Fine Wine: stability and return potential 

Published: 22nd August 2022

One of the best hedges against rising prices is sometimes overlooked.

 

For the first time in years, inflation is once again a major concern.  Disruptions to supply chains combined with soaring energy and food costs have triggered the highest inflation levels in decades in most major economies. UK consumer price index (CPI) reached 7.0% in the 12 months to April 2022 with many forecasting its rise to continue.

It’s at times like these that diversifying your investments – and finding safe havens for your wealth – makes a lot of sense. But there’s one reliable, tangible asset that might not be on your radar. Because with the right guide, investing in fine wine can offer an invaluable hedge against rising costs and shocks elsewhere in the economy1. (If you thought fine wine is just for drinking, you need to read on).

A supply-demand imbalance at the heart of the fine wine market can help maintain stability and positive performance in the face of rising inflation. With a handful of elite winemakers creating a finite supply of the world’s greatest wines and an expanding group of people who want to own and enjoy them,  fine wine has delivered impressive returns over the long term. Since its inception nearly 20 years ago, the Liv-ex 1000, a global index tracking 1,000 of world’s finest wines,  has risen an impressive 361.0%%2. Crucially, it’s done so in the face of volatility elsewhere in the world economy – fine wine was affected far less than other assets by the financial crash in 2008, for instance, or the impact of the pandemic in 20201.

So, when it comes to wine and investment, there’s a lot to like. Low correlation with the market3. Low volatility of returns, especially in core wine regions such as Bordeaux4. A track record of strong returns. And a delightfully tangible asset with fascinating stories to tell – from the world’s most expensive case (a 1945 bottle of Domaine de la Romanée-Conti that changed hands for £419k) to the winemaking businesses that have remained in the same family, and on the same soil, for generations.

An enduring passion for wine and its potential is what led to the creation of Cult Wine Investment in 2007. Today, the company is on a mission to bring the pleasures of fine wine – for investors, wine drinkers, intrigued outsiders, or a combination of all three – to a bigger audience. Whether you’re already a connoisseur, or completely new to enjoying or investing in great wine, Cult Wine Investment is uniquely well placed to make your journey into fine wine easy to understand and rewarding in every way.

 

1The Liv-ex 1000 –10% vs S&P 500 –38% Aug-Dec 2008; Liv-ex 1000 –3% vs S&P 500 –9% Dec 2019-Apr 2020.  www.liv-ex.com 
2Liv-ex 1000 growth between the end of 2003 and the end of April 2022: www.liv-ex.com 

3 Correlation score of the Liv-ex 1000 with the S&P 500 between end 2003 and 330 Apr 2022 was 0.13 
Past performance is not indicative of future results. Returns calculated in GBP and may vary depending on exchange rates 

4 Liv-ex Bordeaux 500 index: 0.73% rolling standard deviation of monthly returns, 30 Apr 2017 - 30 Apr 2022.
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