Tag: Fine Wine

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En Primeur Report – Bordeaux 2022: Unfulfilled Potential

Bordeaux 2022

Bordeaux 2022 is a great vintage that, despite its high quality, failed to reverse the waning sentiment for En Primeur. The excitement of the new was counteracted by the value on offer.

Although there was a significant increase in the number of visitors at the En Primeur tastings this spring, the campaign did not succeed in capitalising on this positive momentum.

Our latest report, Bordeaux 2022: Unfulfilled Potential, delves into the reasons why the campaign didn’t quite deliver on hopes and the event’s place within the industry in coming years.

Key findings:

  • Bordeaux 2022 is a high-quality vintage that has surpassed expectations, given the challenges of the growing season.
  • Neal Martin’s average 2022 in-barrel score was below 2020, 2019, and 2016, with most critics noting that it is a vintage to be selective.
  • The En Primeur tastings saw a significant increase in the number of visitors this spring, indicating continued interest in the region.
  • Some wines managed to offer value and were met with high demand upon release, including Château Cheval Blanc, Château Beychevelle, and Château Lafleur.
  • Average price increases between 15% and 25%, and as high as 55%, did not resonate well with the soft Bordeaux market.
  • Bordeaux 2022 vintage failed to reverse the declining sentiment for En Primeur due to high release prices in the context of older vintages offering better value.
  • Producers should evaluate the market dynamics to navigate the evolving fine wine market, and the role of En Primeur within it.

 

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Report

Special UK Report – Fine wine: the journey from passion asset to mainstream asset class

UK wine investment report
  • Our special report, entirely based on primary research, reveals wealth managers’ and financial advisers’ attitudes toward fine wine.
  • Almost all (96%) UK wealth managers expect demand for fine wine to increase.
  • Fine wine is ahead of watches (86%) and luxury handbags (80%) in second and third place respectively.

UK wealth managers see demand for fine wine comfortably outstripping other passion assets, such as watches, luxury handbags, and art. This is one of the findings in our special UK report, Fine Wine: The Journey from Passion Asset to Mainstream Asset Class.

Fine wine – the most in-demand passion asset

The report, based on a study conducted among 50 UK-based wealth managers and financial advisers who only deal with high-net worth clients (£100K+), revealed that fine wine will attract most demand from investors over the coming year amongst all leading passion assets. 96% expect demand to increase, of which three out of five (60%) said that it will increase “significantly”.

This placed fine wine comfortably ahead of watches (86%) and luxury handbags (80%) in second and third place respectively. Other well-established passion assets such as art (68%) and classic cars (62%) placed much lower in sixth and tenth place.

Fine wine in investment portfolios

The report found that fine wine is already featuring prominently in many wealth managers’ client portfolios. UK wealth managers and advisers estimated that over 40% of their high-net-worth (“HNW”) client base invest in fine wine with an average portfolio allocation of around 10%.

Fine wine’s growing prevalence among HNW client portfolios provides compelling evidence, if any is needed, that it has graduated to a genuine alternative asset, a highly effective portfolio diversifier, operating alongside other popular alternatives such as hedge funds, real assets, and private capital as well as mainstream assets such as fixed income and equities.

In common with other alternative assets, fine wine tends to feature more prominently in larger portfolios belonging to more sophisticated investors where there is a greater premium on diversification. Almost all respondents (98%) said that clients investing in fine wine are mainly experienced investors, with 62% saying they were “very experienced”.

Please fill in the form below to download your complimentary copy of the report.

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Special US Report – Fine wine: the journey from passion asset to mainstream asset class

US wine investment report
  • Our special report reveals how US wealth managers and financial advisers perceive fine wine as an investment.
  • Almost all (92%) US wealth managers expect demand for fine wine to increase.
  • Fine wine is ahead of jewelry (78%) and antique furniture (78%) in joint second.

In recent years, fine wine has grown in popularity among affluent and high-net worth individuals in the US, driven by a greater recognition of the role it can play in delivering stability, attractive returns, and diversification to investment portfolios.

To date, there has been limited research into how fine wine is perceived by the key gatekeepers to sophisticated private investors, namely wealth managers and financial advisors.

Our special US report, Fine Wine: The Journey from Passion Asset to Mainstream Asset Class, seeks to bridge this gap by drawing on independent primary research among 50 US-based wealth managers and financial advisors.

Fine wine demand to increase

Our findings revealed that fine wine will attract most demand from investors over the coming year amongst all leading passion assets, with almost all (92%) of the surveyed expecting demand to increase.

This placed fine wine comfortably ahead of jewelry (78%) and antique furniture (78%) in joint second. Other well-established passion assets such as classic cars (64%) and art (54%) placed much lower in sixth and ninth place.

