnes of carbon every year[5]. For context, three of these plots would balance out what the average Brit emits annually[6]. Unlike most other ESG investments today, this off-setting is a natural and intrinsic part of the business model of wine-making. It’s not an ‘extra’. This is no ESG stunt or short-term project.

Supporting the healthy growth of plants is essential to the production of winemaking. There are precious few investments which literally grow on trees and soak up carbon as part of their day-to-day functioning.

2.   Soil quality can be enhanced through fine wine

What’s more, vineyard managers who mulch or compost their old or unused vines (rather than burn them) can save an additional 4.5 tonnes of carbon[7]. As well as helping to mitigate climate change, this also raises the quality of the soil, which is great news for local ecosystems too.

Soil degradation is hot on the radar for concerned environmentalists. Around a third of the planet’s land is damaged from intensive farming[8]. And, alarmingly, fertile soil is being lost at a rate of 24 billion tonnes a year[9]. Sustainable vineyards provide a welcome respite against this concerning environmental damage.

3.   Organic wine production supports pollinators

Vineyards can also offer welcome sources of nectar for pollinators, like bees. These tiny creatures are vital for our planet and well-being. It’s estimated that one third of all our food is thanks to the humble pollinator moving from plant to plant and spreading seeds along the way[10]. Sadly, over the past decades, irresponsible agriculture, overzealous pesticides, and the loss of wild meadows have seen these essential creatures fall into steep decline.

Organic or pesticide-free vineyards – often one of the hallmarks of fine wine – helps bees and other pollinators get back on track. Small flowers bud around the vines as by-products, and split grapes provide rewarding sweet juice for the hungry invertebrates. Some wineries are now planting more native shrubs around vineyards to further support pollinators[11].

4.   Fine wine fights back against single-use plastic

Plastic is fast becoming a dirty word – and especially single-use plastic. Even 400 years after it’s thrown away, this packaging will not have biologically degraded[12]. As activists and environmentalists call for an end to this era, fine wine could help carve out a new way forward. Unlike disposable plastic, fine wine glass bottles are something to be treasured.

What’s more, glass has a much higher recycling rate than plastic alternatives, and unlike plastic it can be 100% recycled.[13] Although glass is by no means a perfect solution, it seems to be a better way forward than many other “ESG” junk food, soft drink or oil companies are offering. Fascinatingly, some wineries are even experimenting with light-weight glass and even cardboard bottles as we type[14]. Watch this space!

5.   Vineyards help fill rocky terrain and hills with plants

As anyone who spent a youthful summer picking grapes will be able to tell you, it was more of a work-out than expected! This is because the knee-high vines are usually grown on steep sunny hills and even over rocky terrain.

While this may be strenuous on the hamstrings, it’s great for using up space wisely. Vineyards often voyage up mountains and valleys to face the sun. This helps to fill up otherwise unsuitable stretches of hillside with plants and flowers.

The higher altitude also acts as a natural pesticide, making it much easier to create organic wines. What’s more, these vineyards are also less likely to catch and spread grape diseases[15], adding yet another environmental benefit to the investment.

… Is it finally time to consider fine wine as a sustainable investment?

As assets go, wine is one of the least carbon-intensive. As WeForum recently pointed out[16], you’d have to drink a bottle of wine every single day for three years for it to have the same impact as a single London to New York flight.

The fundamental business of creating wine is so intrinsically sustainable that most of its emissions come from just the packaging [17] and tourism[18]. And winemakers are keen to cut these down! Every day, we’re seeing more and more environmental initiatives coming from the industry. From renewable energy to sustainable wine tours, there’s a vast range of bright and brilliant programmes coming into the mainstream.

So, is it time to start considering fine wine as a viable environmental investment? We believe so.

If you’d like to learn more about the fascinating world of wine investments, download our complimentary guide.

 

[1] Source : UN PRI

[2] Source : The Ethical Partnership

[3] Source : UN PRI

[4] Source : HD Investment Content

[5] Source : Wine GB

[6] Source : Wine GB

[7] Source : Wine GB

[8] Source : United Nations

[9] Source : United Nations

[10] Source : Our World in Data

[11] Source : Forbes

[12] Source : National Geographic

[13] Source : Sustainable Jungle

[14] Source : Beverage Industry Enthusiast

[15] Source : Olive Magazine

[16] Source : We Forum

[17] Source : UPMRAFLATAC

[18] Source : The Conversation

Categories
Learn

Fine Wine Investment Tips

Laptop open on a desk with a cup of coffee

If you’re considering fine wine investment, here are some tips to help you get started.

How to get the right information?

It is important to do your own research and stay up-to-date on fine wine investment trends but where do you get started?

Looking into wine types, growing regions and brands is a useful first step. Researching average prices for the wines you want will help you make sure you are being quoted a reasonable price when you come to buy them. Nowadays there is a wealth of pricing data online for investors to navigate.

Meanwhile, regional fine wine investment reports and vintage overviews can help you understand the fine wine market in more depth. WineCap’s Academy provides a resource on producers and their wines so your knowledge grows, as your portfolio does. News websites like The Drinks Business, Decanter, Bloomberg, and the Financial Times, regularly cover topics related to fine wine investment. Critical coverage can also help you navigate the world of fine wine and inform your investment decisions.

Regularly researching the fine wine market and identifying emerging trends will help you find the best investment opportunities available.

Should I use a wine investment company?

Wine investment companies have years of experience dealing with the fine wine market and its intricacies. Relying on the latest digital innovations, wine investment experts can share their unbiased knowledge with you and advise you on the best wine investments. WineCap’s unique proprietary technology analyses over 400,000 wine prices a day to identify buying and selling opportunities across the global market.

Working with a reputable fine wine investment company helps you get the wines that you want. WineCap has access to the top investible allocations and an extensive portfolio of wines stored in secure government bonds.

While it is possible to conduct your own research, find your own storage and buy your selected wines, investing in fine wine through a trusted specialised company saves you time and money.

Looking for a wine investment guide? 

Our Fine Wine Investment for Beginners guide can help you get started. The guide provides an overview of the fine wine investment market and how it works in practice. It also outlines the wine investment process in four simple steps.

Get started now you’ve discovered these top fine wine investment tips. Speak to one of WineCap’s advisors to find out more about next steps.