WINE AS AN INVESTMENT ASSET
At its simplest, in any vintage a finite amount of wine is produced. Over time, as these wines are purchased, cellared, and consumed so supply declines. As the most sought-after wines evolve and improve with age, there is a corresponding increase in demand. Further pressure comes from an ever-expanding pool of global buyers. In short, the dynamics for investment are attractive.
SUPPLY AND DEMAND
There are a number of contributing factors to demand, which can be broadly split between those that fluctuate and those that remain consistent. In the former, global wealth creation is the most pertinent to the health of the fine wine market. This was brought into sharp relief over the last decade with the emergence of various Asian countries, with Hong Kong and China at the forefront, as major new participants. China’s relatively loose fiscal policy resulted in swathe of newly wealthy collectors whose interest drove prices up and up, albeit on a small selection of wines. The correction, when it happened in early 2011, did bring prices down but interest and enthusiasm for wine did not dwindle and it is this fact that makes wine investment such a convincing proposition. As new markets emerge, the underlying knowledge of the collector and their acquisitive desire only adds to the pressure on supply.
On the supply side, there are other factors at play. Demand for the top wines of Burgundy has seen a marked increase over the last few years but it has been frustrated by the vagaries of the weather. Frost and hail over various recent vintages resulting in domaines losing the equivalent of an entire year’s harvest over a four-year period. When such losses feed through the supply chain and allocations are reduced, it is those merchants with the longest standing and strongest relationships with the growers that are best placed to fulfil orders. In this regard Goedhuis & Company is unquestionably one of the best placed merchants. Our relationships not only allow us to offer a broad selection of potential investment wines but also to navigate more fallow times successfully.
WHICH WINES?
MEASURING PERFORMANCE
Whilst supply and demand are the fundamentals of wine investment, price discovery is of paramount importance, to this end Liv-ex has played a crucial role. Since its inception in 2000, Liv-ex has brought transparency to what was hitherto an opaque market. Accurate, up to date information increases confidence and has undoubtedly contributed to the growth of the global market, which is currently estimated to be worth $4 billion annually. Liv-ex produces a number of benchmark indices which are accepted as barometers of the fine wine market. When selecting potential wines for investment, we utilise Liv-ex data in combination with our own market knowledge to make the most informed, considered decisions on which wines to add to an investment portfolio.
