These are turbulent times for investors and on Truss Takeover Day, Sterling rallied 0.4% up against the Dollar at the start of trading, but didn't hold. UK currency remains volatile, how does this affect wine investors?
Global investors are viewing the US Dollar as a safe-haven in 2022 and the Greenback's value has risen 10% against the pound this year. The strengthening dollar has, in part, suppressed gold’s performance, which is down -5% in the 12 months to 31st August 2022.
The decisions the new PM announces in the forthcoming days will shape Sterling’s short-term trajectory. The early rise before Liz Truss takes up residence in Downing Street is based on reports of her team taking action to freeze the current energy prices, avoiding the planned rise of 80% in electricity and gas bills in October. All good but at what cost to inflation and investors – we wait to see.
Currency performance is making fine wine and other Sterling based assets extremely attractive to USD buyers. Property investment specialist Knight Frank has reported on the increase of property purchases this year and rumours of US top tech talent moving to London because of the price movement.
“A US$ buyer purchasing a £10M Knightsbridge home in June 2014 [when GBP was trading at US$1.71] would have needed $17.1M to complete the purchase. The same home would be worth £7.6M or US$9.3M today.” Knight Frank, 6th September 2022
Similarly, US$ buyers are getting great value buying fine wine selling in Sterling right now and when you add in the returns investment wines are achieving, it’s a no-brainer.
Top 5 performing investment wines in August 2022:
Wine | Region | July | August | Growth |
Louis Roederer, Cristal 2013 | Champagne | £2,580 | £2,950 | 14.3% |
Louis Roederer, Cristal, Rosé 2012 | Champagne | £4,064 | £4,552 | 12% |
Harlan Estate 2017 | California | £10,066 | £11,157 | 10.8% |
Chateau d’Yquem 2015 | Bordeaux | £2,718 | £3,005 | 10.6% |
Masseto 2017 | Tuscany | £6,000 | £6,600 | 10% |
Source: Liv-ex.com – Mid price (12 x 75 cl) 31.08.2022
Comparing fine wine with property as an investment is interesting, both are tangible assets but the key differentials are the entry level and the tax treatment. You can get into the wine investment market for as little as £2,000. A case of Louis Roederer Cristal 2013 was trading on Liv-ex at £2,950 on the 31st August 2022, which if you had bought in July 2022 would have delivered 14.3% growth in the first month. Clever you to choose a top performing wine. Trend average of 52.3% for Champagne investment wines over one year would have you well positioned for a relatively small sum.
The current average one year growth for fine wine investments is at 22.9% (Liv-ex.com 31.08.2022) and individual wines are delivering significantly more. Importantly, any gain is likely to be Capital Gains Tax free subject to personal circumstances.
In contrast, property investments in the UK are generally six-figures or more, the average UK house price recorded by Nationwide Building Society at the end of August 2022 was £273,751. Average annual returns for UK property stood at 10% that month, slightly less than wine at the same date. Tax wise, you will pay Stamp Duty on purchase at the relevant level, and if a second home, Capital Gains Tax will be chargeable on sale at the prevailing rate.
Tangible investments like fine wine are providing shelter for capital and US dollar buyers are generally getting more GBP for their buck right now. The Liv-ex 1000 benchmark has risen 11.7% in 2022 to the 31st August 2022, compared to the FTSE 100’s 1.4% increase and gold’s -5.3% decline.
Comparison with equities and gold YTD and 1 year:
Index | YTD 2022 | 1 Year |
Wine -Liv-ex 1000 | 11.7% | 22.9% |
Equities - FTSE 100 | -1.4% | 2.2% |
US equities S&P500 | -16.2% | -11.5% |
Gold | -5.3 | -5% |
Data source: Liv-ex September 2022 Report, data at 31.08.2022
With huge challenges on all fronts and so much uncertainty, the new PM’s immediate focus must be on the energy crisis and helping UK households and businesses cope with day-to-day living costs. Liz Truss and her new Chancellor need to achieve this with one eye firmly on the health of Sterling to avoid boosting rising inflation. US buyers may have an open window right now – but for how long and any increased demand in the market is good for all wine investors as prices respond.
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For more information on the tax treatment of fine wine see our special Report. To learn more about the fine wine market and investing in wine, speak to a member of our expert team on 0203 384 2262.