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Fine wine as a value and growth asset

Fine wine value and growth asset

Fine wine offers the benefits of different asset classes. As a long-term investment, due to the inherent premise that it gets better with age, fine wine would traditionally fall under the ‘value asset’ category. This is especially true as investors tend to buy and hold wine for decades before selling at a premium. 

However, since fine wine is a highly sought-after and depleting investment, it shows tremendous growth characteristics too. Over the past year, fine wine has delivered strong returns, with some bottles increasing in value by as much as 550%. This makes it more akin to growth assets. 

Could fine wine be considered both a value and growth asset?

Value assets have intrinsic value and are usually undervalued

When investors talk about value and growth assets, they are generally referring to publicly-traded stocks. This could mean huge blue-chip corporations like Coco-Cola, Microsoft, or Tesla, or it could be little-known and up-and-coming stocks. Generally, the market is extremely efficient and so finding an underpriced stock is hard work. Those who dedicate time and research to discovering these undervalued assets are known as value investors. 

Warren Buffet is perhaps the most famous value investor of all time. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he declares. For Buffet, seeking intrinsic value is the only real way to invest. Perhaps that is why he is such a fan of fine wine investments. Buffet has reportedly said that every portfolio should have at least a 1% allocation to fine wine. 

The value of fine wine can’t be measured the same way as a stock

To understand whether an investment offers good value or not, investors usually need to crunch a lot of numbers. But the process is a little harder outside of the stock market. Unlike traditional stocks and shares, analysts would be hard-pushed to calculate the price-to-earnings, debt-to-equity, or price-to-book ratios of fine wine. 

Firstly, this is because bottles, casks or barrels of fine wine do not offer “earnings” in the stock market sense. Bottles cannot pay dividends, and so buyers instead collect all their returns when they sell the asset.

Secondly, prices are variable. As fine wine is usually traded privately or through prestigious auction houses, the final sum is not always predictable – especially if you have two or more extremely passionate bidders in the room. As a result, bid-ask spreads are significantly greater than you’d find on the stock market. 

Finally, forecasting these values can be unreliable because in some cases wine prices are not always publicly available. However, as industry leaders, we do have a lot of this information. If you would like to get an insider idea of the latest auction results and performances, check Wine Track. 

While we may not be able to scrutinize the value of fine wine in the traditional sense, we can analyse the general trends and characteristics. From here, we can see how they hold up against traditional value stocks. 

Fine wine shares many of the long-term characteristics of value investments

As an asset class, fine wine behaves like a value investment. Some of the main characteristics are the “buy low, sell high” strategies, the long-term investment horizon, and stable financial returns. 

  • “Buy low, sell high” strategies 

Value stocks are generally underpriced on the market, meaning investors expect to make profits over time as the asset realises its true worth. This is remarkably similar to fine wine investments. Many purveyors will purchase the wine en primeur before it is even bottled to secure the best price.

At the time of writing, wines such as Domaine d’Auvenay have already delivered returns of nearly 8,500% over a ten-year period. This shows the incredible power of buying wine early, and holding. 

  • Buy and hold over the long-term

As the adage goes, fine wine gets better with age. High-quality Bordeaux, for example, takes 20-30 years to mature. Successful investors will generally buy and hold fine wine over the long-term. 

This approach mirrors the “value” philosophy perfectly. As Buffet himself warns, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”.

  • Steady returns

Stability is another key characteristic of value investments. These assets should be able to sail through all kinds of market storms with minimal or zero disruption. Fine wine has delivered exceptionally stable returns over the last year, holding up against recessions and incrementally gaining value despite stock market chaos. 

Fine wine has compelling growth attributes too

On the face of it, fine wine seems to be a value investment. It is a steady long-term asset which gains value over time. Yet, despite its famous stability, this investment has also delivered some impressive short-term returns and it is an alternative asset, which push it more into the growth category. 

  • Fine wine is an alternative asset 

Investors looking for growth assets tend to accept volatility risk, as part of the trade-off for superior returns. Because of this, they are more inclined to look away from the reassurance of the stock market to find new revenue streams. Increasingly, unlisted property, private equity, hedge funds, high yield credit, long-duration bonds and alternative debt are finding their way into growth funds and portfolios.

 As an alternative asset, fine wine seems to fit snugly into the “growth” category. Yet, unlike these investments, fine wine is generally not volatile. 

  • Exceptional short-term returns 

Wine can, however, deliver exceptional short-term returns. Over just five years, fine wines such as Hubert Lamy have seen values increase by 1,223%. This is an extraordinary performance. To put this it into context, it took value stock Coco-Cola 24 years to deliver returns like this. 