Fine wine’s place in a portfolio

The report found that fine wine is already featuring prominently in many wealth managers’ client portfolios. US wealth managers and advisors estimated that almost half (45%) of their high-net-worth (“HNW”) client base invest in fine wine with an average portfolio allocation of around 13%.

Fine wine’s growing prevalence among HNW client portfolios provides compelling evidence, if any is needed, that it has graduated to a genuine alternative asset, a highly effective portfolio diversifier, operating alongside other popular alternatives such as hedge funds, real assets, and private capital as well as mainstream assets such as fixed income and equities.

The report further provides in-depth research on the most common reasons for US investors to consider fine wine, and catalysts for further growth.

Please fill in the form below to download your complimentary copy of the report.

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News

Champagne’s financial bubbles: rising costs spark concerns over affordability

Champagne
Champagne
  • Rising production costs and inflationary pressures in Champagne have raised concerns around its accessibility and its appeal to consumers.
  • Higher interest rates pose challenges for financing grape supplies, potentially eroding profit margins for smaller Champagne producers.
  • Champagne’s investment market has also been undergoing a similar shift, which has diminished its relative affordability compared to other fine wine regions.

Champagne has experienced a period of remarkable success, with a new record turnover set for the region in 2022, The Drinks Business highlighted in an article this week. However, leading figures in the region have noted that inflationary pressures and rising production costs could potentially make Champagne too expensive. This is a particular concern at the lower end of the market where fixed costs make up a larger proportion of the value of the wine and the need to keep prices affordable is more pronounced. But prices have come under pressure in the secondary market too, which has shifted its dynamics.

Champagne’s rising costs spark concerns among smaller producers

The escalating prices of grapes, along with increasing costs of labour, energy, packaging materials, and glass, have placed significant financial pressures on some Champagne houses. According to the article, the price of grapes from the 2022 harvest rose by as much as 10% compared to the much smaller 2021 vintage.

Rising interest rates, which were sitting below 1% two years ago and have now reached 3% and higher, have added extra pressure on financing grape supplies, potentially eroding profit margins of smaller producers. Meanwhile, various packaging materials, including paper, foils, cases, and glass, are up by around 40%.

The rising production costs may lead to further price increases for Champagne. This situation raises concerns around Champagne’s accessibility and its appeal to consumers. Some producers fear that higher prices could deter customers and potentially drive them towards alternative sparkling wines.

The shifting dynamics of Champagne’s investment market

The dynamics of Champagne’s secondary market have also been undergoing a clear shift. Previously, everything seemed to work in Champagne’s favour: abundant stock, strong distribution, consistent demand, and relative value compared to other fine wines.

Speculators have taken advantage of Champagne’s strengths, fuelled by a string of excellent vintages that increased demand. This has altered the traditional rules of the Champagne market, as speculators often hold onto their stock without consuming it, resulting in potential oversupply. The sustainability of rising prices in the face of a potential stock overhang can present a challenge.

Meanwhile, the rising price of Champagne has diminished its relative price advantage compared to other fine wine regions. Previously considered an affordable entry point into the world of fine wine, Champagne’s average prices now rival those of Bordeaux. For instance, the average case price of Krug Vintage Brut (£5,001) is higher than that of the First Growth Château Haut-Brion (£4,802).

Champagne vs Bordeaux

*Over the last five years, Champagne prices are up 76.8%, compared to 15.3% for Bordeaux. Champagne experienced stellar price performance between mid-2021 and the end of last year. Year-to-date, its index is down 9.1%.

Some producers have also displayed an ambition to raise prices. Notable brands, such as Philipponnat’s Clos des Goisses and Lanson’s Le Clos Lanson, have joined La Place de Bordeaux, signaling their intent to push their brands. Last year, François Pinault’s Artemis Group acquired a majority stake in Champagne Jacquesson. While this highlighted Champagne’s investment potential, it also indicated a departure from offering wines at entry-level prices.

All of this presents a complex landscape for Champagne’s future pricing and market positioning; particularly, for smaller more affordable producers, less able to spreads costs over multiple products and absorb the rising costs. Is the era of affordable Champagne over?

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

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Bonds vs fine wine: what should you invest in?

  • Both bonds and fine wine can help to mitigate short-term risk in a portfolio.
  • After ten years the average bond delivers a 15% return, while fine wine – 78%.
  • Fine wine is an inflation-resistant asset, unlike bonds.
  • Bonds are generally much more liquid than fine wine.

