Fine Wine Investment

Why Invest in Fine Wine?

The best performing fine wines are not only expensive, but difficult to find. Bordeaux Cellars has access to the world’s finest and rarest wines and can acquire and manage your wine investment portfolio.

Asset Allocation – Diversification

Since the recent financial crisis, the demand for more diversified investments has been fuelled by volatile markets and record-low interest rates. This has led to increasing interest in many physical assets that have intrinsic value, particularly where supply is limited; the so-called ‘passion assets’. Fine wine falls within this emerging asset class.

An emerging new asset class: “SWAG”

Over the last 15 years the market in fine wine has evolved from one centred on collectors laying down wine to drink, to one more focused on wine as part of a new asset class.

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The Wine Owners 150 Index Q4 2005-Q4 2015

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Over the last 10 years the Wine Owners 150 Index has outperformed equities, bonds and precious metals and wine is now seen as a store of long-term value.

Knight Frank’s 2016 Wealth Report provides details of the returns on 10 “passion assets” over the preceding decade. Fine wine grew in value by 241% over that period (based on the Wine Owners’ 150 Index of the world’s finest wines). These surpassed returns on coins and fine art. Only classic cars fared better, driven by record prices at auction.

This change has been driven by two important factors, which together have seen an unprecedented surge in fine wine investment over the past decade; increasing demand and market transparency.

Find out more about the market and performance

Increasing global demand (and static supply)

Fine wine is a tangible asset whose prestige and desirability increases with its value.

During the 21st century demand for top wines has become considerably stronger, coming not only from the traditional markets of Europe and (more recently) North America, but also new, emerging markets in China, the Far East, South America and Russia. The value of the global wine trade in 2016 is estimated at $6–$8 billion. Globally, the growth rate in consumption is expected to be 6.17% over the next five years (IWSR research).

Growing numbers of the newly rich are seeking to demonstrate their wealth and status, boosting demand. Wine auction revenues in Hong Kong now exceed those of London and New York combined.

The supply and demand characteristics are also positive. Fine wine from the world’s great wine regions is produced in small quantities; less than 1% of all wine produced worldwide may be considered investment grade, with the market traditionally preoccupied by the prestigious chateaux of Bordeaux.

Production of the very best wines are highly restricted by terroir and regulation and the supply curve for these wines is almost perfectly inelastic, ensuring predictable growth in the long-term.

Over time as wine is consumed the price of the remaining bottles rises. Additionally, quality improves with age, further increasing consumption and inevitably increasing the rarity and desirability of remaining bottles. Hence, the pure enjoyment of owning and drinking fine wine creates conditions where very high returns are possible.

Bottle of Mouton Rothschield

Pricing transparency (and the rise of the online marketplace)

The second factor is the increasing transparency in valuing fine wine. Investment grade wine is now traded globally. Current prices are quoted by Liv-ex (the London International Vintners Exchange, founded in 2001), and other exchanges such as Wine Owners (used by Knight Frank for The Wealth Report) and BBX (Berry Bros & Rudd’s Berry’s Broking Exchange).

Prices are based on trades on the exchanges and at auction (Sotheby’s, Christie’s etc). They publish data showing the performance of fine wine, sub-divided into indices (in the same way as stocks and shares are quoted) and act as a B2B platform for wine merchants and a secondary market for collectors and investors. This has generated more liquidity in the market and a greater degree of confidence and consensus on the value of fine wine.

The strength of the secondary market means that sums invested in fine wine may be realised almost immediately.

This year Bordeaux Cellars have introduced our own online fine wine exchange. Our customers can upload details of their portfolio (or we can do it for you) and then use of portfolio management software to analyse the past performance of the wines by vintage, producer, region, grape variety etc. Wines can be bought and sold on the exchange from a pool of over 18,000 customers.

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This market transparency means that it is now much easier to value a case of fine wine than, say, an Aston Martin DB5 or a Picasso.