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The 2025 guide to investing in alternative assets

Fine wine investing

Alternative assets are investments outside traditional stocks and bonds. These can range from property, private credit and venture to collectibles such as fine wine, art, watches and classic cars. In 2025, fine wine stands out for its low correlation with equities, global demand, finite supply, strong brands, and the ability to build diversified portfolios from blue-chip regions such as Bordeaux, Burgundy, Tuscany, Piedmont, and Champagne. Success comes from rigorous selection, professional storage, long investment horizons (5-10+ years), and data-driven decision making.

What are alternative assets – and why they matter in 2025

Alternative assets cover three broad categories:

  • Collectibles: fine wine, whisky, art, classic cars, watches, rare coins.
  • Private markets: private equity & credit, venture capital, real estate, infrastructure.
  • Hedge strategies: market-neutral, macro, commodities, and other absolute-return approaches.

The Chartered Alternative Investment Analyst Association (CAIA) frames “alternatives” by their limited liquidity, pricing opacity, and non-traditional risk/return drivers compared with public markets.

Why diversification with alternative assets matters

Many alternatives move differently from listed equities and bonds, which means they can dampen portfolio swings when traditional markets are volatile.

Fine wine is a strong example. Studies have shown it has low – and sometimes negative – correlation with equity markets, improving portfolio efficiency when included alongside traditional assets. In 2025, demand for fine wine has risen by 16% due to its independence from mainstream financial markets. Notably, 34% of UK wealth managers now cite wine’s self-contained nature as a key factor in its resilience during periods of market volatility, up from 30% in 2024.

Fine wine performance statistics

Hedge funds aim for the same goal: delivering returns that aren’t tied too closely to market cycles. In 2024-25, hedge fund results have varied across strategies, but overall performance has improved, highlighting their role as diversifiers rather than trackers of stock indices.

Alternative assets and inflation

One of the strongest advantages of alternative assets is their ability to preserve purchasing power when inflation erodes the value of money. Unlike fixed-income instruments, where interest payments may lag rising prices, many alternatives are underpinned by tangible scarcity and global demand, which supports value through inflationary cycles.

  • Private real assets such as infrastructure and opportunistic real estate have historically passed on rising costs more effectively than their listed counterparts, offering stronger inflation protection.
  • Collectibles benefit from their finite nature. The OIV reported 2024 global wine production at a near 60-year low, underlining how supply limits create pricing power. Fine wine is particularly resilient here: each bottle consumed makes the remaining stock rarer, while global demand ensures international relevance. Over time, well-stored vintages not only hold their value but often appreciate at a pace that outstrips inflation, similar to how gold is viewed as a store of value.
  • Art and luxury goods also serve as currency diversifiers. While the global art market saw values contract by 12% in 2024, activity levels remained robust, showing continued demand for tangible assets that trade across currencies and borders.

In effect, alternatives hedge inflation in ways traditional portfolios cannot. By anchoring value in scarcity, durability, and global liquidity, they help investors preserve real wealth.

Why timing and selection are important

Alternative assets do not present a uniform return stream, and fine wine illustrates this better than most. Outcomes differ dramatically depending on region, producer, vintage, and even release timing. Burgundy, for instance, can respond to very different dynamics than Bordeaux, while Champagne and Tuscany follow their own cycles. Within each region, a benchmark producer may hold value through downturns while lesser names fade.

Even within a single estate, the vintage effect is powerful: the release prices and the performance of First Growth Bordeaux shows a wide gap between celebrated vintages like 2000 or 2009 and those considered ‘off’ years. Variables like provenance and storage, widen the gap further. 

Just as in private equity or hedge funds, where manager selection drives returns, in the fine wine market, knowledge and timing are decisive. 

How liquid are alternative assets?

Liquidity in alternative assets differs from mainstream markets. Public equities and bonds trade daily on exchanges with instant settlement. By contrast, most alternatives – whether private funds or fine wine – take longer to change hands. A sale depends on finding a buyer, agreeing on price, and, in some cases, waiting for a trading window.

