Hedge your bets with vines – Fine Wine remains a source of stability
During periods of inflation, gold has traditionally been viewed as a “safe hedge” but in 2022, fine wine outperformed several traditional equity markets, surging to record highs, as this alternative asset can bring stability during market crises. At Cru Wine, we believe, and have seen for our clients, that fine wine forms an attractive long-term alternative assets that can play an valuable role in diversifying your investment portfolio. The main benefits include:
- Solid returns
- Low correlation to traditional assets
- Downside protection with low volatility profile
Figure 1 – Liv-ex1 performance alongside other equities in 2022
In 2022, fine wine has been stable in the face of increasingly severe headwinds. As a diminishing asset which encourages long-term storage, fine wine is an inherently low volatility investment. This gives it advantages over mainstream assets especially in turbulent economic times. In 2022 it proved its worth, with the Liv-ex Fine Wine 1000 hitting new highs with a +13.1% index performance, whilst S&P dropped by more than 17% over the same period.
“2022 was a great year for fine wine investors as our clients looked to diversify their holdings with a low-volatile and uncorrelated to equities asset class,” commented Gregory Swartberg. “Champagne and Burgundy were extremely popular and drove this with a respective +27% and +19% performance for these regions.”
Some interesting insight was recently shared with the Financial Times by Swartberg last month, you can view the article here.
Thoughts on 2023...
At Cru Wine, we are bullish about 2023 as fine wine continues to be seen as a great hedge versus inflation due to its unique agricultural characteristics, but also as we continue to see a greater demand for fine wine from both consumers and investors.
Swartberg concludes, “We are particularly excited about the Rhone region and the upcoming release of the 2022 Bordeaux vintage in spring 2023, which we believe to be some of the best opportunities to look out for this year. It’s possible that we may not see the same levels of returns in the last two years, with Champagne and Burgundy being particularly strong. But skilled selection in individual wines can still deliver outperformance – and that’s what we offer our clients.”
So why are more and more investors looking to hedge their bets and diversify into the world of fine wine?
The underlying principle of investing in wine is that the quality and rarity of fine wine increases over time, and therefore, so does its value. A finite number of bottles are produced each vintage and over time, as the corks on these bottles are popped, the value of the remaining ones increase.
The fine wine market also has a track record of low volatility and providing protection in market downturns and diversification in sources of return. Fine wine has shown a 0.1 – 0.2 correlation to major indices over the last 20 years. This was shown during the largest market crises in recent decades, as fine wine performed relatively well and bounced back quickly during the global financial crisis and the Covid-19 outbreak.
At Cru Wine, we believe that fine wine can form a permanent component of a long-term investment portfolio with the potential to deliver positive returns through shifts in inflation and other economic downturns. Our philosophy is to provide a tailored approach to fine wine investment that is tailored to your needs and objectives, and we’ll build you a profitable wine portfolio that is forward-looking, diversified and designed to deliver long term returns.
Once your portfolio has been created and you’ve picked out your wines it’s time to sit back and relax, preferably with a glass or two of good claret, as fine wine needs patience but can richly reward. And that’s one of our favourite parts of building a collection of sought-after fine wines, the pleasure of popping a cork and savouring a wine you own with friends and loved ones is just a pleasurable as the financial benefits afforded from investing in them. A good vintage never changes, it just gets better with age.
1. The industry leading benchmark which represents the price movement of the most sought-after fine wines on the secondary market