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Alternative Investments - What drives the performance of Fine Wines?

Updated: Apr 11, 2020

Wine improves in quality as it ages

Only the best terroir’s in the world can make these blue chip wines which age gracefully reaching peak maturity at 10 or 20 years of ageing. These wines always command a higher price, the joy of opening a Château Cheval Blanc 2009 in 2029 could offer unparalleled drinking pleasure. Such is the strong commitment of the wine makers that in poor vintages like 1991 they refrained from making wine altogether. Great soil, perfect climate, impeccable wine making, a history of heritage, perfect storage conditions makes a wine investment grade.

Wine is a physical asset, which means it's tangible:

Wine is a passion asset you can see, feel and enjoy drinking at some point of its life. The thrill of owning a sought-after physical object make these assets very attractive. Tangible means it has an inherent value and comes with an abundance of advantages. Some investors invest to drink their profits, whereas others might invest purely for financial gains.

Wines have what is called an inverted supply curve:

The main driver behind price appreciation is the supply and demand imbalance that will consistently drive prices upwards. Fine wines are only produced in small quantities, one bottle drunk is one less in the world, which means the demand for it increases over time.

Wine is not correlated to the traditional markets:

Fine wine is less susceptible to market downturns and economic conditions than any traditional financial tool. It is an asset that has been effective in hedging recession, currency devaluation, inflation and movement in financial markets. It is a leading alternative asset class, governed by a unique set of market fundamentals and risk factors. In a world where the performance of financial assets has been historically volatile, investing in these blue chip wines, offers low volatility in addition to capital growth. Historically fine wine has displayed low volatility over both the short and long term, compared to equities of emerging and global markets, indicating a lack of correlation to the traditional financial markets.

Powerful tool for diversifying a portfolio:

Independent researchers have confirmed that a well-diversified investment portfolio would benefit from a small allocation to alternative assets. Because of their limited supply, desirability, durability and stability and the independence of their price from stock market prices they can add genuine diversity to an asset portfolio. With the increased popularity of alternative assets investors should consider diversifying their portfolio by investing in Fine Wine. Low correlation of these assets with traditional asset classes such as equities helps mitigate risk. In the year 2017 fine wine outperformed the FTSE and gold.

Stability during market downturns :

History shows that fine wine has displayed consistently lower volatility in return over both the short and long term, compared to equities of emerging and global markets. Fine Wine returns have consistently displayed a weak response to swings in global equity markets, indicating a lack of correlation to the traditional financial markets. During a deteriorating economy, fine wine has proven to be a defensive asset class, providing protection to investors who hold equity-dominated portfolios. With over $6 billion a year the fine wine sector is more and more considered as a genuine alternative asset class, providing significant diversification benefits from mainstream financial markets.

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