This slower pace can be advantageous. Investors willing to commit capital for longer are often rewarded with an extra return for patience. In fine wine, the best opportunities often come from holding rare vintages through periods of scarcity, then releasing them to market when demand peaks.

Access, however, is improving. Just as private credit has grown through evergreen and interval funds, fine wine platforms now make trading more efficient and transparent. Still, liquidity remains uneven: blue-chip Bordeaux or Burgundy may find a ready market, while niche producers or lesser vintages can take longer to sell.

The role of fine wine in 2025

Among alternative assets, fine wine stands out. In 2025, for the third year in a row, it came on top as the most in-demand collectible among financial advisors and wealth managers in both the UK and US. Fine wine is a viable alternative investment avenue for the following reasons: 

  • Scarcity meets demand: Production is both finite and shrinking, while rising global wealth continues to fuel steady demand.
  • Global and brand-driven: Iconic names such as Lafite Rothschild, DRC, and Salon are recognised worldwide and have a track record of delivering consistent value.
  • Diversifiable: Unlike art or cars, fine wine offers broad exposure across regions, producers, and vintages. With hundreds or thousands of cases produced each year, valuations are more transparent and portfolios easier to build.
  • Historically resilient: Fine wine has shown stability in market downturns and attractive long-term returns. Investors can track the performance of individual labels – or entire portfolios – directly through Wine Track.

In 2025, alternatives are no longer niche: they are central to how sophisticated investors diversify, preserve wealth, and seek differentiated returns. Fine wine brings together the key qualities that define successful alternatives: tangible scarcity, global demand, and return dispersion that rewards knowledge and timing.

Fine wine investment FAQs

Is fine wine a good hedge against inflation?
It can help preserve purchasing power over multi-year horizons due to finite supply and global demand, but outcomes vary. Diversify and keep realistic horizons.

How much do I need to start?
You can build a credible, diversified starter portfolio with a five-figure GBP budget; larger allocations allow more breadth and depth.

How long should I invest for?
Plan for 5-10+ years to capture ageing-related scarcity and demand. Tactical positions may realise sooner.

Where should I store wine?
In bonded, climate-controlled facilities with full insurance and documented chain of custody.

What returns should I expect?
Returns are not guaranteed. Focus on selection quality, costs, and disciplined process.

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How to use fine wine as a hedge against inflation

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

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

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

Assess your inflation exposure in your investment strategy

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

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

Consider if fine wine is right for you

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

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

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

Find a wine to suit your time horizon

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

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

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

Understand the fine wine market

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

A precious and depleting asset with intrinsic value

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

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

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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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Five low-risk assets to hedge against inflation

Low-risk assets against inflation
Low-risk assets against inflation

As purchasing power slowly drains, investors with low-risk tolerances are feeling the sting. At the time of writing (May 2023), UK inflation sits at an uneasy 10.1%. With the average savings account interest at a flimsy 0.23%, cash is going backwards. Meanwhile, high inflation munches away the future value of bonds and debt like a deranged Pac-Man. This represents a real problem for wealth managers. In a constantly shifting sea of interest hikes, inflation, and market shocks, how can they maintain and strengthen lower-risk portfolios without going too overweight on equity? How can they keep the cautious risk profile intact without endangering returns?

This article examines five overlooked assets for cautious investors, which have a history of punching back against inflation.

Gold

In the fight against inflation, physical gold is surely Mohammad Ali. Gold tends to increase in value as inflation rises. According to World Gold Council data from the past 50 years, when inflation is above 3%, the gold prices jump by 14%.

This asset class has the added benefit of being universally accepted. Unlike interest-generating assets or fine wine, precious metals can be included in Shariah portfolios.

Not only is gold inflation-resistant, but it is also classed as a low-risk asset, which must be a welcome relief for low-risk investors. Arguably, gold is even less risky than cash, as its value is intrinsic.

However, that doesn’t mean that there aren’t bubbles and market corrections. Over the past years gold’s performance has shown more volatility alongside the public markets.

Fine wine

There are several reasons why fine wine kicks back against inflation. It’s a physical asset. The market is global and wealthy, often relatively unaffected by market shocks. Plus, buyers are usually passionate, so they are unlikely to panic-sell. Perhaps most importantly, bottles are unique, and they deplete over time.