Some fine wines are even demonstrating market-beating returns in extremely short timeframes too. Some brands like Hubert Lamy have enjoyed increases of over 450% in just three months. If you’d like to explore the greatest gains and losses in the industry, Wine Track is a useful resource. As you read, please remember that experts do not recommend investing for less than five years. 

Fine wine offers the best of both worlds 

Fine wine is a fascinating alternative investment because it seems to offer the best of both value and growth without the downfalls.  

Fine wine is a buy-and-hold asset which increases in intrinsic value over several decades, while offering historically-superior returns. It also holds up well in recessions and fights back against inflation. These are all classic characteristics of value investments. 

Meanwhile, some bottles have proven to be extremely lucrative over the short-term. These boosts in value are likely to continue as climate change ramps-up demand for scarce flavours. High gains in short periods of time – especially from alternative assets – are usually more commonly associated with growth investments. 

Therefore, fine wine is an incredibly versatile asset, suitable for different kinds of investment strategies. Whether you’re looking for value, growth or both, fine wine could help you reach your goals faster. 

Explore your investment options

 

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Collectable Assets to Help Shield Inflation and Boost Diversification

Collectable Assets
Collectable Assets

The “60% stocks and 40% bonds” rule is outdated. While this approach may have offered stable and diversified returns several decades ago, in today’s difficult economic climate it’s not enough. This is where collectable assets come in.

To preserve and grow wealth, strategic investors must hedge their portfolios with alternative sources of value. One way to do this is with collectable assets. As a unique form of asset class, collectables offer investors extraordinary diversification and inflation-shielding properties – perfect for today’s economic storm. What’s more, many of these assets – like jewellery, classic cars, and art – can be enjoyed while they hold their value.

In this article, we’re looking at the six most popular collectable assets globally[1], and what to consider as you explore your options.

Art

As with most collectables, original art is about more than simply the financial return. Art is a passion asset – it represents a unique timestamp in our history, emotions, and popular culture. But there are great investment benefits too.

Original art is unique, and – just like with fine wine – rarity is highly prized. Famously, Leonardo di Vinci’s “Salvatore Mundi” was auctioned for a record-breaking $475 million[2].

Importantly, original art is also inflation-resistant. This is an excellent quality for the current economic climate. Unlike cash or bonds, the investment return will not erode over high-inflation periods because it has intrinsic value. Instead, market demand is driven by the artist, story, quality of the work, whether it represented a new technique, mindset or time, the materials and of course, the way it looks.

However, this doesn’t mean art is immune to volatility. The art market has trends and bubbles too. In 2018, for example, the resale market for art by Damien Hirst was declared a “bloodbath” as the hype ended and investors lost millions[3]. Before diving in, pay close attention to any potential risks in the market.

Research from Unbiased found that overall contemporary art has delivered annualized returns of 7.5% to investors since 1985[4]. Another index, created by Masterworks suggests blue-chip paintings (the crème de la crème of art) increased in value by 13.8% each year since 1995[5]. However, each artwork is unique and so individual returns vary significantly.

In today’s market, NFTs (non-fungible tokens) and sustainable processes are trending strongly in the art world. The average collector invested $46,000 in digital art last year and would be willing to pay more for environmentally-friendly works[6].

Whisky

As well as an appreciation for the craft and heritage, there are compelling investment benefits to whisky. Firstly, like all the collectable assets on this list, it is a great hedge against inflation. This helps to offset some of the losses from cash, debt, and bond instruments.

Secondly, it’s a booming market, as whisky has become popular. Just like fine wine, this has largely been fuelled by younger investors.  In 2021, the Knight Frank Luxury Index even named this liquid gold as its best-performing asset class[7]. Over the previous decade, Scotch whisky racked up impressive returns of 428% on average. In July 2022, one rare bottle pulverised all records, going for a whopping £16 million at auction.

Thirdly, whisky is increasingly perceived as reliable. Since Brexit and the war in Ukraine, many investors have turned to whisky as a more dependable and palatable choice of beverage. Naturally, the ingredients come from Scotland, so global grain and raw goods shortages should not hinder production. What’s more, the whisky trade looks set to increase, as the UK government draws up new deals with India.

Just like fine wine, one of the greatest benefits of whisky is that it is classed as a “wasting asset” and is not subject to capital gains tax. If you’d like to find out more about this tax break, you can download our free guide.

To get an idea of the financial returns of whisky, we can look at two indices. The BC20 index reported 14.36% returns for the asset in 2021[8]. And the SWI’s year-on-year historical performance sits at 12.5%[9]. Of course, whisky is a buy-and-hold asset, meaning that investors should not try to “flip” it, but rather hold the asset for years.

