Why Invest in Fine Wine?

There's an old saying that "whatever happens, the rich get richer." And one of the ways they've been doing this for decades is with fine wine. Fine wine is unique among collectibles — it combines sensory pleasure with a long track record of steady returns should you ever decide to sell it.

Fortunately, fine wine's benefits are not just for the ultra-rich any more. Detailed information and tasting notes are now ubiquitous, pricing is transparent, and trading platforms enable you to buy and sell more easily and cheaply.

Fine wine is now being touted as a core staple in investment portfolios. Bank of America's chief strategist recently listed it among his top investment picks for the next decade. Meanwhile, a Swiss academic report recommended that investors allocate around 10% of their portfolio to fine wine as a way to diversify returns and reduce volatility.

The most famous wines of the world are the first ever luxury brands. The greatest are agricultural artworks that for centuries have been recognised as both prestigious and worthy of premium prices.

In the late 19th century, U.S. President Thomas Jefferson went to the considerable trouble of shipping 20 cases of Château Lafite Rothschild from France to the U.S. — where he later served them to White House guests. Meanwhile, Russia's Tsar Nicholas loved Cristal champagne so much he insisted on being its sole customer.

But a rich history isn't enough. To qualify as luxury, an item must also create an emotional resonance that transcends price and subjective opinions of quality. This is where the top fine wines come into their own — they are capable of inspiring fascination, passion and even obsession among their most loyal followers. And their prices reflect that.

Fine wine is now the most liquid and transparent of all collectibles — including art, watches and even vintage cars — with a proven track record of returns.

The Liv-ex 1000, the leading industry benchmark for the fine wine market, has posted annualised returns of c. 6.5% over the past 20 years. Significantly, it has outperformed during periods of instability when other markets stumbled. In 2022, for example, the Liv-ex 1000 rose 9.3% compared with an 18% fall in the MSCI World stock index.

Fine wine offers lower volatility and lower drawdowns than many asset classes, including equities and gold, making it an excellent way to diversify traditional investment portfolios.

Source: Winery data from Liv-ex as of 01/11/23. S&P 500 = S&P 500 (TR); FTSE 100 = iShares Core FTSE 100 UCITS ETF GBP (Acc); Bonds = iShares 7-10 Year Treasury Bond ETF; Fine Wine = global price-weighted index of ~8,000 most liquid investment-grade wines.

The greatest wines of the world are especially vulnerable to the effects of climate change. The wines of today are the best ever made, due to advances in technology and continual refinements to winemaking techniques. But these same wines are unlikely to exist, in their current form at least, in the decades to come — and maybe sooner.

In April 2021, a killer frost destroyed more than a third of the total grape harvest in France, resulting in an estimated €2 billion loss. French officials described it as the greatest agricultural catastrophe of the 21st century. Just three years later, an equally damaging combination of hail and mildew wreaked havoc on the 2024 crop.

According to scientists, such events are likely to become the norm as warmer winters encourage vines to form buds earlier than usual, only to be decimated by spring frosts. Many collectors now view climate change as the single most important driver of future prices — creating a growing sense of urgency to buy today's great wines before supply reduces further or they disappear altogether.

Fine wine is not just a commodity traded among speculators — there are many other reasons why people collect wines, and these help underpin the market even during challenging times.

Great wine fuels that most essential of all human needs: social interaction. A brilliant bottle shouldn't be hidden away endlessly for a special occasion — it makes an occasion special. There is an alchemy involved in creating great wine that is almost mystical. Every bottle embodies a moment in time, crafted from centuries of hard-won experience handed down through generations.

There is also a growing movement among high-net-worth families to create "wine legacies" for their children — a diverse selection of the most investable wines, preserved for future drinking or for sale. Not only does this represent a diversified store of wealth, it also preserves something living, unique and intensely personal.

In summary, fine wine is no longer a niche pursuit, but rather a bona fide alternative asset with uniquely attractive characteristics — encapsulating a moment in time that will one day be impossible to replicate or replace.