Liv-ex trade members have been provided with a report on the evolution of the Fine Wine Market prepared by Sarah Phillips DipWSET which provides a concise review of the development of the market and investing in fine wine.
The report traces the origins of trading wine to ancient civilisations and the key developments which have led to the transparent, efficient fine wine market we now enjoy. Innovations over the ages have facilitated the storage, transportation and improved ageing of wine. Astute merchants realised that those wines that aged well improved in value and a secondary market in fine wine evolved. With high profile collectors such as US President, Thomas Jefferson and British royalty raising brand awareness in international markets for the best wines of Bordeaux, the market demand became global.
Up until the beginning of the 21stCentury there were still no clear trading rules nor transparency on prices. The advent of the internet has brought great efficiencies to the market along with the introduction of Standard In Bond Contracts (SIB) which stipulates condition, tax treatment and delivery details. Platforms such as Liv-ex have provided further transparency on volume trades and prices with over 400 international members. The importance of industry critics, such as Robert Parker Jnr, with global reputations and influence, who provide quality indicators which drive values in the market has been another important influence. The report provides examples of how critics have impacted on price performance.
Academic research applied to the fine wine market is relatively rare and the report points to a study undertaken by Cambridge University that reviewed fine wine performance between 1900 and 2012 in comparison to other alternative assets. Fine wine offered an average 4.1% return over this incredibly long period, compared to Bonds 1.5%, Art 2.4% and Equities 5.2% and noted that there is very low correlation to mainstream assets making it ‘a useful portfolio diversifier’. Knight Frank’s Annual Wealth report also looks in more detail at the performance of fine wine when compared to a group of luxury investments including classic cars, fine art, jewellery, stamps, rare vintage watches, antiques and Chinese ceramics. Again, fine wine is consistently one of the top performers.
Access to the fine wine market is also looked at but more information on investing in an investment fund (a collective investment scheme) rather than simply creating a portfolio of fine wine held in your own bonded storage account, should be understood before choosing to go down this route
Information is key with all investments and Liv-ex has been instrumental in providing key market performance indicators through its various indices, trade reports and price information. This data has facilitated better market understanding for all participants; producers, merchants and consumers, identifying and explaining trends, price transparency and growth performance over time.
The innovation of the Liv-ex Power 100 in 2005 has led to a bank of performance information on the top fine wines in the world and the annual ranking of the most powerful brands in the secondary market. The WSET report revisits last year’s top 100 scores – the 2018 Power 100 will be published in conjunction with The Drinks Business in December.
Finally, what does the future hold? Liv-ex are certainly working hard to integrate further with their merchant members, utilising technological developments to further develop trade integration, increase market visibility, efficiency and consumer confidence. The fine wine investment market can only grow in terms of the number of participants, with new consumers entering from growth economies around the world, and further developments on how that investment is facilitated.
Despite the ancient trading origins of wine, the reality of treating fine wine as a modern day investment for ‘average investors’ alongside other alternative and mainstream assets, is relatively young. ‘Wine Investment’ per se has only really been gathering momentum in the 21stCentury with the development of modern day supply chain logistics, improved market access and information availability.
Intermediaries like Vin-X have an important role to play in terms of market education and providing guidance and the means to create rewarding collections of investment-grade wines for those investors seeking to diversify and strengthen their overall investment portfolios with an alternative asset which has an excellent track record for long-term growth and resistance to periods of economic uncertainty.
See our Guide to Fine Wine Investment for a general introduction to the market and the fundamentals of investing in fine wine. Please also see our monthly Vin-X Market Report– for the latest performance data, industry news and essential information for investors in fine wine. Our anlaysts and experts provide reports and analysis on the market including information on the beneficial tax treatment of fine wine by HMRC, please visit our website www.vin-x.com to download this free information.
If you would like to discuss the findings of the WSET report and our current view on the market – call us now on 0203 384 2262.