Bonds are one of the most popular ways to invest. For decades, investment managers would opt for a strategy known as “60/40”, where 60% of the portfolio was allocated to equity and 40% to debt instruments. The idea was that the riskier equity (stocks and shares) would shield against inflation while helping to generate returns. By contrast, the more stable debt instruments (bonds and credit) would ground the portfolio and prevent it from plummeting during market downturns.

However, a lot has changed since then. Today, many experts comment that the 60/40 rule no longer applies. Instead, investors need to diversify much more to achieve more market stability. And they need to go further afield – into alternative assets – to find true inflation resistance.

In this article, we’ll compare the risk, value drivers, return, liquidity, and inflation characteristics between bonds and fine wine.

Both wine and bonds can mitigate short-term risk

Bonds come with many different risk levels. Some borrowers – like fledgling start-ups – are extremely likely to default. While there are others – like the governments of developed nations or blue-chip companies – that are almost definitely going to meet the repayments.

Occasionally investment managers will opt for extremely risky debt – known as a High Yield Bond strategy. But generally, most will allocate a greater portion of the portfolio to low-risk bonds, which tend to be rated AAA or Aaa by specialist agencies. This is usually to anchor the portfolio and help bring in stable fixed income.

Like bonds, fine wine is also generally a low-risk investment. Because the value is intrinsic, it is unlikely to plummet overnight. After all, fine wine will always be valuable. No matter what’s going on in the stock market, somebody will almost always want to buy it.

Investment managers will often add a small allocation to fine wine to help preserve wealth and mitigate risk. We have noticed that the wealthier the client, the higher the proportion tends to be. So, ultra-high net worth (UHNW) individuals and family offices generally have more fine wine in their portfolios.

The sources of value are different

While AAA bonds and fine wine may have similar risk levels, their revenue sources couldn’t be more different.

Investors make money from debt instruments like bonds by collecting the repayments from the initial sum, plus interest (the extra interest is known as “coupons”). With bonds, investors get regular revenue, which is why the asset falls under the category of “fixed income”. The repayments and coupons are usually paid quarterly.

By contrast, fine wine investors generally need to wait until they have sold the cask or bottle before they can access any returns. However, the returns are usually much more lucrative than bonds.

Wine has a stronger return profile

The average annual return of a bond is 1.6%. Usually, bonds will last for longer than a year though. Short-term bonds are around three years, mid-term is about five years and long-term is anything over a decade. Over ten years, investors gain an average of 15% returns. This means that if you invested £1,000, you could expect to get around £1,150 back.

One of the useful things about a bond is that investors should be able to clearly know how much they will get in advance. This is because the repayment terms and interest are already agreed upon, it does not depend on the ebbs and flows of market sentiment.

Like bonds, fine wine can also take some time to realise its return potential. But, on average, it’s much more profitable for investors than bonds. Figures from the Liv-ex 1000 index show that the average bottle of fine wine already brings returns of 23% after two years. After five years, that increases to 34%, and after ten to 78%. So, if you had invested £1,000, you could expect to get back £1,780%.

Liv-ex Fine Wine 1000 ten years

You can follow how specific bottles have performed over the past decade with Wine Track.

Bonds are more liquid than fine wine

There are two main ways to invest in bonds. You can buy them on the primary market and lend money directly to borrowers, or you can trade bonds on the secondary market. In the secondary market, the new buyer will then own the debt and pick up the repayments. This makes bonds quite liquid, meaning they are fairly easy to sell and turn into cash if you suddenly need the money. For publicly traded loans (rather than private debt) you should usually be able to sell a bond and expect the money in your bank account within a week.

Fine wine investors also have a primary and secondary market, but the process of trading is not usually so quick. For the best results, investors should wait until the wine matures before selling. But this can mean that the money is locked-up for months or years at a time. Some vintages, for example, can take upwards of twenty years to peak. If you sell early, you could miss out on valuable returns.

Before investing in wine, always consider your liquidity needs. It can be helpful to add-in some cash or cash-like investments into your portfolio in case you need to access funds quickly.

Fine wine is more inflation-resistant than bonds

Inflation occurs when the value of money decreases. Usually, this is because a central bank (like the Bank of England) prints more money to help the economy overcome a crisis, known as Quantitative Easing. While this measure may help to prevent a recession, sooner or later it usually needs to be reversed. When the economy is red hot, central banks normally need to hike up the interest rates to cool things down again. This can be painful for debt investors, and especially those holding long-term bonds.

Imagine that in 2019, you bought a ten-year bond to lend £1,000. At this time, the bank rate was set at 0.75%. Today (in 2023), you would still have six years left on your bond, but the bank rate has soared to 4.5%. The borrower will still be paying you the rate that was agreed in 2019. You could be paying more for your own mortgage or credit card than you’re getting back from your investment.

