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Fine wine as alternative investments has outperformed global equities in volatile times

Fine wine as alternative investments has outperformed global equities in volatile times

Did you know that there is actually an index for fine wine?

It is called the Liv-ex Fine Wine index, which tracks the daily price movement of the most heavily traded commodities in the fine wine market. It is the industry leading benchmark, which represents the price movement of the most sought-after fine wines on the secondary market.

In my previous article, I wrote about how fine watches can be seen as investment pieces here. In this post, I look to uncover the world of fine wines as alternative investments.

Take a look at the major Liv-ex Fine Wine indices below. The returns have been pretty impressive on a 5-year basis, providing steady, uncorrelated returns compared to the broader equities’ markets.

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Source: Liv-ex

It is not surprising that with the current COVID-19 ongoing for the past few months and with several countries under lockdown, prices of fine wines have actually held up well this year compared with other types of asset classes.

In fact, the MSCI World Index fell by over 23% in March, but some of the fine wines had double-digit percentage gains in price. Clearly showing that luxury consumables are resistant to the broader volatile markets.

Also, further statistics show that when compared against the S&P Global Luxury Index which tracks 80 of the largest publicly traded luxury goods companies, prices of fine wine has held relatively constant. The Liv-ex index of the 1,000 most traded fine wines on its exchange had fallen only 1.7% by end May, against a 14% drop for the S&P Global Luxury Index of the same period.

This could be largely due to the fact that more people are staying at home and with more time to spare, they are ordering more wines online during the lockdown. Several wine merchants in Europe has reported almost double or triple online sales during the past 3 months.

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Source: Liv-ex Fine Wine 50 Index for year-to-date 2020. Prices have been rather steady with a sudden spike this week from 7 July 2020.

 

However, the fine wine industry also has its challenges during this pandemic and in particular, it is affecting wineries. Wineries used to welcome reviewers, tasters, aficionados to their vineyards for wine tasting but COVID-19 has severely restricted air travel. Hence, many retailers are getting creative and turning to virtual wine tasting sessions such as those organized by Crystal Wines.

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Source: Crystal Wines

 

Now back to a more serious topic. Just like there are portfolio managers for equities, fixed income, commodities, even watches like The Watch Fund, there are also portfolio managers for fine wines.

I came across a company called Cult Wines, which was established in 2007 and has about $220 million fine wine assets under management. Clearly a global player based on their clientele profile.

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Source: Cult Wines

Based on their website, their flagship investment management services is their Portfolio Management Account and their investment objective is to help their clients achieve long-term capital appreciation through active management which involves buying, holding and selling wines. You can be assured that Cult Wines will help you with the storage as well and it will be fully insured.

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Source: Cult Wines

I would imagine it is somewhat like what a Private Banker does for his/her private client. They first determine the type of fine wine investment strategy (Geography, Region, Type, Blend, Vintage, holding period) of the client. Once it is determined, the team then sources for wines that fit the profile of the client. Once the wines are bought, they store and monitor them in their storage facility. Finally, once there are other buyers in the secondary market in a few years, they will sell off the wines and lock in the profits for the client.

Something interesting is that they also have a Cult Wines’ Investment Committee. A body which you see very often in asset managers, sovereign wealth funds, pension funds and insurance companies etc.

Below shows you some of the minimum capital outlay and fees that Cult Wines charges.

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Source: Cult Wines

I would say that the minimum initial capital investment of £25,000 is a low barrier to entry for those who are keen to invest in fine wines as an alternative investments as compared to investing with other non-liquid funds such as hedge funds or private equity.

However, the annual management fee of 2% seems to be on the steep side given that most hedge funds and private equity funds are no longer charging the famed 2-and-20 model.

Furthermore, if you are in “Tier 3”, your acquisition & operations fee is a hefty 5%. This can significantly erode your returns.

One thing impressive about Cult Wines is their team, which comprise mostly of ex-private bankers, or at least in some form of managing Ultra High Net Worth relationships. I believe it is because this particular investment segment is not easily attainable nor understandable and only the affluent are able to participate in this growing segment.

Last but not least, Cult Wines have a pretty impressive track record for their investment portfolio on a 3-year, 5-year and 10-year basis, outperforming most of the Liv-ex Fine Wine indices.

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Source: Cult Wines, Liv-ex Fine Wine indices

At Finance and Toast, we don’t claim to be an expert in every field. But we try to write on alternative investments’ topics so that the general public are aware that there are many other ways to make money and grow your income.

We believe it is all about getting creative and discovering ways that are seldom heard of so that we can be ahead of the curve.

Would you consider investing in fine wines? Share with us your thoughts below.

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Cheers,

Vincent



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