The steady returns can help to smooth overall portfolio volatility and reassure clients. According to an index that tracks the performance of 1,000 fine wines from different regions (Liv-ex 1000), investors have benefited from average returns of 40.3% over the past five years. By contrast, the FTSE 100 delivered just 4.8%. You can see the performance of your preferred wines here.

However, there are downsides. Although wine shields against inflation, it can be difficult to sell quickly. For clients who need to urgently access funds, this asset might not be ideal. What’s more, clients only realise returns after they sell. Unlike with bonds and shares, investors cannot enjoy gains and stay invested.

One solution for wealth managers could be to offer a mix of assets with different liquidity. For example, by combining fine wine, gold and inflation-linked bonds in one portfolio.

Sustainable energy

As the prices of raw materials tend to be the first to rise, commodities are often used to predict and hedge against inflation.

Traditionally this asset class includes oil and non-renewable energy sources. But with the rising regulations and scientific warnings, this may not be a wise or future-proof investment anymore. The EU, for example, is in the process of amending the Energy Efficiency Directive so that 45% of all European energy will be renewable by 2030. The Green Deal also imposes carbon taxes on dirty providers. Already, around 29% of the world’s energy comes from clean sources, and that figure is likely to increase over the long term.

While green energy can be higher risk, it’s not as precarious as non-renewables. In the same way that whale oil plummeted in 1860, investors left holding fossil fuel stocks in twenty years’ time could find themselves with stranded assets.

Inflation-linked bonds

Unlike other debt instruments, inflation-linked bonds are pegged to the recorded inflation levels. So, even in high-inflationary environments, they should retain their value.

A huge advantage of inflation-linked bonds is that they can usually be traded quickly. This could be helpful for wealth managers looking to balance out the illiquidity of fine wine or property.

However, the success of these assets hinges on the accuracy of the indices. Sometimes the consumer goods selected and measured can lead to artificial results. For example, the UK index contains DVD players and MP3 players. These are probably cheaper than they would have been a decade ago, but it is not because inflation is lower.

Affordable property

Property is a classic inflation-resistant investment. But what kind should today’s cautious investors go for? Property addressing the UK’s housing crisis could be fruitful. Despite strong demand, there is currently a shortage of over 4 million homes.

Another interesting area for low-risk investors to consider could be affordable student accommodation. Applications to universities tend to rise during recessions. After 2008, they increased 31% in the UK. And since 2020, they have reached record-levels. KPMG anticipate a 16% increase in the number of undergraduates searching for rooms by 2030.

The risk is relatively low, as in many cases, the accommodation will be handled and managed by the university itself. Yields for investors average at around 5% for London-based lets and 4% for accommodation outside the capital.

But a word of caution, the buy-to-let market is becoming less lucrative every day, with high interest rates and increasing regulations. In the current climate, some are wondering if the money would be better placed elsewhere.

Chartering a new course

Record-levels of inflation are transforming the investment landscape. What made sense yesterday no longer adds up today.

This article aims to help spark ideas for wealth managers. It presents five potential lower-risk investments, that also have famous inflation-shielding qualities.

As wealth managers re-balance portfolios and seek new assets, they can also make the world a better place. Now is the ideal time to incorporate social and environmental factors into the investment strategy. After all, to truly future-proof portfolios, we need a healthy planet.

Discover five ways fine wine investments are good for the environment.

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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Is Fine Wine Inflation-Proof?

Two men looking at a laptop drinking glass of wine

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

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

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

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

The performance of fine wine is uncorrelated to global markets

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

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

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

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

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

Fine wine is a scarce asset, becoming rarer over time

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

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

What are the most expensive wines in the world?

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

Which wine looks the most promising for 2022?

 

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

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

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

Discover the biggest risers and fallers this month

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

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

How can you hedge against inflation with fine wine?

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

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

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

[1] Source : Y Charts

[2] Source : CNBC

[3] Source : Bloomberg

[4] Source : WineCap

[5] Source : WineCap

[6] Source : Credit Suisse