What’s more, the initial sum is becoming worth less by the day as high inflation of 8.7% grips the economy. If the inflation continues, by the time the bond is repaid, that £1,000 is the real value equivalent of just £740.55 today.

The downside of investing in bonds is that they don’t really protect you from inflation, especially over the long term.

Fine wine, on the other hand, is a good example of an inflation-resistant asset. Over the years, the value of precious bottles tends to keep up or even outpace Quantitative Easing.

There are many reasons for this. First and foremost, it is a physical asset like property and art, which acts like a wealth store. It is rare and depleting. Furthermore, the passionate and global market usually keeps prices at a healthy level.

The best approach is probably a mix of investments

As Nobel-prize laureate Harry Markowitz famously quipped, “Diversification is the only free lunch in finance”. This philosophy marks the cornerstone of modern portfolio theory. The idea is that you should invest in as many different revenue sources as possible to mitigate against risk. This means that for most portfolios there should be a blend of equity, debt (like bonds), alternative investments (like fine wine), real estate and some cash. Usually, the allocation to cash is about 5%.

Both bonds and fine wine have different investment characteristics. The trick is to use them in the most beneficial way to investors. For example, if you’re looking to grow your wealth over the long-term, fine wine is probably a better option. However, if you’re looking to generate regular income, investing in bonds could be a better bet.

There are interesting examples of bonds and fine wine working together within retirement portfolios. Fine wine is increasingly used as a growth generator to boost the investor’s wealth at the start of their pension journey. Meanwhile, bonds normally provide stable and regular income after the investor retires.

 

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

 

 

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The pairing of old wine and new markets: demographic shifts and emerging trends

A version of this article by WineCap’s CEO Alexander Westgarth was first published in Forbes.

  • The wine investment landscape has evolved significantly, with younger, international buyers increasingly shaping the market.
  • Growing global demand has made the market more liquid, transparent and efficient.
  • New investors are exploring assets beyond traditional stocks and bonds such as wine and other collectibles.

The image of the traditional wine investor is changing. Gone are the days of gentlemen with monocles and fur coats. Today, the reality of who purchases fine wine may surprise you.

In this article, we explore the changing demographics of wine buyers and highlight modern investment trends for wealth managers looking to incorporate wine into their portfolios.

Shifting demographics: younger generations enter the market

The average wine buyer has become considerably younger in recent years. Jamie Ritchie, Head of Wine at Sotheby’s Auction House, said that in the 1990s the average wine buyer was 65. However, according to a 2021 report, only 7% of wine buyers are now over 60, while 37% are under 40. Nearly 270 millennials and Gen Zs placed the winning bid for Sotheby’s finest wines and spirits.

This shift is particularly relevant for wealth managers, as fine wine aligns well with younger investors who have long-term investment horizons. Most fine wines have potential for ageing – a good Bordeaux, for instance, can be cellared for 50+ years. This can add stability to an investment portfolio. Over the past two decades, the average price of fine wine has risen 380%, suggesting a potential for continued growth as demand increases and supply diminishes.

The liquidity challenges of wine investment

While investing in fine wine offers long-term benefits, one should not ignore the liquidity aspect. Younger investors may require quicker access to funds, which poses a challenge as wine can take time to trade. Selling wine investments prematurely may result in missing out on substantial profits. Wealth managers should, therefore, consider diversifying portfolios by combining fine wine with other liquid assets, such as cash-like securities, blue-chip stocks, and bonds. Striking the right balance between illiquid and liquid investments is key to maximising returns.

Global appeal

The international appeal of wine has grown significantly over the past two decades. According to Sotheby’s Wine & Spirits Market Report 2021 referenced earlier, North American bidders have been drawn to the market to make up nearly half of Sotheby’s new buyers.

This could be partly attributed to the power of currency. On the first day of 2021, 1 pound was worth $1.37. But by mid-December, it had zigzagged down to $1.32. As the green bills swelled in purchasing power, fine wine (usually denominated in sterling) grew increasingly tempting to U.S. investors. Today sterling continues to weaken against the dollar. As of June 7th 2023, 1 pound costs $1.24.

Additionally, Asian buyers now make up 52% of wine sales at Sotheby’s, with American investors representing 18%, and Europe (primarily split between the UK and France) accounting for the remaining 30%.

Growing global demand for wine offers some serious advantages for existing investors. As well as bringing in more potential buyers, the value of fine wine tends to rise above regional shocks. As the market base grows, the market becomes more liquid and efficient, improving price transparency.

A thirst for inflation-hedging and nostalgia

Historically, fine wine has been difficult to access. Investors needed to be deeply entrenched in elusive private markets. Owning an investment portfolio at all was generally reserved for the wealthy few.

