Fine wines have enjoyed tremendous growth as an alternative asset class since 1982, regarded as the start of the modern era of fine wine production, particularly in Bordeaux.
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People invests for varied reasons:
- build depth and breadth into their wine portfolios
- achieve diversification in their investment portfolio by adding wine as an asset class
- build virtual cellars for their children by investing in en primeur or wines with long drinking windows
- invest opportunistically by taking advantage of market dislocation
- investing with a view to sell in short term once a certain return objective is met.
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Since 1982 (the first ‘Robert Parker vintage’, and at the time the greatest Bordeaux vintage since 1961), fine wines especially from the classed growths of the Bordeaux 1855 Classification (and ten or so of the best Right Bank producers) have seen price growth that in most years has out-performed that of major currencies, gold and the major stock markets. Perhaps only property (in certain markets) and fine art (if you can pick the winners) have performed better.
Fine Wine Investments since 1988 have seen average appreciation of 12.9% per annum.
There is no UK Capital Gains Tax on profits from fine wine investments.
Growth has been driven by the simple equation of Supply v Demand. Demand has grown thanks to greater global wealth, the opening of new markets and increasing numbers of upper and upper-middle classes in those new markets (eg. China, Russia, Mexico, India), who have more disposable income and a desire to spend some of it on premium products, especially those believed to reflect a luxury Western lifestyle. Supply of the world’s great wines, on the other hand, cannot be increased to meet demand, as the production is finite; the designated vineyards are a limited size, and increasing production levels would reduce the quality. What is more, each time a bottle is opened, there is reduced market availability of that wine.
The fine wine market saw exponential growth between 2005 – 2011, driven by an unsustainable bubble, thanks to China’s insatiable appetite for a few well-known brands, most notably the Lafite Rothschild stable. With the Lehmann crisis in October 2008, followed later by the global financial crisis and double-dip recession, combined with excessively high en primeur release prices out of Bordeaux in 2011-2012, a correction in the Bordeaux market was inevitable. When the new regime in Beijing in 2012 initiated its anti-graft policies, the gift-giving which had driven so much of the growth in luxury brands including fine wine dried up almost overnight.
It should be noted that, whilst Bordeaux remains the single biggest region of importance to the wine investment market, the top producers from Burgundy, Tuscany, Piedmont, Rhône, Napa Valley and Champagne also play an important role, and their wine prices continued to rise unabated during the Bordeaux correction.
Since 2015, the fine wine market has returned to a much more sustainable, steady growth, akin to the years preceding 2005. Whilst the Chinese premium market is slowly returning and maturing (a much broader range of wines is now in demand), the global market is now less reliant on China for continued growth.
We at Phoenix therefore consider 2018 to be an excellent time to be investing in fine wines.