Classic cars

Of all the passion investments, classic cars are probably among the most loved. Collectors are often people who would tack magazine cut-outs of Ferraris, Maseratis and Bugattis to their walls as teenagers, and dream of buying the car one day. They tend to be looking to fulfil a lifelong dream as well as investing. Perhaps for this reason, the price tags are usually emotional, and they can make for uncertain investments.

The factors which make a car a worthwhile collectable asset closely mirror the art market. The historic significance of the model, rarity, beauty, racing history or associations with celebrities all add to the value.

HAGI (Historic Automobile Group International) tracks the market with several indices. Their findings show that between 2008 – 2021 the average price increased by 264.49%[10]. However, this doesn’t appear to factor in the cost of repairs, renovations, or storage. Even if you plan to restore a classic car yourself, the associated costs can exceed the end-value.

As you plan your investment strategy, scrutinise the financials of classic cars, including tax implications. For example, selling a classic car for a profit will incur capital gains tax, as well as road tax and MOT. Certain countries also have combustion engine regulations and low-emission zones that could make it difficult to drive your car. What’s more, incoming legislation around petrol cars may affect the desirability of the vehicle.

Diamonds

They’re forever, they’re a girl’s best friend … but are diamonds really a good investment asset? Looking at the Idex Diamond Index, on average, the precious stones have delivered returns of 8% over the past five years[11]. Natural blue diamonds have particularly fared well, with one rare 15-carat blue diamond selling for $57.5 million in April 2022[12].

As with most collectable investments, quality, rarity, historical significance and whether it was owned by a notable person, all make a difference to the value. For jewellery, connections with royalty can especially add lasting value[13]. When considering diamonds, scrutinize the following “Cs”: Carat, clarity, cut, colour and certificate[14].

However, there are some risks for diamond investors too. The market is notorious for its bubbles. Between November 1st 2021 and March 7th 2022, for example, prices suddenly jumped by 17% and then fell back down.

Investors should also be aware that this asset – while not directly impacted by inflation – does tend to stumble following a crisis, although it usually bounces back quickly. This indicates that during a recession is a good time to buy. As the prices tend to drop in the rough diamond market first, investors may be able to use this information to predict trends and inform their selling strategy on the secondary market.

Watches

Watches are a relatively new investment vehicle, and the market is white-hot. They really began to take off during the first months of the pandemic. Between January 2020 and April 2022, the value of used luxury watches jumped by around 115%[15]. According to the Watch Charts Market Index, prices surged from $25,420 on average to $54,461 in less than two years[16].

Today, however, the market is cooling. Prices have dipped back down to $39,397 on average[17]. After this burst, it is also extremely difficult now to access an investment-grade watch unless you have exceptional contacts or a broker. However, with patience and research, it is still possible.

For investors looking for a wearable investment, a classic brand like Rolex, Patek Philippe, Audemars Piguet or Breitling could be a good inflation-resistant option.

Fine wine

Of course, our favourite collectable asset to preserve and grow wealth is fine wine. Unlike diamonds, the value of fine wine does not tend to dip with recessions. On the contrary, after the 2008 financial crisis and the 2020 pandemic, it soared. From April 2020 until September 2022, prices steadily increased by over 40%[18].

Like whisky investments, fine wine also benefits from a generous tax break. Investors are exempt from capital gains tax, meaning they can keep significantly more of their profits. This tax perk applies to very few investments, and certainly none on the publicly traded stock market. It helps investors to preserve, reinvest and grow their wealth faster.

Like all the collectable assets on this list, fine wine is also extremely inflation-resistant. As the market is quite closed and determined by passionate investors, it is not directly impacted by the ebbs and flows of the wider economy.

Better still, unlike newer whisky and watch trends, fine wine is one of the oldest investment assets. Over centuries wine has proved its place as a valuable source of wealth growth and preservation. Today, it is even more stable than gold.

Invest with passion

Perhaps most importantly of all, fine wine is a revered and much-loved product. Who could imagine a world without a sparkling Moët Hennessy Champagne, or a beautifully bold Bordeaux?

When you invest in collectable assets, you are not simply making a financial decision. You’re helping to preserve and cherish that which you love about life. Whether it’s a vintage Porsche or a stand-out piece from your favourite artist, your wealth can revive your most meaningful moments in history. With investments like fine wine, you can also help to preserve and nurture the planet for future generations too.

If you’d like to discover more, getting started with WineCap is simple and straightforward.