But today, spurred by a boost in financial literacy and digital investment platforms, new groups are entering. Alongside wine, today’s digital investors are adding cultural timepieces like iconic shoes, sweaters, watches and even Legos to their portfolios. This could be partly due to nostalgia but it could also be the result of an astute investment strategy.

Historical data shows impressive returns for collectibles, with sneakers generating over 2,000% returns and Swatch timepieces delivering over 7,000%. One in-depth study found that from 1987 to 2015, Lego collectibles delivered returns of at least 11%.

Considering the anticipated high interest rates, low growth, and volatility of 2023, physical assets can serve as a hedge against inflation. While certain collectibles may be speculative, wine and art have demonstrated a history of hedging against economic downturns.

Leveraging online investment platforms and adapting to investor preferences

Wealth managers can leverage online investment platforms to access performance data, bid-ask spreads, and forecasts. They can also purchase wine directly and handle everything from storage to auctions digitally.

As the investor landscape changes, wealth managers should explore assets beyond traditional stocks and bonds. Incorporating alternative investments, such as wine, can help diversify and enhance portfolio performance. Furthermore, incorporating passion assets that resonate with younger investors, such as sustainability-focused investments and items reflecting their values, can strengthen client relationships and attract the next generation of investors.

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

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Diversifying retirement portfolios: Why pension fund managers are turning to fine wine

pension funds
  • Pension funds have increased investment in alternative assets like fine wine by 25% over the past two decades.
  • Fine wine provides stability and intrinsic value for pension planners, as it is unaffected by geopolitical events or high inflation levels.
  • Fine wine has delivered impressive returns of 40.3% over the past five years, making it an ideal asset for retirement planning and diversification.

Change is in the air. As both the bond and equity markets get shaken by turbulence, pension fund managers are increasingly turning to alternative assets, to hedge against economic shocks. According to one report, pension funds around the world have increased their exposure by 25% over the past two decades. The New York Teachers Retirement System, for example, is plunging a whooping 35% of money into alternative investments.

Private equity, property, hedge funds and commodities are among the most enduring alternative assets. However, little by little, institutional investors are dipping into collectibles like fine wine too. One of Canada’s mightiest pension funds, The Public Sector Pension Investment Board, recently acquired 35 iconic vineyards. Goldman Sachs has also been investing heavily in wineries, with a focus on medium and longer-term returns.

In this article, we’ll unveil what’s making wine so appealing to managers today, and how investors could use this unique asset to bolster their own retirement funds.

Fine wine’s intrinsic value is reassuring for pension planners

Unlike most other investments, wine’s world-famous flavors are not impacted by geo-political events or high inflation levels. Instead, they are affected by storage and temperature.

This gives investors – including fund managers – a welcome sense of reassurance. While they may have no control over the stock market, they can ensure that the wine is well cared for.

Over the decades, retirement planners can rest assured that their wealth is not subject to the twists and turns of the stock market. Instead, it comes from the intrinsic value and exquisite quality within the bottle. This can help to mitigate risk and offer valuable diversification.

Investors can find a bottle to match their retirement timeframe

One of the greatest appeals of fine wine is how it improves over time. Naturally, it’s an asset that complements decades-long investment strategies, like retirement plans.

As our CEO, Alex Westgarth, recently commented for Forbes, ‘Fine wine pairs well with younger investors with long-term horizons. A good Bordeaux, for example, can age up to 50 years. This can add a certain stability to your portfolios’.

An excellent wine will always be in high demand as it reaches maturity. And there will almost always be a passionate buyer willing to pay premium prices.

A great advantage for pension planners is that they can probably find a bottle on the market to match their retirement timeframe. While some wines might be best opened in fifty years, others may need just five. Finding the right wine for your unique timeframe can help you to hedge against market losses and meet your investment goals.

With time, premium bottles become rarer

As poet, playwright and novelist, Johann Wolfgang von Goethe famously quipped, ‘Life is too short to drink bad wine’. Ultimately, the asset is made to be enjoyed. People open investment grade wine to celebrate occasions or present as gifts. And, with time, certain vintages will become harder and harder to find.

When demand outstrips supply, prices increase. That’s another reason why long-term investments in wine can be a sensible alternative asset for pension planning.

As the climate crisis continues to impact vineyards, the scarcity factor is likely to further increase prices. The delicate and unique flavors in already-bottled wine could be the last of their kind within just a few years. This will further reduce supply.

Meanwhile, demand is growing by the day. The past decades have seen an impressive rise in Millennial and Gen-Z buyers. Sotheby’s have even noticed the average purveyor’s age shrink from over 60 to under 40.

What’s more, the vast surge of digital advancements are also bringing in new generations and groups of wine buyers.

