INVESTING IN FINE WINE AND SPIRITS CAN OFFER ATTRACTIVE, RISK-ADJUSTED RETURNS AND EXCELLENT PORTFOLIO DIVERSIFICATION DUE TO ITS LOW CORRELATION WITH OTHER ASSET CLASSES
As a tangible and consumable asset, ﬁne wine has historically appreciated by 15% per annum over the last 30 years.
In recent years, global demand for ﬁne wines has accelerated in tandem with a growing population of HNWIs.
Production remains constrained by local regulation, and in some cases yields have been reduced by Châteaux seeking to improve quality.
With supply diminishing each time a bottle is consumed, ﬁne wine enjoys a unique inverted supply curve.
As with other lifestyle investments, fine wines have the ability to offer attractive, risk-adjusted returns.
They also offer diversification due to a low correlation with other asset classes. Since its inception in 1988, the Liv-ex Benchmark Fine Wine Investables Index has grown 1,648% at an average annualised growth rate of 14.8%.
Bordeaux wines have always been at the heart of any fine wine investment strategy.
It is not only the largest category traded by volume but it also has the longest production history spanning several hundred years. Bordeaux is also the most liquid region, with a substantial number of transactions taking place daily in major cities such as London and Hong Kong, as well as on the Liv-ex.
Italy has recently experienced several exceptional years of wine production.
The overall quality of Italian wines is on the rise, with numerous wineries now earning international acclaim . The market for wines from Piedmont is similar to some extent to that of Burgundy. By comparison, Super Tuscans are produced in volume, like Bordeaux, and thus offer different market dynamics with a strong float and a clear market prices.
The U.S. market for fine wine is now the largest in the world.
It is largely supported by a rising number of top-quality wineries in the Napa Valley and across the country. This rise in quality has translated into a growing demand from importers located in Asia and Europe.
Finally, the Spirits market benefits from a global supply/demand imbalance, a relationship that particularly holds true for old Single Malt Whiskeys due to historical capacity constraints and limited production. The sharp rise in demand, including from mainland China, has made these spirits even rarer and more valuable.
Burgundy is one of the most complex wine regions in the world.
It is comprised of hundreds of small appellations and micro parcels. Top wines are usually produced at the level of a few thousands bottles per year; as a benchmark, Pétrus produces 28,000 bottles per year, putting its yield roughly on par with the rarest Bordeaux.
We believe that the dynamics of the fine wine market are still very much intact today.
Primarily, the market offers a structural supply shortage due to regulatory constraints and yield restrictions. Increasing demand from globalisation and a rapidly growing number of luxury-hungry consumers add further upward pressure to prices. Fine wine also has the unique characteristic of improving in quality as it matures. This combination of factors is supportive of higher prices over time, making fine wine a particularly attractive asset class.