[1] Source: Knight Frank

[2] Source: Art in Context

[3] Source: Art History News

[4] Source: Unbiased

[5] Source: Masterworks

[6] Source: Art Basel

[7] Source: Knight Frank

[8] Source: Braeburn

[9] Source: Insider

[10] Source: Investopedia

[11] Source: Idex Online

[12] Source: Forbes

[13] Source: Bloomberg

[14] Source: New Bond Street Pawn Brokers

[15] Source: Watch Charts

[16] Source: Watch Charts

[17] Source: Watch Charts

[18] Source: Liv-ex

 

 

 

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Is Fine Wine the New Gold?

is fine wine the new gold
Is Fine Wine the New Gold?

For more than 6,000 years gold has been revered and collected by people hoping to store, preserve and even grow their wealth. But in recent times, the stability of gold has been called into question. Prices have been on almost as much of a journey as the stock markets. Whether it’s because Central Banks are buying record amounts of the precious metal, or because investors are trading emotionally, the asset is no longer such a dependable source of alternative value.

In this article, we’re taking a closer look at gold’s investment performance over the past year, and how it compares to fine wine.

Gold is becoming more volatile

Investors have been on a tumultuous journey. Over the past year, the price of gold plummeted by -21% between March and October[1]. Then it rose again by +15% from November through to January. At the time of writing (January 2023), one ounce of gold costs $1,868[2], but economists are already predicting further movements ahead.

Performance of gold over the past twelve months

Over 2023, a range of factors is likely to influence the price of gold. The mild global recessions, geopolitical uncertainties and continued high inflation levels will probably increase its value. But on the other hand, pressure on commodities and the gradual easing of inflation could bring the prices down. Over the next year, it’s unlikely that prices will remain stable.

Gold is becoming increasingly correlated to the stock market

As gold usually rallies in a recession and falls during periods of prosperity, investors have traditionally added this to portfolios as a hedge. When the stock markets are down, they look to their gold investments to buffer some of the losses. However, over the past few years, something strange has happened. Instead of gold going up when the markets go down, the two are starting to correlate.

Fine wine delivered returns that were uncorrelated to the market

By contrast, over the past year fine wine have exhibited the very characteristics that investors usually look for in gold. Performance has been stable, steady and – best of all – uncorrelated to the stock market. The graph below shows the comparison of fine wine (green), gold (red) and the S&P 500 performance over the past year.

Unlike gold, the fine wine index (Liv-ex 1000) didn’t demonstrate any periods of correlation with the wider stock market during 2022. Overall, wine steadily trended upwards, slightly increasing when the wider markets plummeted and slightly dipping when the wider markets soared. This makes fine wine an exceptionally stable diversifier for investors. Not only did it hedge portfolios over 2023, but it also helped to smooth out overall volatility.

If you’d like to analyse the performance of fine wine, you can find the prices for regions, bottles, wines and more on Wine Track.

Is fine wine the new gold?

While it may not be exactly true that fine wine is the “new gold”, over the past year this asset class has been significantly more stable and less correlated to the wider market. It’s provided investors with a more calm and smooth positive performance than gold, throughout the economic storm.

Like gold or property, fine wine has intrinsic value and compelling inflation-resistance. As a tangible asset, it will almost always be worth something – unlike stocks, bonds or cash which could crash. But different from gold, the kind of buyers who invest in fine wine are not cut from the same cloth as stock market investors.

Fine wine is generally bought and sold in exclusive private markets, far away from public trading forums. The asset is also usually purchased and treasured by passion investors, who tend to hold it for decades. By contrast, more people seem to be “flipping” gold and property, which ramps-up volatility.

So, is fine wine the new gold? Not really… If you’re looking for stability, alternative returns, and uncorrelated market value, we think it’s superior.

[1] Source: Monex

[2] Source: Monex

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Digital Advancements Bring a New Generation of Wine Investors

Digital Advancements in Investments

NFTs (Non-Fungible Tokens) and fine wine may seem like an unlikely pairing. After all, wine is one of the very oldest investments, while NFTs are among the newest digital advancements. The markets couldn’t be more different either. While 20-somethings snap up digital tokens in the metaverse, 60-somethings traditionally dominate the fine wine universe at auction houses. But it’s precisely this titanic clash of old and new which is firing up the market so vigorously.

Like a jolt of electricity, a surge of digital advancements is jump-starting the established wine industry … and it’s bringing floods of eager new buyers along with it.

Vineyards get a taste for blockchain

Over the past year, esteemed vineyards have started to sell NFTs with bottles attached to them. Just like a certificate or receipt of purchase, but far more secure. When the investor is ready, they will redeem the NFT for the physical bottle. In the meantime, it’s usually stored securely for them.

Since blockchain cannot be altered or tampered with, some wineries are using the technology to guarantee quality and combat fraud. In recent years, counterfeit bottles and scammers have plagued the industry, costing wine investors upwards of 2.7 billion euros a year[1]. Using certified NFTs reassures buyers that the bottles they’re paying for are indeed the ones they’re getting.