If demand continues to grow, the tightening supply should lead to a continued increase in value.

Fine wine has an impressive record of beating inflation

There are several reasons why most pension funds begin by investing in equities. It’s partly because managers can afford to take on more risk with longer timeframes. But it’s also to avoid the devastating effects of inflation. Unlike cash, bonds or other debt instruments, equity is generally more inflation-resistant.

Fortunately, fine wine shares this same inflation-resisting quality. This could make it a strong contender for a pension investment plan.

Fine wine has a history of beating inflation. Since 2021, for example, while the UK has endured inflation rates of over 10%, the Liv-ex 1000 index has risen 33%.

During the middle and final investment years – when the pension pot is most at risk of inflation erosion – a healthy allocation to wine could help mitigate the risk.

Fine wine has a history of strong returns

Over the past five years, the fine wine has delivered returns of 40.3%, according to the Liv-ex 1000 index. What’s more, despite the incredibly erratic market, overall performance has been smooth and steady.

This makes fine wine a strong contender retirement planning. Fine wine has both growth and value characteristics, making it well suited for most pension plans.

How can fine wine be incorporated into a pension?

Usually the best way to add wine into private pensions – like workplace and Self-Invested Private Pensions (SIPPs) – is to speak to a financial advisor. This is because they can help you structure the fund in the most tax-efficient way.

When it comes to taxes, fine wine already has a head start. Fine wine is exempt from Capital Gains Tax. Because of this, your advisor may prefer to leave it out of a SIPP altogether and use the tax perks on other assets instead. But probably they would seek to allocate a proportion of fine wine into your overall retirement plan as a hedging asset or long-term growth generator. As an inflation-resistant and illiquid asset, wine generally lends itself to retirement planning well.

If you’d like to find out more about which wines could best suit your pension goals, we’d love to talk to you.

 

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How fine wine hedges against economic shocks: In four graphs

fine wine index
  • Fine wine’s value tends to increase when stock markets fall, making it a great hedge option for investors.
  • Fine wine is proving to be a better portfolio hedge than gold which is showing greater correlation with the stock market in recent years.
  • As a precious and depleting asset, wine tends to rise above local shocks and is generally less impacted by cost-of-living pressures.
  • Fine wine has outpaced inflation since 2021, making it a resilient asset to hold in turbulent times.

There is a lot going on in the economy, and most of it is not good. Major financial institutions buckle under high interest rates. Central banks are forced to rethink policies. Inflation continues to flirt with double digit levels. And the stock market lurches from one position to another as world events unfold. According to JPMorgan’s Q2 outlook, ‘2023 looks overwhelmingly likely to be a year of disappointing growth and ongoing adjustment’. Yet, fine wine is generally standing tall, experiencing little to zero negative performance.

In many situations, the value of fine wine has even climbed. As CityAM recently reported, ‘while it might not usurp stocks as the backbone of investors’ portfolios anytime soon, wine is providing some stability and solace amid the turmoil’.

In this article, we’ll uncover how fine wine is reacting to today’s tense economy and why.

The value of fine wine tends to increase as markets go down

Fascinatingly, the value of wine tends to increase as the stock markets fall. One of the most notable examples was during the financial crisis of 2008. Over autumn, the world economies went into shock. Within six months, the great S&P 500 had plunged by 52%.

S&P finance

Source: Yahoo Finance

Yet, while the world’s stock prices zig-zagged downwards, one asset class held up remarkably well. Fine wine (shown in the graph below in red) did not suffer any major downturns. On the contrary, it seemed to have a negative correlation to the stock market. Fine wine prices soared.

Liv-ex 1000 vs S&P 500

Time and time again, fine wine has outperformed when the stock market is sinking. This is because of four essential characteristics.

Most recently, fine wine delivered investors double digit returns over the COVID-19 pandemic and global lockdowns. Between April 2020 and September 2022, the asset shot up a staggering 43.5%.

This makes fine wine an extraordinary hedging option for investors. When stocks are tumbling, a reasonable allocation to wine can help to smooth out the overall performance and absorb losses.

Today, fine wine is a better portfolio hedge than gold   

The current economic environment is unsteady. Understandably, global asset managers are now looking to buffer against some of the market shocks by increasing their allocations to alternatives and hedging instruments.

One of the most popular choices is gold. According to UBS’ latest report, ‘we are also most preferred on gold and recommend holding it as a portfolio hedge in the current uncertain times’.

However, over the past couple of years, fine wine has started to beat gold at its own game. Since Covid-19, the prices of gold have become more correlated to the prices of the stock market. Looking at the graph below, the performance of gold (in orange) is becoming increasingly aligned to the stock market (for example, the S&P 500 shown in yellow). By contrast, the value of fine wine (red) is the least aligned.

