COVID-19 has hit global financial markets hard, making investment decisions even more difficult. However, so far fine wine investment portfolios have stood up to the coronavirus storm better than others.
We’re seeing massive swings in the currency, commodity, bond and equity markets during the coronavirus pandemic. And with the situation around the world continuing to be volatile, this is unlikely to calm down in the near future. However, investing the in fine wine asset class continues to be a solid bet. This shows how beneficial it is for investors to hold diversified portfolios, and to include wines from Champagne, Bordeaux and other major regions around the world.
Comparing fine wine investment with other asset classes
If we compare the fine wine investment market with other markets, it’s clear to see how robust the former is. Since January until mid-March 2020, the Liv-ex Fine Wine 100 index has dropped by 2.5%. Some of this decrease can be put down to Brexit uncertainty and the ongoing tariff situation between France and the US. During the same time period, according to Bloomberg, the Dow Jones fell by 19%, while the FTSE 100 plunged by 33% and the Nikkei by 27%.
The robustness of fine wine investment as an asset class is backed up by the annual Knight Frank Wealth Report. This also demonstrates that the fine wine market has grown by 120% over the last decade. As an investment asset class, fine wine is generally categorised with other ‘alternative’ asset classes. These include property, jewellery and classic cars.
However, these asset classes do not have the same clear-cut definition as fine wine. The Liv-ex Exchange shows the easily identifiable market and encourages live trading. This means a realistic exit is possible for investors.
Why is this investment market relatively robust?
When considering why the fine wine investment market remains relatively resistant to economic uncertainty, we can look at the fact that the Liv-ex 100 index outperformed just about every other asset class during the credit crunch of 2008 and the ensuing financial crisis around the world. The market has also demonstrated impressive growth, with the Fine Wine 100 index increasing by around 10.7% per year for the last 19 years. Over the same time period, the FTSE 100 fell by 0.4% per annum.
Fine wine is influenced by supply and demand, and the fact that the very finest wines have a finite supply pushes up their value. Investment grade fine wine also gets better with age, and it’s one of the few assets that becomes more valuable over time as it becomes less available.
Physical assets also traditionally do better against unstable economic conditions. In addition, a fall in the value of sterling is a boost for the fine wine investment market. This is because the two major market indices (Liv-ex 100 and 1000) are valued in sterling. However, most of the buyers are from the US, China and other regions around the world. A less valuable pound therefore makes the wine more attractive as an investment for overseas buyers, which works to further stimulate the market.