Some vineyards, such as Màquina y Tabla, use this technology to sell wine en primeur[2] – or as wine futures. The international nature of NFTs lends itself well to this. Within the blockchain, investors can check exactly what chemicals, conditions and processes were used to make the wine. They can closely scrutinize the sustainability levels too.

Some experts are even suggesting that the default currency of fine wine could soon become crypto as the pound continues to encounter volatility.

New investors enter the wine market

The emerging NFT space couldn’t be more different from the traditional wine market. At the time of writing, most NFT investors come from India, Vietnam, Hong Kong, Singapore, and Brazil[3]. The age demographic is different too. Most NFT investors are between 18 and 34 years old.

While most NFT investors are true digital natives, they’ve also grown up in a snowball of recessions. This makes asset-backed digital investments like fine wine a welcome and intriguing option. Unlike most other NFTs, it’s something you can touch, with intrinsic value.

At the time of writing, this new breed of wine NFT investors seem keen, and they have money. Penfold’s 2021 NFT famously sold within just 12 seconds[4]. And in summer 2022, an NFT linked to an exclusive champagne bottle went for an eyewatering $2.5 million[5].

Additional income streams will benefit vineyards

As well as the new clientele, there’s another compelling reason why vineyards may be keen to sell NFTs with bottles attached. Perhaps it’s the strongest incentive of them all. Each time the NFT is traded, the vineyard can opt to get a small cut of the price.

Over time, as the wine NFT changes wallets, these incremental profits can stack up.

Extra streams of passive income will surely be very welcome to vineyards, as the industry grapples with climate change and forest fires. Producers can use the revenue to continue adapting, experimenting, or simply making up a cash shortfall – all of which is good news for wine investors.

Vineyards are keen to develop and invest in the NFT space. Some of the most famous wine families, including the houses of Rouzaud (Champagne Roederer and Château Pichon-Comtesse), Reybier (Saint-Estèphe’s Château Cos d’Estournel), Moueix (Videlot) and Perrin (Château de Beaucastel) poured a whopping 6 million euros into Winechain, a new wine NFT platform. It surely goes without saying that they’re likely looking for a return on their investments.

Vineyards can be more creative with NFTs

Trading NFTs online also gives vineyards a chance to include the kind of extras and luxuries that investors enjoy. There is almost unlimited room for creativity.

Château Angélus, for example, also include digital artwork and virtual wine-tasting sessions in the fine wine NFT package. The art appeals to NFT investors keen to build on their collection of unique digital assets. They can showcase these in their metaverse home or sell on to others. The wine tasting, of course, appeals to almost everyone.

New Zealand-based vineyard, Hello Fam, took things even further. This vineyard partnered with Graham Norton – voice of Eurovision and host of the One Show – to offer NFTs for their limited edition “HeDevil” wine. The NFT includes two bottles, physical artwork, and one lucky buyer got to attend a virtual tasting with Norton himself.

Unlike traditional bottles and barrels, vineyards can truly tailor wine investments and experiences around buyers. This opens the door to new potential, new markets, and new possibilities.

Investors should be wary of risks

While there is a world of possibility around these new digital advancements, there are drawbacks too.

The world of NFTs moves fast… a little too fast. With all the hype and possibilities around these digital advancements, it can be easy to get carried away. But – as always with investing – it’s important not to get swayed by the market noise.

As the oracle of Oklahoma, Warren Buffet, famously said, “The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd nor against the crowd”.

Before diving into the fast-paced world of NFT wines and metaverse investments, investors should consider their long-term strategy and conduct careful analysis. Although vineyards create authentic NFTs, there are likely to be fakes around.

What’s more, NFTs are traded using cryptocurrency, so investors cannot buy and sell them with fiat money like pounds, euros, or dollars. This comes with its own set of headaches. Firstly, these digital coins are famously volatile. In March 2022 – an especially bad time – the value of Bitcoin fell by a colossal 60%[6]. Over 2023, some experts are predicting a further 40% drop[7]. The second largest cryptocurrency, Ethereum, has also been on a rollercoaster. In December 2021, a single coin was worth $4,624, fast-forward one year and it’s $1,296 – less than a third of the value[8].

The process of mining and trading cryptocurrencies – and by extension – NFTs is also reportedly detrimental to the environment. By contrast, fine wine investments are usually quite sustainable, and so NFTs could undo many of those important benefits.

Another consideration consideration of digital advancements in the industry is that cryptocurrency has been banned in nine countries, including China. This means that the waves of Asian investors entering the wine market, are probably coming through the traditional route.