Liv-ex 1000 vs S&P 500 vs Gold

When it comes to hedging against a turbulent economy, wine is coming out on top. Some economists are now beginning to question if fine wine is the new gold.

Since 2021, the performance of fine wine has outpaced inflation

The US inflation rate is gradually coming back to an almost-reassuring level. At the time of writing (May 2023), it sits at 4.98%, down from 8.54% in 2022. But it’s more than double the target rate.

In the UK, it’s not looking so good. Inflation now sits at a nerve-wracking 10.06%, meaning that purchasing power is rapidly draining from the pound. At times like this, it’s generally better to hold long-term wealth in assets rather than cash. Physical assets like property, precious metals and fine wine are especially resilient to inflation risk.

Below is a graph showing the UK’s inflation rate over the past five years. Since 2021, it has soared to double digits.

If we compare this to the average performance of fine wine in the same time frame (using the Liv-ex 1000 index), wine hasn’t just kept up with inflation. It has beaten it more than three-fold. Between 2021 and 2023 UK inflation rose by just under 10%. By contrast, the average performance of fine wine has increased by 33%.

There are several reasons why wine is so good at outpacing inflation. Firstly, it’s a global asset so it tends to rise above local shocks. When the pound loses value, Asian or American investors tend to step in. The wine markets are generally private too. This means that the groups of buyers tend to be very wealthy and sophisticated investors, who are less impacted by the cost of living pressures. They’re generally less swayed by rumors or economic turbulence too.

Perhaps most significantly, wine is a precious and depleting asset. It grows in value and scarcity over time, which will almost always outpace inflation levels.

Overall, wine is a useful asset in a turbulent economy

There are so many reasons for turbulence in the economy. Wars, pandemics, political tensions, inflation or the climate crisis to name a few. Yet, the last few years have shown us that fine wine tends to increase in value during these historical moments.

Global demand for investment grade wine outstrips supply more and more every day. As our CEO Alex Westgarth recently explained for Forbes Business Council, wine investors are younger, edgier, and more international than ever. Whichever way you look at it, wine and economic turbulence tend to pair well.

As the markets continue to stride forward into uncertainty, it’s a good moment to reconsider alternative assets and hedging strategies.

Discover seven more delicious benefits to investing in fine wine

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

 

 

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Neal Martin awards three Bordeaux 2022 wines potential 100 points

En Primeur Neal Martin Bordeaux 2022
  • Bordeaux 2022 is predestined for long-term ageing rather than drinking young.
  • Martin found little difference between the First Growths and ‘the others’ in terms of quality.
  • He singled out Saint-Julien as an appellation to seek out.
  • Leoville Las Cases, Cheval Blanc and L’Eglise Clinet received 98-100 points.

Yesterday, Vinous published Neal Martin’s much anticipated Bordeaux 2022 report, titled “You’re unbelievable”.

Vintage observations

Martin found some ‘snow-capped peaks’, ‘show-offs whose talent cannot be denied’ as well as some ‘caveats’ in Bordeaux 2022. Like other critics, he commented on the ‘unbelievable’ freshness given the heat of the growing season.

He remarked that in 2022 ‘there is partial flattening of the hierarchical pyramid’. While ‘release prices will inevitably amplify differences in ranking, in terms of quality, there’s little difference between First Growths and “the others”,’ he observed.

On the question of Right vs Left Bank, the critic said the ‘vintage is more evenly balanced’ but singled out Saint-Julien as an appellation to watch out for, noting that ‘this is as good as it gets’.

He mentioned the wines’ higher alcohol levels compared to the 2021s, that are ‘often above 14%’ but feel ‘less blowsy than in 2018’. He also said that ‘unlike 2019 and 2020, most wines, particularly within its higher ranks, are predestined for long-term aging’.

However, he advised ‘those with a penchant for drinking Bordeaux young [to] seek out another vintage’.

In terms of buying opportunities, he argued that ‘the question is whether initial prices make any purchase worthwhile vis-à-vis other vintages currently on the market’.

Top-scoring wines

Neal Martin's top-scoring Bordeaux 2022 wines

While Martin stated that En Primeur is more than just scores, it is important to note that three wines achieved his highest in-barrel range of 98-100 points.

Cheval Blanc 2022, which was among the first releases this campaign, is ‘a wine for those serious about their Bordeaux,’ according to the critic. Vinous’ Antonio Galloni also rated it 98-100 points, noting that ‘it is shaping up to be one of the wines of vintage’. It also makes an attractive investment, with Cheval Blanc prices rising an average of 22% over the last three years.

