Increasingly, investors are looking outside traditional asset classes to diversify their investment portfolios. Fine wine is now firmly established as an important tax efficient alternative investment which can deliver relative stability and long-term growth.
At its simplest, in any vintage a finite amount of wine is produced. Over time, as these wines are purchased, cellared, and consumed so supply declines. As the most sought-after wines evolve and improve with age, there is a corresponding increase in demand. Further pressure comes from an ever-expanding pool of global buyers. In short, the dynamics for investment are attractive.
There are a number of contributing factors to demand, which can be broadly split between those that fluctuate and those that remain consistent. In the former, global wealth creation is the most pertinent to the health of the fine wine market. This was brought into sharp relief over the last decade with the emergence of various Asian countries, with Hong Kong and China at the forefront, as major new participants. China’s relatively loose fiscal policy resulted in swathe of newly wealthy collectors whose interest drove prices up and up, albeit on a small selection of wines. The correction, when it happened in early 2011, did bring prices down but interest and enthusiasm for wine did not dwindle and it is this fact that makes wine investment such a convincing proposition. As new markets emerge, the underlying knowledge of the collector and their acquisitive desire only adds to the pressure on supply.
On the supply side, there are other factors at play. Demand for the top wines of Burgundy has seen a marked increase over the last few years but it has been frustrated by the vagaries of the weather. Frost and hail over various recent vintages resulting in domaines losing the equivalent of an entire year’s harvest over a four-year period. When such losses feed through the supply chain and allocations are reduced, it is those merchants with the longest standing and strongest relationships with the growers that are best placed to fulfil orders. In this regard Goedhuis & Company is unquestionably one of the best placed merchants. Our relationships not only allow us to offer a broad selection of potential investment wines but also to navigate more fallow times successfully.
An investment grade portfolio might include top red Burgundies, wines from the 1855 Bordeaux Classification system, top names from the Rhone Valley, great names from Italy, both north ‘Barolo’ and south ‘Super Tuscans’, Spain - principally Vega Sicilia Unico, and sought after cuvées from Champagne, as well as some select picks from the New World, USA and Australia.
As with any investment it is best to mitigate risk by diversifying your portfolio. There are many wines that are considered investment grade but as trends fluctuate, confining your holdings to a narrow selection can be a risky strategy; the breadth of your portfolio is an important consideration. If your investment allows, picking up parcels (5-10+ cases) is advisable, as these can prove more attractive to buyers at exit. Due to Goedhuis having one of the best reputations in the market and longstanding relationships with châteaux, domaines and suppliers globally, we are best placed to offer our customers the right wines for a bespoke investment.
Whilst supply and demand are the fundamentals of wine investment, price discovery is of paramount importance, to this end Liv-ex has played a crucial role. Since its inception in 2000, Liv-ex has brought transparency to what was hitherto an opaque market. Accurate, up to date information increases confidence and has undoubtedly contributed to the growth of the global market, which is currently estimated to be worth $4 billion annually. Liv-ex produces a number of benchmark indices which are accepted as barometers of the fine wine market (please see Liv-Ex | Performance Indicators for a detailed explanation of the indices). When selecting potential wines for investment, we utilise Liv-ex data in combination with our own market knowledge to make the most informed, considered decisions on which wines to add to an investment portfolio.