Understanding the liquidity of a stock, i.e. the ease of acquisition and exit in a timeframe in line with investment goals, is vitally important to investors whatever the sector you are looking at. The fact is ‘liquidity’ itself can add a premium value to an investment, as increased liquidity reduces risk and can lower the cost of acquisition.
Liv-ex, the fine wine market’s equivalent ‘stock exchange’, has, since its inception in the late 1990’s, played a vital role in introducing tools, services and information to its trade members which has helped evolve the functionality of the fine wine market. This has delivered market efficiencies, price transparency and analysis, which has played a significant role in validating fine wine’s proposition as an investment.
The latest market KPI from Liv-ex for its trade members is its ‘Liquidity Ranking’ which will be published quarterly. The measure is based on a 12-month moving average of trade values at the end of each quarter.
The Liquidity Ranking reported at the end of Q3 2017 reflects the importance of the Bordeaux First Growths in the secondary market, accounting for half of the top 50 ‘most liquid’ wines sold in the period. Chateau Lafite Rothschild demonstrated its dominance with fourteen vintages ranked, eleven of which have enjoyed increasing levels of trade in Q3 and moved up the ranking. Bordeaux wines represented over 80% of the most liquid wines traded on the market – which comes as no surprise.
Large liquidity movements reflected in the ranking are often due to sizeable releases, for example as the 2014 vintage went physical for some wines. This was illustrated in the figures shown for Haut Brion 2014, which rose 263 places to 95th and Sassicaia 2014, up 191 to 10th in the Q3 ranking.
The Liquidity measure also provides a view on en primeur trading activity and Q3 saw Carruades Lafite 2015 up 42 places to the 94th most liquid wine.
Wines of a higher unit price may actually distort the true liquidity picture, in that the average value is weighted to unit price rather than volume of trade, but it is still an indicator as the benchmark does record actual trades.
Liquidity is a key factor for consideration when managing a wine investment portfolio and we will provide further detail on this in our Market Report later this month. Call us for further information on 0203 384 2262.