The Market


Since the start of the decade, the fine wine market, represented here by the Liv-ex 100 Index, has performed well when compared with western and emerging equity market indices. There are very few asset classes that have outperformed fine wine over this period. It has been noticeably less volatile as well, especially when compared with emerging market equities and gold. Even during the tumultuous second half of 2008 fine wine on average faired relatively well despite a prolonged period of outperformance leading up to it. Following this correction, the fine wine market is currently ripe for investment.

The strong relative and absolute performance is expected to continue in the medium to long-term owing to increased growth in demand from the established western market as well as strong demand growth from the emerging economies, notably those of China and the Far East. Against a background of strictly fixed supply of fine wine, which for our purposes mainly comprises the very best of the grand cru classe reds of Bordeaux, only prices can absorb the increased demand long-term. As a vintage matures and is consumed, its value increases to reflect the growing scarcity.

Stock picking is as important in fine wine investment as in any other. Blanket investment in the best chateaux or best vintages will not usually yield the desired returns. The diversity in average annual capital appreciation from selected chateaux in the same vintage further highlights the importance of knowing which wines to buy.

The correlation* between the performance of the Liv-ex 100 Index and other asset classes remains low, which is partly explained by the lower volatility, but is mainly the result of the unique fundamental characteristics of fine wine as an investment. This suggests that it represents a genuine form of diversification for institutional and private investors who are looking to achieve above average returns.




* 0.5 to 1 = high positive correlation, -0.4 to 0.4 = low correlation, -1.0 to -0.5 = high negative correlation
Sources: Liv-ex.com, Bloomberg, and TSG analysis


Comments