fine wine is the ultimate liquid asset
MD & FOUNDER OF FINE WINE MERCHANT BORDEAUX INDEX
Welcome to what is the first in a series of short articles looking at wine investment. While the City is well acquainted with the sensory pleasures of wine, it tends to be much less familiar with holding and trading wine as an asset. With this in mind, we’ll be cutting through the pomposity that afflicts this business to take a good look at the structure of the market, address some key readers’ questions and offer up plenty of up-to-the-minute comment and ideas.
What is investment wine?
In other words, how does it differ from the oceans of plonk that line our supermarket shelves? In a word, scarcity. Wines which have the combination of characteristics necessary to be deemed investment grade – that is, limited availability, brand status, critical praise, market liquidity – are in practice very rare. Focusing on the key market of Bordeaux, there are perhaps only 30 to 40 Chateaux that meet the grade. Collectively they only produce around a quarter of a million cases a year. Moreover, given the legal and practical restrictions that hinder newcomers, the market has real barriers to entry.
How has wine performed in the last year?
The fine wine market has generally been in good health for the past two decades but things are certainly robust at the moment. The Bordeaux Index (derived from our LiveTrade two-way trading screen) has returned 21.5 per cent year-to-date and is up 33.2 per cent year-on-year. While demand is fully international, Hong Kong/China is by far the fastest growing region – and has the greatest potential too.
Is wine correlated with other capital
Long-run correlations with both equities and fixed income are very weak. Post-Lehman, prices declined by around 20 per cent but within 18 months they had fully recovered. Previous crises, such as the Asian currency crisis and the aftermath of the tech crash, have been characterised by periods of moderate and stable growth. We will see what happens over the coming months but fine wine tends to have its own distinctive rhythm and pace.
How do I learn about the market?
While analysis grounded in financial discipline is becoming more common, it remains fairly thin on the ground. As ever, raw data is the key to really understanding activity; for example, 100 cases of Lafite 2003 sold to an investment fund is a very different proposition to 100 cases to a hotel chain. Such data remains frustratingly difficult for outsiders to obtain. Private clients can certainly gain a decent feel for pricing by using our charting facility, alongside our intra-day Bordeaux Index as well as reading our quarterly market reports, which are available free to subscribers on our website.
For critical opinion, Robert Parker is still the leading commentator and has by far the biggest impact on prices. Other critics such as Neal Martin, Jancis Robinson and Michael Schuster are important for forming a consensus view.
Where is the best place to start trading?
Wine is essentially an over-the-counter market so you’ll have to do your due diligence to ensure you get the right volumes at the right price. Use platforms like LiveTrade for comprehensive cover of the key lines. And above all, make sure you have full confidence with whom you are dealing.
The market is abuzz with the release of the highly-rated Bordeaux 2009. We’ll focus on this in our next column. Happy drinking.