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.
