The rise in value of luxury investments continued on its upward trajectory in 2021, with fine wine delivering the highest growth to investor amongst the top 10 luxury collectables.
The Knight Frank yearly Wealth Report looks at the global perspective on the key trends impacting wealth and property markets.
Fine wine and collectable watches led the Knight Frank Luxury Investment Index in Q4 2021, showing the highest growth amongst luxury investments at an average of 16% in the last year. Published in the 2022 edition of the property firm’s Wealth Report, on average the index, which tracks the value of 10 luxury collectables, grew by nine per cent in 2021 – its strongest annual performance since 2018.
The report noted that Champagne (+31%) and Burgundy (+25%) performed particularly well in 2021, the former due to the “amazing 2008 vintage [which] stood out thanks to huge consumer and investment demand and some supply chain concerns.”
Looking ahead to 2022
When looking at trends and predictions for 2022, Knight Frank noted that: “There has been a new wave of investment money coming into the wine market, some of it led by macro factors, such as inflation worries – with wine being seen as a hedge – but also more localised factors such as supply shortages due to weather conditions, particularly frost, and supply chain issues.
“The outlook for our markets is of little relative importance compared with the unfolding humanitarian disaster in Ukraine. However, given the current crisis we need to be aware of rising risks. Alongside the growing geopolitical turmoil in Europe, Covid-19 continues to present challenges, inflation is a growing concern, wealth inequality continues to rise, and environmental issues require firm action”. – Knight Frank Wealth Report 2022.
There is no clear outlook on how the current conflict and humanitarian disaster in Ukraine will impact the economy and financial markets, let alone alternative asset classes.
With a period of renewed inflation volatility on the horizon, the overall economic impact remains highly uncertain and fluid. Whilst we recognise this, fine wine’s track record of low correlation to the macro environment and stability means it still can be viewed as an effective diversification of your investment portfolio.
Liquid gold: a way to diversify your portfolio and enjoy the rewards
During periods of inflation, gold has traditionally been viewed as a “safe hedge” but in 2021, fine wine outperformed several traditional equity markets, surging to record highs.
Over 2021, fine wine, as measured by the Liv-ex 100 index (1), has been a better investment than several traditional equity markets, including Dow Jones, the FTSE 100 and gold. As the gold market stumbled by -3.8%, fine wine surged ahead ending the year at +20.8%.
The fine wine market 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 an 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.
Cru Wine is a passionate team of fine wine specialists who enrich the wine buying, collecting and drinking experience for wine lovers around the world.
(1) The industry leading benchmark which represents the price movement of 100 of the most sought-after fine wines on the secondary market.