The Case for Wine Investment – Part 2 of 2

case for fine wine investment 2

Wine is a physical and tangible asset that retains and can appreciate as a store of value.

Wine also provides asset and portfolio diversification because the market performance of wine has little direct correlation to the broader markets. A comparison between wine market performance and that of global equities showed that during periods of economic deterioration, wine has performed significantly better.

Wine can reduce a portfolio’s volatility as it tends to perform consistently with historically low standard deviation, providing portfolio protection in a way that traditional financial assets do not.

There has been an ongoing demand and supply imbalance which will be exacerbated over the next decade due to increasing demand, greater consumption and fixed output.

Wine, like art, is an exciting, passionate investment which is considered both exclusive and prestigious in nature.

And Wine can be considered a tax efficient investment, albeit there is a lot of grey area in this subject and tax laws vary by nation.

Risks in Wine Investing:

There are a number of risks associated with investing in wine, the first being provenance. According to Harry Strulovici, wine connoisseur and 30+ years collector, “if an auction house declares that the wine has come directly from the winery, then you should have a high degree of confidence in its quality and authenticity. When the provenance is identified as coming from a person’s cellar and stored in ‘ideal conditions’, it’s difficult to know how many people have owned the wine and/or when and how many times it been transported.”

A second risk is counterfeit wine. Product authentication and brand protection in the globalized age of wine consumption has become a key factor for producers.  Although there is scant concrete evidence that counterfeit wine is on the rise, several high-profile cases have surfaced over the years. The blog NetNames.com suggests various ways of brand protection including logo recognition and seeking out potentially harmful websites.

Third is the risk of a wine market bubble. Prices of some of the limited productions are reaching historical highs and can be further driven up by the wine futures market. A bubble was evidenced by the Liv-ex Fine Wine 100 index. The index, calculated monthly, tracks prices of the 100 most sought-after fine wines for which there is a strong secondary market.

According to Aarash Ghatineh, head of Cult Wine’s Private Client Sales, “the speculative bubble created by Chinese buying and focused on the very best wines from Bordeaux, such as Lafite-Rothschild, subsequently popped as a result of the Chinese government’s new austerity measures. Combined with these factors, an over-priced en primeur vintage released in mid-2011 followed by 3 below average vintages (2011, 2012, and 2013) did little to support a falling market. Currency fluctuations and a lack of confidence further exacerbated the situation up until Q3 2014.”

Yet since the market stabilized in the tail-end of 2014 there have been a number of reasons for optimism and a realization of these is building a strong case for investors to re-enter the market. The US in particular is creating good support due to the strong US dollar making imports more affordable.

In sum, with the emergence of new markets expected over the next decade against a backdrop of increasing global consumption, the delicate balance of managing supply and demand has never been more acute in the history of the fine wine market. Thus owning, collecting and investing in the world’s greatest wines continue to make sense.

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The Case for Fine Wine Investment – Part 1 of 2
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About the Author:

Shelley Goldberg is a frequent writer, speaker and panellist who possesses a deep knowledge of commodity investments, portfolio and hedge fund management, along with expertise in physical and financial trading, hedging and asset allocation.