The value of fine wine is likely to increase … But at what cost?

The new generation of buyers is likely to increase the market value of fine wine. As any economist will tell you, when demand outstrips supply, prices go up. It’s excellent news for today’s investors who may find that they can sell bottles for higher prices with greater liquidity.

However, investors who are looking to buy into NFT wines themselves should exercise caution. The space is still new and emerging, and regulations are being discussed as we write.

The environmental impact of NFTs and cryptocurrency on vineyards is already raising some eyebrows. Climate change alters the value of fine wine more than almost any other factor. While the marketplace welcomes new buyers and innovations, the integrity of fine wine must always come first.

Find out more about the latest fine wine trends and prices.

 

[1] Source: EU IPO

[2] Source: Club Enologique

[3] Source: Finder

[4] Source: Decanter

[5] Source: NFT Evening

[6] Source: CNBC

[7] Source: CNBC

[8] Source: Yahoo Finance

 

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6 Questions to Ask Yourself Before Investing in Fine Wine

Wine rack

Investments in fine wine have proved exceptionally popular over the recent years, bringing in new buyers and record trades[1]. And it’s easy to see why! There are many advantages to investing in fine wine, especially in the current high-inflation environment. However, before diving in, it’s important to take a step back and consider how fine wine could fit into your overall investment strategy.

Here are six questions to ask yourself before investing:

1. What is your investment goal?

Investment goals are unique to the investor. Some people dream of going on a lavish round-the-world trip, while others are simply looking to afford a comfortable retirement. Whatever your personal goal (or goals), take a moment to write it down.

Calculate how much your goal will cost and how much time you’ve got to get there. This forms the backbone of your investment strategy.

For example, if you’re hoping to put down a £150,000 deposit on a property in a decade, and you can afford to put aside £1,000 a month towards it, you will need to find the additional £30,000. This means your investment goal is to generate £30,000 over the next ten years. The way that you approach it depends on your unique time horizon and risk tolerance.

2. What is your time horizon?

The general rule is the more time you have, the more risk you can afford to take. Of course, there is always a chance with investing that you may get back less than you put in, but over longer periods this risk is mitigated.

Experts mostly agree that if you will need your money in less than five years – say one or two – it’s normally better to put it in a high-interest savings account. If you need it within the next five to ten years, a lower-risk and highly diversified portfolio could be the best option. Blue chip stocks, AAA graded bonds and market index funds could make up the bulk of your portfolio. If you have more than ten years to invest, you can probably afford to take more risk.

Pension fund managers normally follow this rule. Generally, young employees – who have multiple decades of work ahead – will be invested in high-risk illiquid assets. By contrast, those closer to retirement will be transitioned to low-risk, liquid investments.

Time is an important factor to consider as you begin to explore fine wines and consider how they could complement your strategy. As you research bottles, check that the maturity date matches your strategic timeline. Luckily, there are many different fine wines out there to suit different investors. You can effortlessly stay updated on the latest trends fine wine with Wine Track.

3. How much tolerance do you have for risk?

Your investment risk tolerance is nothing to do with your normal risk appetite. It’s about how you feel when the markets are volatile. It’s about whether the idea of your investments soaring and plunging in value makes you excited or nauseous. You could be a sky-diving, base-jumping crocodile physiologist and still feel queasy at thought of market downturns.

Figuring out the level of risk you’re prepared to take with your wealth is a crucial part of designing your investment strategy. After all, you don’t want to lose sleep over your investments, they are there to help you dream – not give you nightmares!

Different asset classes can be broadly grouped into different risk levels. On the lower-risk side, there’s investments like gold, property, or fine wine. These tend to provide stable and steady returns over time. On the higher risk-side are assets like crypto assets, high yield bonds, derivatives, or equity in start-ups. These are more volatile in nature, often soaring and plummeting quickly.

In the current environment, investors looking to mitigate their risk might be interested in inflation-shielding assets. These are usually physical and tangible investments like property, art, gold, collectibles, and of course, fine wine.

4. How much liquidity do you need?

If things take a turn for the worse, how much money will you quickly need to access from your investment portfolio? Or in other words – how much liquidity do you need?

Ideally, investors should not liquidate their portfolio before the right time. Doing so could unbundle the entire investment strategy and mean missed opportunities later down the line. For this reason, experts recommend keeping three to six months’ worth of living costs aside in a high-interest savings account. And many will also advocate to have a healthy surplus in a current account too.

However, sometimes life happens, and investors have no choice but to liquidate. Think carefully about how much of your portfolio you would need to sell in an emergency and how quickly you’d need the cash. This is an important part of planning your strategy.

