As the Covid-19 pandemic rages on and on, 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 alternative investment with huge potential. Endorsed even by Warren Buffett himself, wine offers a safe yet profitable haven for your capital, with very low correlation to the stock market.
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 advisors would support investing in fine wine as a way to diversify certain client portfolios.
Consistent market-beating financial returns
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. Fortunately for investors the supply is extremely limited since fine wine is an artisanal product made in miniscule quantities, much like haute couture clothing or top-end watches.
“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.
“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 like Asia, Africa and Latin America where elites are developing a taste for fine wine.”
Fine wine has been the top-performing asset for the past five years, performing well even during times of economic uncertainty. While annual returns of 10-15% are typical, some bottles enjoy remarkable rates of return. For example, wines from Domaine de la Romanée-Conti, arguably the world’s most prestigious winery, regularly show growth of 150-200% over a five-year period. Not bad considering stock market returns typically hover around 10% per annum.
Low risk and inherently stable investments
So, what’s the catch? Surprisingly little, according to Daniel 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 and we have a dedicated anti-fraud department within OenoFuture who ensure the authenticity of your bottles. In almost all cases we purchase direct from the producer to ensure impeccable provenance.”
As well as being a tangible asset, fine wine investment has virtually zero correlation with the stock market, making it stable even during times of economic uncertainty. During the recession of 2007/8 the S&P 500 plunged 38.5%. In contrast, the Liv-ex 1000, the market-leading index for fine wine, dipped by just 0.6%. The same pattern emerged in March 2020 when the S&P 500 fell by 25% while the Liv-ex 1000 slipped barely 4%.
What about the wider impact of Covid-19 on the wine market? While the overall wine industry has suffered during the global pandemic, there’s never been a better time to invest in fine wine. This year’s Bordeaux en primeur releases came out with a hefty 30-40% discount on 2019 pricing. Interestingly, these heavy discounts came despite wine experts declaring the vintage one of the decade’s finest.
This “sale” on Bordeaux wines effectively means that investors have been able to lock-in at rock-bottom prices. The quality of the vintage plus the ongoing demand globally for fine wine makes these wines look like a real bargain. In some cases, the value of these wines shot up on the secondary market immediately after the release, as collectors scrambled to get hold of an allocation.
The pandemic has also been good for business in another sense – increased consumption of fine wine. With so many people under shelter-in-place orders, those with the means have been trading up their usual drinking for more expensive bottles. Although this trend may sound counterintuitive, bear in mind that bottle prices in restaurants tend to be three or four times that of retail prices. Many epicureans have used the extra cash they would normally splash on a bottle in a nice restaurant to treat themselves to an even fancier bottle to enjoy at home for the same money.
The knock-on effect of this trading-up is that, with increased consumption, availability of top wines has become even more restricted. This is excellent news for collectors and investors who can get their hands on these popular bottles. A great example is the Sassicaia 2009, a legendary Super Tuscan red wine from Italy, which has already shot up 14% over the first two quarters of 2020 from $2040 to $2329 per case of 12 bottles.
Accessible for new and seasoned investors
A question that first-time investors often ask is how much capital do 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 Daniel 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,” comments Walker, “whether that be learning more about wine through our regular events and updates or simply treating it as a hands-off ‘armchair investment’. 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 has just opened an office in New York and is Europe’s fastest-growing fine wine investment company. To find out more about investing in wine, visit oenogroup.com.