Recent vaccine news may indicate an end to the global pandemic is in sight, but that doesn’t mean investors can relax just yet. According to the Office of National Statistics, the UK economy is now 21.8 per cent smaller than it was at the end of 2019. As we head into 2021, the Bank of England has just predicted that a possible no-deal Brexit is poised to wreak even greater devastation than the entire Covid-19 pandemic.
Fine wine resilient to market swings
Despite ongoing intense market volatility and a very uncertain future, many investors are clinging to their stocks and hoping for the best. What you might not know is that many of the biggest names in investment are turning to a little-known investment with huge potential and very low correlation to the stock market. Top investment advisers recommend that investors diversify part of their portfolio with resilient alternative assets such as fine wine.
In March 2020, right at the start of the global pandemic, the S&P 500 plunged 25 per cent. In the same month the Liv-ex 1000, the fine wine index that tracks the prices of 1,000 top-performing bottles, slipped just 4 per cent. We see the same pattern if we jump back to the recession of 2007-2008 when the S&P 500 plunged 38.5 per cent. In contrast, the Liv-ex 1000 dipped by just 0.6 per cent.
This resilience makes wine investment an excellent hedge to insulate your assets against a no-deal Brexit. Although the details of the UK’s exit from the European Union remain hazy, any no-deal scenario is likely to involve significant logistical disruption and additional costs for those purchasing fine wines in the UK. This bodes well for investors already in the market who should benefit from price increases on this side of the Channel as top restaurants and UK-based collectors and drinkers struggle to access the European markets.
This is even without considering the impact on sterling. Any sudden or gradual weakening will give investors a price boost on their portfolio thanks to enhanced competitivity on the global market.
Market-beating financial returns
Fine wine’s resilience doesn’t just apply to times of intense crisis. If you had invested £100 in the fine wine market in 1952, your investment would now be worth £420,000. On the other hand, £100 invested in the stock market would now be worth a modest £100,000. Recent research shows that, thanks to this impressive track record, the majority of financial advisers would support investing in fine wine as a way to diversify certain client portfolios.
So, how is it that fine wine has managed to weather financial storms and generate such consistent market-beating returns? The answer lies in a very simple economic model. Fine wine prices are primarily dictated by supply and demand. “What makes fine wine different from these other types of asset-backed investments is that it is made to be drunk,” notes Daniel Walker, Head of Investment at the London-based wine investment company OenoFuture.
“Fine wine is an artisanal product that can only be made in miniscule quantities. Every time a rare bottle is consumed, the value of the remaining bottles gets a welcome boost. And on the flip side, demand is constantly on the rise, especially in newer markets such as Asia, Africa and Latin America where elites are developing a taste for fine wine.”
Top-performing bottle up 113.07 per cent in one year
While OenoFuture clients typically benefit from average annual returns of 10-15 per cent, some bottles enjoy remarkable rates of return. For example, the top-performing wine for 2020 is the extremely rare Henri Jayer Echezeaux Grand Cru 1995, which has record-breaking price growth of 113.07 per cent across 2020. Just a handful of these bottles still exist, making this one of the rarest wines on the planet.
Overall, it’s been a great year for Burgundy, not least because the region’s annual En Primeur or “futures” campaign took place as normal in January shortly before the global outbreak of the pandemic. Their Bordelais cousins were not so lucky with the traditional April campaign delayed and staggered across early summer instead.
OenoFuture recently compiled an industry-leading six-figure portfolio composed entirely of iconic Burgundy wines that all have a cult following on the secondary market. This portfolio featured several extremely rare wines, including a magnum of Henri Jayer Cros Parantoux 1985 and a pristine case of Romanée-Conti 2002 from legendary producer Domaine de la Romanée-Conti.
Safe and secure investing
So, what’s the catch? Surprisingly little, according to Walker. “Since it is asset-backed, fine wine is a very low risk investment. Once you invest in the market, your wines are kept in optimum conditions in a secure bonded warehouse in your name. They are fully insured at the current market rate and we have a dedicated anti-fraud department within OenoFuture who ensure the authenticity of all your bottles. In almost all cases we purchase directly from the producer to ensure impeccable provenance.”
Accessible for all investors
A question that first-time investors often ask is how much capital they need to invest. “Fine wine is an accessible market open to both new and experienced investors alike, thanks to fine wine investment companies like OenoFuture,” explains Walker. “Our investors can enter the market with initial investments that vary from as little as £10,000 to six or seven figures, making it an opportunity that many investors can benefit from.”
For those who are new to wine investment, OenoFuture offers a fully managed service, guiding you through every step of the process from entry to exiting the market.
“Investors can choose to be as involved as they want, whether that be learning more about wine through our regular events and updates or simply treating it as a hands-off ‘armchair investment’,” comments Walker. “In seasons of intense fragility, wine offers welcome stability – which is why we’re seeing record numbers of first-time and seasoned investors turning to us for help.”
OenoFuture is Europe’s leading fine wine investment company. To find out more about investing in wine, visit oenogroup.com