Some assets can be quickly converted into cash. For example, many of the blue-chip shares and funds – such as those on the FTSE100 or S&P500 could usually sell within 24 hours. However other assets – especially those on the private market – can take several weeks, months or even years.

Generally, for fine wine it can take between weeks and months to sell bottles. But it depends on the time of year, type of bottle and asset maturity. With Wine Track, you can keep a close on the demand and prices of fine wine, so that you’re always up-to-date.

5. How diversified are you?

Nobel-prize laureate Harry Markovitz famously revealed, “Diversification is the only free lunch in investing”. As you build your investment portfolio, it’s important to diversify your revenue streams. This can help to shield your overall wealth from market shocks and prevent one downturn from slashing the value across your entire investments.

Alternative investments – such as art, antiques, commodities, and fine wine – are often used to boost diversification and provide different sources of returns (hence the name).

Because assets like fine wine derive their value intrinsically, they are less affected by the market turbulence outside. They are also traded away from the stock market. This provides a different source of revenue and helps to diversify portfolios.

As you build your overall portfolio, experts recommend aiming for a blend of different asset classes, sectors, and geographical locations. Reaching as far and wide as possible is one of the most effective ways to mitigate exposure to market shocks.

6. What’s your impact on the world?

One of the most profound questions for investors to ask themselves is what effect they’re having on the world around them. How their money is invested can make a dramatic difference on the planet.

Fortunately, many vineyards and fine wine investors care deeply about the environment. The quality of grapes is closely linked to the climate, and many wineries are working hard to adapt and mitigate the effects of the crisis. As an investment that thrives on the prosperity of vines, there’s a strong case to be made that fine wine is an ESG investment.

As you build your portfolio, consider carefully what your wealth is being used for and whether you agree with it. Your choice of investment gives you power and influence, use it wisely.

Discover more about how fine wine reacts in a recession.

 

[1] Source: Liv-ex

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Could Fine Wine be a Better Investment than Property?

Fine wine cellar

For centuries, property has been hailed as the sturdiest of investments. After all, what could be more solid than bricks and mortar? But with the five or six figure price tags, near-constant renovation or service work and gut-wrenching taxes, is it really such a wise investment? In this article, we compare the performances, costs and returns of fine wine against property to see which one works out better for investors.

What returns could investors expect?

Investors in fine wine have reaped significant returns, especially over the past years. The Liv-ex Wine 1000, which tracks the overall performance of fine wines, shows how the asset has grown in value by 45% over the past five years alone[1] (at the time of writing). And since the index was created in 2004, fine wines have steadily risen to almost five times their original price. Over the past year, fine wine investors have enjoyed returns of 13.6% on average[2]. While past performance is no guarantee of future returns, fine wine has a strong track record of delivering smooth and stable value for investors.

Property market values are a little more complicated to measure, as they are influenced by politico-economic factors. For example, the 2020-2021 UK Stamp Duty cuts impacted price movements significantly. However, we can still compare returns.

Most real estate investors will opt for a Buy-to-Let property. Depending on the area they select, rental profits generally range from between 3% to 8% each year. 2022 research from Zoopla reveals that UK rental yields are the highest in East Ayshire, Scotland. Here, investors pick up average yields of 8.5%[3]. By contrast – and perhaps surprisingly – the location with the lowest rental yields is the London Borough of Kensington and Chelsea. Despite the average property values of £1.7 million, investors reap just 3.3% profits[4]. Even the highest yielding rental properties are not delivering the superior returns of fine wine.

Comparing like-for-like, the average rental yield for a UK property today is 4.7% annually[5]. By contrast, wine investors have enjoyed returns of 13.6% on average over the past year[6].

Costs associated with buying and selling

Unless you chose to buy into a fund, purchasing the investment-grade wine of your choice can take a little longer than trading stocks and shares on the public markets. However, reputable online services like WineCap make the process simple and straightforward.

Signing up to the WineCap platform and linking your desired investment amount takes just a few moments. From there, investors can effortlessly view, track, and purchase the finest wines available. They can even benefit from state-of-the-art analysis tools, and experts are on hand to recommend the best brands. Selling wine with us is just as painless. We are extremely well positioned to trade wine, reaching keen audiences and investors across the globe. When investors sell fine wine, WineCap charges a brokerage fee of 10%.

Buying a property, on the other hand, is almost always a drawn-out and complicated procedure. Investors looking for a buy-to-let will need to visit multiple different properties and locations, requiring time and planning. They’ll also need to deal with estate agents, surveyors, conveyancers, lawyers, banks and possibly mortgage brokers, adding around £5,000 to the cost[7]. Plus, if tenants are already living in the property, it problematic for investors who want to renovate or increase rents.