Cheval Blanc prices and scores

For Martin, Leoville Las Cases 2022 ‘surpasses the 2018-2020 trio and […] is a ‘tour de force’’.

He described L’Eglise Clinet as ‘a wine that may leave you spellbound’.

Martin also suggested some wines from the cellar which included Brane-Cantenac, La Conseillante, Léoville Barton, Phélan-Ségur, Pichon-Baron and Vieux-Château-Certan.

You can now explore the historic performance of these wines on Wine Track. Our tool provides a clear overview of a fine wine’s track record, including critic scores, average price and investment returns.

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

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Banking failures and the fine wine market: Performance during economic uncertainty

Banking crisis
  • The US banking crisis has been the biggest since the 2008 financial crisis and has created uncertainty in mainstream markets.
  • Revisiting key moments in the history of fine wine investment offers valuable insight into the future of the market.
  • A key difference between fine wine and equities during the last financial crisis was the speed of recovery.
  • The fine wine market is braced for challenges due to its diversity as the performance of different wines and vintages can balance a portfolio.

The recent banking failures have been the biggest since the 2008 financial crisis. Since the beginning of March, regulators have shut down three mid-size US banks – Silicon Valley Bank, Signature Bank and First Republic. In Europe, Swiss giant Credit Suisse was rescued in an emergency deal with rival UBS, which purchased it at a fraction of its closing market value. UBS itself suffered losses during the acquisition – it slid 13% before making a recovery.

While the news echoes the last financial crisis, governments have been providing reassurance that this is not history repeating itself. The current turmoil is partly down to the sharp increase in interest rates, which was aimed to curb inflation.

Still, the banking collapse has had an immediate effect on investor confidence and mainstream markets. European bank shares remain volatile, while US stock markets opened flat this week. Alternative assets and safe havens such as gold and treasuries have enjoyed a boost, as investors have been considering low-risk assets to put their money.

Reflecting on how the fine wine market has performed during previous challenging macroeconomic events could offer valuable insights into what to expect in the current uncertain environment.

The fine wine market during the 2008 financial crisis

Like other markets, fine wine experiences cycles.

fine wine performance

During the previous financial crisis, the fine wine market suffered a downturn, but it fared better than some other traditional investments such as equities and real estate. Between June 2008 and June 2009, the Liv-ex 100 index, which was heavily weighted towards wines from Bordeaux, fell 18.8%.  Meanwhile, the broader Liv-ex 1000 index, which includes greater number of wines from other regions, dipped 7.4%.

The Knight Frank Luxury Investment Index, which tracks the performance of luxury assets including fine wine, recorded similar figures, with the value of investment-grade wine declining 15% in 2008. By comparison, the S&P 500, a benchmark index of US equities, fell over 37% the same year.

A key difference between fine wine and equities during the financial crisis was the speed of recovery. While the stock market took several years to recover to its pre-crisis levels, the fine wine market turned bullish relatively quickly. By the end of 2009, investment-grade wine had returned to its pre-crisis levels, and by 2010, it had surpassed its previous peak.

Moreover, the performance of fine wine during the financial crisis varied between different regions and vintages. While the Bordeaux market was hit particularly hard, Burgundy and the Rhône performed relatively well.

The fine wine market – braced for challenges

The fine wine market of today looks very different from the shape it had fifteen years ago. There are more investable wines than at any other point in history. If Bordeaux accounted for 90% of the market in 2008, today its share sits at 35%, due to the emergence and the proven investment potential of wines outside this dominant French region.

The diversity of this portfolio diversifier has helped it get through swiftly through other more recent challenges, such as Donald Trump’s 25% tariffs on most European wines, and the Covid-19 pandemic.

For instance, Italy and Champagne, which were exempt from the US tariffs, enjoyed steady price appreciation in 2019, while Burgundy suffered. Throughout and after the pandemic, Burgundy and Champagne turned into the top-performing regions.

California also enjoyed rising prices in 2021, and its index hit an all-time high in September last year.

Bordeaux has been moving quietly and steadily, and its relatively mild performance over the last five years has turned it into a region that can offer value for money, especially in ‘off’ vintages.

regional fine wine investment

Factors influencing the performance of fine wine

The fine wine market is different from other markets and operates with its own dynamics, such as rarity and exclusivity. Its unique characteristics make it less vulnerable to market shocks and economic downturns than financial markets.

Indeed, its historic performance has shown very low correlation to mainstream markets. As a tangible good that cannot be traded as quickly as stocks, fine wine is generally insulated from rapid price changes.

In general, prices move based on supply and demand, critics’ scores, vintage quality, age and brand appeal. Find out more about fine wine investment here, or explore the performance of individual brands on Wine Track.

 

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