Alternative assets such as fine wine offer investor benefits, which can de-risk and enhance the performance of investment portfolios. With a track record of strong growth over the long term and beneficial tax treatment more investors are looking to invest in fine wine.
Reasons to invest in fine wine:
- Performance – With a track record of delivering double-digit growth over the long-term, fine wine has outperformed financial markets and commodities such as gold.
- Hedge against inflation and currency devaluation – A tangible, ‘alternative‘ asset, fine wine has proven to be less volatile than financial markets and less susceptible to market downturns and adverse economic conditions. Fine wine as an asset is established as being an effective hedge against recession, inflation, currency devaluation and movement in financial markets. For example, the price of fine wine tends to increase with inflation, establishing it as a good way to preserve wealth.
- Finite supply and growing demand – The supply of investment-grade wine is extremely limited, with approximately 50 producers worldwide of wine considered to be investment-grade. In most cases vintage quality improves over time as these wines are made to age. This supply is tightly controlled and reduces as a vintage is consumed. These factors all support stable price growth over time and blue-chip investment-grade wines are under increasing global demand as new consumers enter the market. This supply / demand dynamic supports a strong, stable price performance.
- Tangible asset – Wine as a ‘real asset’ has an inherent physical value, unlike shares or bonds.
- Tax efficient – The classification of fine wine by H.M. Revenue & Customs as either a ‘wasting asset’ or ‘chattel’ generally means that Capital Gains Tax does not apply. Accordingly, any profits from investments in wine with a total value not exceeding £250,000 should be exempt. Furthermore, should the investor’s wine remain stored In Bond then VAT and Duty would also not apply. Advice should always be sought from a professional tax or financial advisor.
- Liquidity and flexibility – The fine wine market benefits from the industry trade exchange, Liv-ex.com, which can be compared to a Stock Exchange for equities, providing transparency and liquidity to the market. Whilst we encourage investors to view fine wine as a medium to long-term investment with a typical term of more than five years to optimise performance, the asset can be liquidated at a time to suit personal requirements.
- Diversification – The asset performance of alternative assets such as fine wine, which does not directly correlate with financial markets, offers value to investors in their capacity to diversify investment portfolios:
“Wine, driven by strong growth in the key Bordeaux, Burgundy and northern Italian investment-grade markets, has now claimed the top spot [of the Knight Frank Luxury Investment Index] with the year on year value of the Knight Frank Fine Wine Icons Index shooting up 25%.” Andrew Shirley, Editor; Knight Frank Wealth Report 2017.