Selling a property means going back through the same laborious process, especially if the new buyer is part of a chain. It also occurs additional costs such as estate agents fees, EPC energy certificates, conveyancing fees and removal services, adding around £6000 in total[8].

Buying and selling a property comes with a lot more hassle and fees than fine wine. When fine wine is sold using online services like WineCap, a one-off 10% brokerage charge applies. By contrast, when buying and selling a property, investors are inundated with charges and requirements, adding thousands to the bill.

Inflation-hedging and interest factors

Fine wine is famously inflation-resistant. Over centuries it’s demonstrated that returns are not corelated to the wider financial markets, and over the last years it’s become even more stable than gold. As a scarce and depleting asset, fine wine investments are a promising hedge against inflation.

However, the same cannot be said for buy-to-let mortgages. Unless investors can purchase property outright, they are likely to get hit with annual interest rates of around 5%[9]. Considering that the average property in the UK comes to £296,000[10], mortgage holders will pay out £14,800 each year. What’s more, since 2017, buy-to-let tax relief has been gradually decreasing in the UK. As of 2022, it became zero. Property investors will be feeling the rising interest more than ever.

Inflation and interest rates are closely linked. When inflation rises too much, central banks will attempt to “cool” the economy by raising interest. At the moment, we are in a high inflation environment, and so interest rates are unlikely to drop back to pre-pandemic levels for the foreseeable future. This is bad news for landlords and property investors, but it doesn’t negatively impact fine wine holders.

When it comes to inflation-hedging and interest, fine wine investments have the edge over property. Unless the investor can pay for the entire estate without any mortgage, they will be hit with higher rates and less tax perks.

Ongoing maintenance costs

Some investors already have a temperature-controlled cellar at home. But for those that don’t, there are storage facilities available. Ensuring that the bottles are stored in the right conditions is crucial for maintaining and increasing value.

While storage costs vary from place to place, it’s usually between £10 and £40 for a case of twelve for a year. Some facilities may include insurance, or investors may prefer to purchase it themselves. Investors may also wish to have the wine delivered to a new location, which adds to the overall cost.

If you would like to talk to an expert about fine wine and the maintenance costs, we’d be happy to help.

Investing in property also comes with maintenance charges, which are often far more troublesome and costly. The estate may need renovation, cleaning, plumbing work, building work, decorating and more. Those planning to rent out also need to stay on top of regulations, such as fire safety measures. Many investors will employ a property manager to ensure that day-to-day issues are dealt with quickly, which is a drain on profits.

In addition, properties such as flats often require quarterly service charges, to pay for the communal maintenance, cyclical charges (like repairs) and reserve funds. Most service charges are between £1,000 to £2,000 a year.

Both fine wine and property investments come with maintenance charges. However, the cost of storing, insuring, or transporting fine wine is usually much less than the costs associated with properties.

Tax considerations

One of the major advantages of fine wine investments is the generous tax status. Under the UK HMRC, fine wine usually falls under the category of “wasting chattel”. This means that since it needs to be consumed within the next 50 years, it is exempt from Capital Gains Tax (CPT). Investment-grade wine which valued at less than £6,000 is also usually free from CPT. You can read more about the taxation rules of fine wine with our comprehensive guide.

However, the same cannot be said for almost all property investments. Property investors in the UK must normally pay stamp duty, capital gains tax and income tax. Buy-to-let investors will need to pay more in stamp duty than other homebuyers, as they have an additional 3% surcharge. And foreign property investors may face yet more taxes from both their own state and the one they are buying in.

Depending on the type of service property investors want to offer renters, they may also take on the Council Tax as well.

Property investors will probably need to pay stamp duty, CPT and income tax. Meanwhile, nearly all fine wine investments are exempt.

Is fine wine the new property?

In the current environment, fine wine has many desirable qualities and benefits over traditional property investments. While wine does have some associated costs, they are usually much lower and more straightforward than buying property. And, unlike property investments, the returns on fine wine are not directly impacted by tax, interest rates or inflation.

Perhaps most importantly of all, fine wine tends to preserve or increase in value during a recession. It is not linked to the wider economy and government intervention in the same way that the housing market is. On the contrary, in the aftermath of the 2008 housing collapse, fine wine rallied[11].

So, is fine wine the new property? We think it’s better.

 

[1] Source: Liv-ex

[2] Source: Liv-ex

[3] Source: Zoopla

[4] Source: Zoopla

[5] Source: Joseph Mews

[6] Source: Liv-ex

[7] Source: KFH

[8] Source: HOA

[9] Source: Money Supermarket

[10] Source: ONS

[11] Source: Liv-ex

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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

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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

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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

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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