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How to build a diversified fine wine portfolio

Fine wine investment portfolio
  • A diversified wine portfolio spreads the risk across different wines and regions.
  • Each wine region has its own unique characteristics, and its performance is largely influenced by its own market dynamics.
  • Investors can also diversify their portfolio by vintages, including older wines for stability and new releases for growth potential. 

Fine wine is a popular investment for those seeking diversification and long-term growth. However, like any investment, building a successful fine wine portfolio requires strategic planning and a thorough understanding of the market.

This article explores key strategies for creating a balanced, diversified fine wine portfolio, and why it is important to include a variety of regions, brands and vintages.

Why diversification is key

As renowned economist Harry Markowitz put it, ‘diversification is the only free lunch in finance’. 

Diversification is fundamental to risk management in any portfolio, and fine wine investment is no exception. A diversified wine portfolio helps to reduce the impact of volatility, allowing investors to maximise returns by spreading risk.

While some wines may deliver higher returns, others can contribute to portfolio stability, as different regions tend to perform in cycles. This is why building a balanced fine wine portfolio requires selecting wines from a variety of regions, vintages, and holding periods. 

Diversifying by regions

Wine regions around the world offer unique characteristics, each with its own market dynamics. Including wines from multiple regions can help balance and strengthen an investment portfolio. 

Some primary regions to consider include:

Bordeaux: Bordeaux is undoubtedly the leader in the fine wine investment landscape, taking close to 40% of the market by value. The First Growths are its most liquid wines. In general, the classified growths are a staple in investment portfolios due to their established reputation and consistent performance.

Burgundy: Burgundy, driven by scarcity and rarity, is an investors’ paradise that has been trending in the last decade. Prices for its top Pinot Noir and Chardonnay have reached stratospheric highs and the region consistently breaks auction records.

Champagne: A market that attracts both drinkers and collectors, Champagne has enjoyed rising popularity as an investment in the last five years, thanks to strong brand recognition, liquidity and stable performance.

Italy: Italy continues to provide a mix of value, growth potential, and great quality. Its two pillars, Tuscany and Piedmont, are often included in investment portfolios for their balancing act – if Tuscany provides stability, top Barolo and Barbaresco tend to deliver impressive returns. 

California: Top Napa wines are among the most expensive in the market, while also boasting some of the highest critic scores, particularly from the New World. 

Emerging investment regions: As the market broadens, wines from other well-established regions are gaining traction in the investment world. Germany, Australia, and South America are some of the countries bringing a new level of diversity that can sometimes lead to higher returns.

Choosing vintages strategically

A well-diversified investment portfolio focuses on a range of vintages, as well as labels.

While older vintages offer stability and a more predictable market performance, younger vintages have a greater growth potential as they mature.

Older prime vintages: ‘On’ vintages, specific to each region, like Bordeaux’s 2000 or 2005, tend to have stable pricing due to their high quality and reputation. Including these in your portfolio can provide a foundation of reliability.

Younger vintages: Wines from recent years with high-quality (such as Bordeaux 2019) can offer growth potential over the long-term. As these wines age, their value often appreciates, providing long-term returns for investors willing to hold them.

Off-vintages: Investing in lesser-known or ‘off’ vintages can be worthwhile, particularly if the producer has a strong reputation. These wines are often priced lower but can perform well over time. Typically though not always they have a shorter holding period.

At the end, it is always a question of quality and value for money. 

Balancing short-term and long-term holdings

Fine wines vary in their optimal holding periods. Some wines reach peak quality and market value sooner, while others require decades of ageing. Creating a mix of wines with different holding periods allows for both short-term liquidity and long-term growth.

Short-term hold wines: These are typically wines from lesser-known producers, high-demand recent vintages or off vintages bought during periods of market correction.  These wines can be sold within a few years for a quick return.

Long-term hold wines: Wines from top producers, especially those known for longevity, are best held for 10+ years. For example, a Château Lafite Rothschild or Domaine de la Romanée-Conti can offer three figure returns if held over decades.

Active management for maximising portfolio success

Diversification is just one piece of the puzzle. Regular monitoring and occassional adjustments are essential for maximising returns in a fine wine portfolio.

Market conditions and wine values change over time, so staying informed and making adjustments ensures your portfolio remains aligned with your financial goals. Using tools like Wine Track or consulting with a wine investment advisor can provide valuable insights for rebalancing and enhancing your investment strategy.

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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How different bottle sizes impact your wine investment returns

Luxury fine wine labels different size bottles
  • Larger bottles have a longer shelf life, meaning that there is more time for price appreciation.
  • They are also available in smaller quantities, adding an element of rarity that drives up demand and price.
  • Champagne and Bordeaux are the regions leading the investment market for big bottles. 

When choosing a wine for investment purposes, the region, producer reputation and vintage quality are among the first things to consider. However, one factor that is often overlooked but can have a significant impact on the investment value is the bottle size.

