Fine Wine Continues to Deliver Positive Returns

Petrus 95

Petrus 95January saw further signs of optimism in the fine wine market.  The main indices were up by 1.1% (Liv-ex 100) and 1.4% (Liv-ex Investables).  This takes the upturn since mid-November to over 3%, achieved at a steady pace over the last ten weeks.  This contrasts strongly with other major asset markets which have experienced very turbulent trading conditions: the FTSE 100 has fallen for three consecutive months; Shanghai’s benchmark stock index dropped by 22% in January alone; and oil has suffered the most, falling by 30% since mid-November.

The fine wine market’s long run tendency to outperform more traditional asset classes remains unchanged.  Fine wine as an asset class has outperformed equities, gold and oil over the last 21 years.  Importantly, this has been achieved, with lower volatility.  This means that an investment in fine wine provides risk reducing portfolio diversification.

A key market indicator, the ratio of bids to offers on Liv-ex, reached its highest level since mid-2010.  The ratio rose above 1.00 in mid-January: historically, a ratio above 0.5% indicates a rising or at least stable market.  January typically is a relatively quiet month for auctions and sell-through rates were broadly in line with expectations.  It was noticeable that in both Sotheby’s major sales (in London and New York), Bordeaux wines took the headlines: all of the top ten highest-selling lots in London were from the region.  Bordeaux has begun to take greater prominence elsewhere too: of Liv-ex’s 11 indices, four are Bordeaux-only and these were the four best performing in January.  This supports The Wine Investment Fund’s (TWIF) exclusive focus on wine from this region and bodes well for the wider market as Bordeaux is such a key component of it.

Last month TWIF expressed caution about reading too much into the recent positive figures.  This remains the case.  January saw noticeable weakness in sterling, with 2-3% falls on the month against most relevant currencies.  This alone will have had a positive impact on wine prices, expressed in sterling.  Although China is not the dominant force it once was, buying ahead of the Chinese New Year festival has certainly helped the market in early and mid-January.  Liv-ex’s bid-offer spread remained relatively wide, which tends to be a negative indicator.

Amongst the exchange rate movements, sterling has seen some reversal of its long rise against the euro.  This has two consequences for fine wine: first, négociants and other major players in Bordeaux begin to buy stock back from the UK and second, buyers outside the euro zone (e.g. China/USA)  switch to sourcing stock from the UK rather than from Europe.

“Fine wine prices are still sitting well below their long-term trend level and a sustained recovery is more likely than not in the near future.  The recent solid performance against a very difficult backdrop for other asset classes suggests this recovery may be underway.  An investment in fine wine continues to make a very useful addition to a wider investment portfolio, given that the fundamentals of fine wine as an asset remain sound, and  investors may also profit from the fiscal benefits of our EIS (enterprise investment scheme) (30% income tax relief and carry back provision, no CGT, no IHT and CGT deferral), thereby locking in substantial downside protection to their investment.  Current market conditions do appear favourable for a medium- to longer-term investor.” commented Andrew della Casa, Director, The Wine Investment Fund (TWIF).

By Andrew della Casa, Founding Director The Wine Investment Fund.  and