wine as an investment. does that work?
what makes an asset a good inflation hedge? meaning, assets which remain stable or see its value increase over time, even as the purchasing power of a currency drops.
for most people, the first name that’ll come to mind is gold. the yellow metal has proven to be a good store of value for centuries, but there are many other alternatives as well. wine being one such asset.
though wine investment may be a niche category, the fine beverage has proven to generate decent returns for investors. and it has shown a low correlation with assets like equities, which makes it an excellent tool for diversification as well.
investing in premium wines and fine wine has been around for centuries. but a sort of formalized market for the sale and resale of wines for profit, or investment, became more established in the late 1970s.
fine wine returns seem to be more stable compared to other asset classes, like equities, during market downturns.
for example, when the COVID-19 pandemic hit in early 2020, the Liv-ex 1000 index, which tracks the price of the most traded fine wines in the market, declined by 4% before bottoming out against the double-digit losses we saw in global equity markets.
a similar trend was observed during the 2008 crisis, when the Liv-ex 1000 index dropped roughly 10% from its peak in August 2008 to a low in December in comparison to equity indices, which fell over 30% before bouncing back.
also, of the total wine produced in the world, only 1% is of investment grade. this makes it a scarce commodity, similar to gold, and a viable candidate for a hedge against inflation.
data from Acker’s Fine and Rare Index shows it returned 15.20% in the first half of 2021, which is in line with the 15.9% returns from the S&P500 in the same period. also, Acker’s most recent auction saw US$8.5 Million in sales, with 100% of the lots selling at an astonishing 182% above opening bids.
when it comes to wine, there is always a need to warn. only connoisseurs know a collectable from a good wine. bring an expert along, if this catches your fancy. worse case scenario, you’ll have a good weekend.