Investing in larger wine bottle formats can enhance the longevity and quality of the wine, and lead to higher returns compared to standard bottles. Below we explore the reasons why size matters in the world of wine investment.

How bottle size affects wine investment

The science behind bottle size and wine quality is well-established. Larger bottles have a smaller surface-area-to-volume ratio, meaning less exposure to oxygen, which slows the wine’s ageing process. This slower ageing allows the wine to develop more complexity over time, preserving its character better than smaller formats.

This benefit makes large-format bottles, such as magnums and jeroboams, highly sought-after. Not only can these bottles offer superior quality, but they also come with a scarcity factor that often results in significant price premiums. The rarity of these formats adds an element of collectability, making them a lucrative investment option.

The price performance of larger bottles

Larger bottles have enjoyed a growing demand in the wine investment world. The two main regions that dominate this market segment are Champagne and Bordeaux. 

During Champagne’s recent bull run (2021-2022), secondary market trade by value of big bottles rose from 7% to 15%, which in turn impacted prices. The average value of a magnum case rose an impressive 78%. 

Magnums of Louis Roederer Cristal 2008 saw a 54% premium over standard bottles, while Dom Pérignon 2008 magnums commanded an 18% price uplift. Larger formats like Methuselahs (6 litres) of Cristal 2008 enjoyed a staggering 175% premium. 

Meanwhile, some of the most sought-after Bordeaux wines in large format include the First Growths Château Lafite Rothschild and Château Mouton Rothschild, the latter of which has highly collectible, vintage-specific artist labels.

From Burgundy, Domaine de la Romanée-Conti produces large bottle formats that make them a prime choice for high-end collectors. Other in-demand large format bottles from the rest of the world include Penfolds Grange and Opus One. 

Size options and investment opportunities

Wine bottle sizes graphic

While standard bottles are more commonly traded, investing in magnums and larger formats offers several advantages. For example, three magnums of Pétrus 1995 traded for £17,200 in July this year, yielding a 16.5% premium compared to their 75cl counterparts.

Rare formats like Balthazars and Nebuchadnezzars can fetch even higher premiums due to their scarcity, particularly for sought-after vintages and regions.

Why larger formats can lead to better returns

There are several reasons why larger bottle formats can offer better investment returns. 

Slower ageing process: Larger bottles slow down the wine’s exposure to oxygen, allowing for better preservation and longer ageing. This makes the wine more desirable over time.

Rarity and collectability: Large-format bottles are often produced in smaller quantities, adding an element of rarity that drives up demand and price.

Increased longevity: Investors can hold onto these bottles for longer periods without worrying about the wine deteriorating. This allows them to take advantage of market peaks and secure higher returns.

Visual appeal: Large-format bottles make a statement at auctions or in private collections. Their grandeur and rarity often make them more attractive to high-end buyers.

Timing is everything

Given the current market conditions, larger formats are particularly attractive. Prices for these bottles are often discounted during dips in the market, making them an affordable entry point for investors looking to capitalise on future growth. As demand for rare and collectible wines continues to rise, investing in larger formats now could pay off significantly in the long run.

If you’re looking to diversify your portfolio, now may be the time to consider going big on bottle sizes.

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What is a market dip, and how can fine wine investors take advantage?

High end wine label bottles
  • A market dip is a temporary decline in prices, caused by economic or market-specific factors.
  • Buying the dip is advised when the underlying market fundamentals are favourable.
  • This is arguably the best time to invest in fine wine in a decade.

A market dip is a temporary drop in prices. This is often caused by economic or market-specific factors. In the fine wine market, these dips are less frequent and less volatile compared to traditional financial markets like stocks or bonds. While the fine wine market has been bearish three times since the turn of the century, global mainstream markets have experienced many more significant crashes. 

However, when a dip does occur, and provided that the fundamentals are strong, it can present a unique opportunity for buyers. Investors can enter the market, adjust their allocations or expand their portfolios with high-value brands and rare vintages at discounted prices. Sellers may look to liquidate their stock, offering rare and premium wines from regions like Bordeaux, Burgundy, and Champagne at more attractive prices.

Currently, the fine wine market is benefitting buyers. While the temporary drop in prices might raise concerns on the surface, those who adopt a long-term, strategic approach can reap significant rewards by buying the dip.

Buying the dip when the fundamentals are strong

According to Sir John Templeton, the best time to invest is during ‘points of maximum pessimism’. With fine wine indices down over 20% from their 2022 peaks, this moment presents one of the best opportunities to buy in the last decade.

Fine wine fundamentals remain intact: wines improve with age, and become rarer over time as bottles are consumed. The market’s appetite for older vintages is still strong, and regions like Burgundy, Bordeaux and Champagne continue to break pricing records at auction.

Fine wine indices performance 2024

Current macroeconomic environment and its impact

The global economy is currently facing several challenges – rising inflation, high interest rates, and geopolitical tensions, all of which have contributed to the recent dip in fine wine prices. 

