Banking dynasties like the Rothschilds may own iconic vineyards but fine wine stays immune to financial market volatility.
Here we go again! The financial markets rollercoaster is back jerking investors through sick-making plunges and relief-filled peaks for some. Where consumers, property owners and companies have been feeling the cruel, harsh pinch of higher inflation for a year now, nobody expected it to trigger bank failures.
The benefits of diversifying a portfolio with fine wine
- Performance – strong long term growth
- Stable – non-volatile, low-risk investment
- Tax efficient – generally CGT exempt
- Tangible - ‘real’ inherent value
- Inflation hedge – prices tend to grow with inflation
Is there a relationship with SVB and wine?
Silicon Valley Bank’s origins were in financing the vineyards of Napa and Sonoma. So, there’s a cultural connection that saw Californian wine growers mourn the demise of the more recently tech-connected funder this week. Prompt recovery action by US and UK governments and monetary institutions ensured the highly important tech sector was sheltered from SVB’s failure.
Unfortunately, the contagion could not be stopped from impacting the banking sector as investors in this space took fright. Euro and US banks have been hit hardest with the tap turned off essential finance sources. Credit Suisse topped the headlines with a 30% fall in its share value on the 15th March. The Swiss Central Bank stumped up a CHF50bn (£44.5bn) loan facility and Credit Suisse shareholders saw their holdings recover ground. Not a comfortable ride.
The outcome of this is yet to be fully understood as this round of economic shocks triggers stress-testing across the banking sector. What we have witnessed already is the impact on financial markets. All key financial indices have been hit and the FTSE 100 suffered its worst one-day losses since February 2022, when the war in Ukraine struck markets. Having broken the 8,000 level just a few weeks ago the key UK benchmark was back down around 7,300 on 15th March 2023. The FTSE has fallen -8.3% in the month and is now back in negative YTD. Taking with it, UK pensions and investments on its rollercoaster ride.
How is fine wine affected by volatility in financial markets?
The beauty of stable, low-risk, non-volatile fine wine is that its performance is generally not correlated to financial markets. So, wine investments have not jumped on the rollercoaster with equities. Those investors with diversified portfolios, holding fine wine assets, will have seen the money invested in wine hold steady whilst equities suffer losses this month. Yet again fine wine demonstrates its value as a 'safe haven' asset.
Over the last two years fine wine has delivered average growth of 30.7%, double that of the FTSE 100’s average returns of 15% (Source Liv-ex.com 16.03.23). This difference is even more marked with US equities which saw the S&P record average losses of -2% in the same period.
For more information on fine wine investment performance, the best wines to diversify your portfolio with, and the latest trends, speak to a member of our expert team on 0203 384 2262 and see our latest Market Report.