In a recent report on the state of the market, investment-grade wine emerged as far more lucrative than the more traditional asset types of stock, gold and property. The Liv-ex Investables index has appreciated by a staggering 1474% since 1988, almost double that of the Dow Jones Industrial 30, followed closely by the S&P 500.
Property comes in third place with 312% total appreciation, followed by the FTSE 100 (306%) and finally, gold, the worst performer in terms of overall growth (160%).
This is great news for the oenophile investor, and provides further evidence that fine wine is an essential component of a diverse portfolio – something we at Capital Vintners have long since believed.
Investment-grade wine – a stable market with consistent growth and growing demand
“Wine lovers who scraped together £300 (£1,028 in today’s money) for a case (Lafite Rothschild) in 1982, and have resisted the urge to drink it, are now sitting on a £28,000 nest-egg. Few equities have done so well.” The Economist, 18th April 2015
Due to its finite nature, fine wine is often thought of as a relatively small market – its overall worth is placed at around £2.5bn, with £1.5bn held in the UK alone – but its stability coupled with the value of rarity makes wine an attractive investment compared to other asset types.
Wine showed an average compound annual growth rate of 12% from 1988-2013, outperforming every major financial index and generating double-digit returns to investors annually over the medium-long term. The recent market report found that on average, investment-grade wine appreciates by a whopping 103% every 50 years, compared to only 55% for the Dow 30.
In the 2013 Knight Frank Wealth Report, high net worth individuals (HNWIs) rated fine wine among their top three ‘investments of passion’ alongside Fine Art and Watches, with total investment by HNWIs up 10% in 2012.
Demand from outside Europe is also steadily increasing. Considering that all trade was confined to Europe in as late as the 1960s, China’s entry into the market in 2005 has made a huge impact. Investment by Asian HNWIs was up 44% in 2012, and the prospect of an Indian entry in the near future may be the final cork in the bottle in placing fine wine firmly on the map of established global commodities.
Safety in numbers – the strength of fine wine in the face of market pressures
Fine wine as a tangible asset makes it less volatile and less susceptible to market downturns as other traditional asset types. Historically, it has not correlated with movements in other markets – during the 2008 fall of the Lehman Brothers and the subsequent Eurozone Crisis of 2011-12, fine wine stood strong and continues to deliver results.
The recently-released report examined the performance of fine wine compared to other asset classes both in the short (5 years) and long term (10 years). Wine had a total of only three negative 5 year hold periods out of the 268 assessed since 1988 – showing almost fail-safe investment potential.
In almost one in three cases, however, property will lose money over a 5 year period due to the vulnerability of the market in terms of economic downturns. This is compared to almost a quarter of negative 5 year holds for the FTSE and the S&P – also surprising considering the benchmark status of equity investments. Gold had more negative 5 and 10 year holds than any other asset measured.
Top Bordeaux wines perform best even during market lows
Most remarkably, the worst 5 year period saw the Liv-ex Investables index fall by 10% (compare this to a drop of 37% for the FTSE) while the worst 10 year period saw a gain of 80% compared to only 7% for property.
A decade is a long time to hold an asset, but it is good to see that the worst performance for a 10 year hold in fine wine for the last (almost) 30 years is double the average and median UK inflation rates over the same period.
The figures clearly show that even when the market is experiencing a lull, fine wine comes out on top in terms of average return on investment.
Capital Vintners: a safe home for your money
We are proud to be one of the top 10 providers to Vine, Liv-ex’s transport and storage provider, and currently have over 5,000 cases of our clients’ wines in professional storage, worth a total of over £15 million.
Give one of our experienced advisors a call today to start building your portfolio