Wine Booming as an Investment Option
Is wine booming as an investment option? For the past two years, fine wine has been a better investment than the Dow Jones Industrial Average (but not the S&P 500). Fine wine has been a better investment than crude oil or gold. (It also tastes better.) These are some of the surprising findings from a 2021 annual report released this week by Liv-Ex, which runs a global marketplace for fine wine.
There is one caveat: the two-year return of 25.68 percent for fine wine that beats gold, oil and the Dow Jones is a measure of the Liv-Ex 100, an index of the most-sought 100 wines on the secondary market. But you cannot buy shares in the Liv-Ex 100, nor is there currently an index fund to track it as there are with the Dow Jones or S&P 500. What it shows is that the top 100 fine wines have gone up in price over the past two years based on individual transactions; it’s akin to following the art market based on the sales of various individual paintings.
Nonetheless, it’s impressive considering that we have been in a bull market for stocks for most of two years. And within the fine wine market, some wines have increased in value by more than the index, especially top wines from Burgundy and Champagne.
Mike Veseth, who blogs as the Wine Economist, published a timely post this week that explains why investment money is pouring into wine in a macro sense.
“It used to be said that US Treasury bonds were ‘risk-free return’, for example, and so good foundational investments for a variety of individuals and institutions,” Veseth wrote. “Now, an investment advisor I know says, Treasuries are ‘return-free risk’. The interest return is negative in real terms (below the prevailing rate of inflation) and prices are volatile. This fact forces investors to explore all the nooks and crannies of the financial world to meet their needs.”
That said, it’s not clear to me that the Liv-Ex 100 actually represents investments. It shows that people are paying more for certain wines than two years ago – but maybe they’re buying them to drink.
To try to get a clearer picture of the secondary wine market, I spoke by Zoom with Richard Hemming and Rupert Miller of Liv-Ex.
“One thing that seems to be happening is that you’ve got saved wealth,” Miller said. “People have not been able to go out, not been able to travel. It’s finding an outlet, finding things that are going to be pleasurable. You’ve also got a number of looser fiscal policies at. the moment, and low interest rates. People who are able to invest large amounts are looking to park it in multiple places. Wine has proven to be a not very volatile, very stable investment over a long time.”
One of the biggest changes in the secondary market has been the drop in interest in non-First-Growth Bordeaux. The First Growths are still extremely important, but other Bordeaux has fallen behind Burgundy, Champagne and wines from other regions. Miller said this mainly reflects a change in the Chinese market.
“When China first got into buying fine wine, it was Bordeaux, it was Lafite,” Miller said. “Over the last 10 years, there’s been a diversification, a broadening of the fine wine market. In Asia there was a big pickup in Burgundy. Burgundy has become one of the driving forces in the secondary market. Once Burgundy starts rising in price, people start looking elsewhere. Champagne was one of the first places.”
Subsequently, buyers have focused on fine wines from the US, the Rhône valley and northern Italy, as well as top brands from Chile, he said.
“Bordeaux falling away has opened up the market for all these other categories,” Miller said. “Trade in Bordeaux at the moment is an example of holding two contradictory ideas in your head at once. Overall Bordeaux trade is falling away. But what remains some of the strongest sellers in the secondary market are the First Growths.”
One reason for Champagne’s popularity on the secondary market is surprisingly simple: buyers can get an entire case of tête-de-cuvée Champagne, whereas Burgundy Grand Cru wines usually come in three-packs.
Another boon for Champagne could take you down a rabbit hole of analyzing the motives of former US President Donald Trump. His wine tariffs never included Champagne, so Champagne did not see the 25 percent hike that most French wines did, and thus Champagne became more popular in the US, Miller said.
“The really big thing with the US and Champagne this year is the rise of rosé Champagne,” Miller said. “It’s still a small part of the market – 18 percent of the whole secondary Champagne market. But rosé Champagne sales in the US are up 200 percent over last year.”
While Liv-Ex doesn’t know why buyers are buying the wine, Miller speculated that Asia is a “buy-to-drink” market, while the UK and US – the two largest secondary wine markets – still have plenty of buyers who put aside a case or two, perhaps to resell later.
“You see older vintages going in Asia, wines that are mature and ready to drink,” Miller said. “The UK and the US is much more a mixture of buying to drink, buying for investment, and stuff being put aside until 10 years later. You’ve got a kid you need to send to school. Now it’s time to sell it to fund that scholarship.”
It’s also possible to tell the kid to go to community college because you really want to drink up that Lafite.
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Source: Wine Searcher