Despite these macroeconomic factors, fine wine remains less volatile than traditional markets. During times of economic uncertainty, fine wine’s tangible nature and intrinsic value have helped it weather storms better than more speculative assets like equities or cryptocurrencies. 

Additionally, the growing demand for luxury goods continues to support the fine wine market. This demand will likely drive the next phase of growth once global economic conditions stabilise.

Historical fine wine market rebounds

Another reason for confidence is that the fine wine market has consistently rebounded after periods of economic downturn. During the 2008 global financial crisis, the Liv-ex 100 index fell by 25% but had risen over 60% by mid-2011. 

20 year performance of Liv-ex 100 and Liv-ex 1000

Similarly, Bordeaux’s peak in 2011 was followed by Burgundy’s rise, showing that demand for fine wine remains strong even if it shifts on a regional basis. This is why diversity is key. 

The market is no longer dominated solely by top Bordeaux, and spreading your allocations across key wines and vintages can balance an investment portfolio and maximise returns.

How to take advantage of the dip in the fine wine market

For investors looking to capitalise on the current market dip, the strategy is clear: buy low and hold for the long term. 

Focus on proven performers: Wines from top regions like Bordeaux, Burgundy, Italy and Champagne have historically demonstrated resilience. Investing in top vintages and estates offers a measure of security.

Take advantage of fear-driven selling: As some sellers look to exit the market prematurely, investors can acquire undervalued wines with strong growth potential.

Diversify your portfolio: Spread your investment across different regions, producers, and vintages to mitigate risk and maximise returns.

Get in touch to discuss your allocations or to start building your fine wine collection. Schedule a consultation.

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How to include fine wine in your investment portfolio

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

  • Fine wine can serve as a stable, alternative asset in a diversified investment portfolio.
  • Investing in fine wine offers both economic resilience and long-term growth potential.
  • Proper storage and understanding of the asset are crucial for maximizing investment returns.

Fine wine, often associated with luxurious dining and celebratory events, has also gained recognition as a viable investment opportunity. This article explores how to strategically include fine wine in your investment portfolio, while highlighting its unique advantages and potential risks.

Positioning in the portfolio

In a well-diversified investment portfolio, asset allocation usually comprises a mix of stocks, bonds, and alternative investments. Stocks usually dominate, occupying roughly 50% of the total funds due to their potential for high returns. Bonds, typically accounting for 30% of allocations, offer a balance against the volatility of stocks. The remaining 20% is reserved for assets like real estate, hedge funds, cash, and alternatives. These offer a niche yet valuable opportunity for diversification. Industry experts typically recommend allocating a modest percentage of a portfolio to alternative investments, including fine wine. This provides enough room for additional returns without exposing the investor to excessive risk.

Fine wine as a recession buffer

One of the most striking attributes of fine wine as an investment is its resilience during economic downturns. Fine wine indices offer compelling evidence of how fine wine can act as a hedge during challenging economic times. For instance, in the first nine months of 2022, the stock market wobbled. The S&P 500 dwindled downward, losing 23.7% in value by the end of September. However, in perfect contrast, the value of fine wine (according to Liv-ex 1000) rose 14.1% in the same time frame. While it might be tempting to sell off when the markets are doing well, fine wine can be extraordinarily helpful when downturns hit.

Long-term outlook

Investors should be aware that fine wine is an investment that rewards patience, and longer-term commitment. For instance, some fine wines, as shown on Wine Track, have seen four-digit returns in the last decade. On average, a bottle of Rene Engel Vosne-Romanee is up nearly 3,390% in value. The stellar growth can be attributed to the scarcity of the wine; the leading Burgundy winemaker Philippe Engel passed away in 2005 and the domaine was later sold to Francois Pinault and renamed to Domaine Eugenie. But this is not a single example. Leading fine wine indices show that the average value of a fine wine has increased by close to 70% in the last decade, and 340% in the last 20 years.

Patience is most definitely a virtue when it comes to investing in fine wine. The most long-term investors tend to get the highest returns. It is also crucial to note that fine wine is not as liquid an asset as stocks or bonds. Selling a wine may take weeks or even months, emphasising the need for a long-term investment strategy.

Proper storage

Preserving the quality of fine wine is crucial for realising its investment potential. Proper storage conditions, including a controlled environment with consistent temperature and humidity, are non-negotiable. The wine should ideally be stored horizontally to maintain cork moisture. Those unfamiliar with the intricacies of wine storage should consider hiring professional services. These specialised storage facilities not only offer optimal conditions but also provide insurance options to protect your valuable investment.

Understanding the asset

Fine wine is more than just a potential source of revenue; it is a tangible link to history and culture. Understanding the various factors contributing to a wine’s value, such as the region, vintage, and rarity, can offer more than just economic benefits. This multifaceted understanding can enrich an investor’s appreciation for the asset, making it a unique and satisfying component of a diverse investment portfolio.

In conclusion, incorporating fine wine into an investment portfolio requires careful planning, due diligence, and a long-term perspective to realise its full potential as a unique and rewarding asset.

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.