With fine wine investments delivering average growth of 19.6% in the last year, is it time to add ‘liquid gold’ to your portfolio and how much should you invest?
Wouldn’t we all like a crystal ball? Who would have predicted the events of the last two years with a global pandemic and the horrific destruction Russia is wreaking on Ukraine impacting pretty much everyone on the planet.
The economic fall-out has been a shocking rise in inflation, volatility in global markets and the very real need for investors to proactively manage their investments to protect capital. Fine wine has maintained stable growth throughout this period, with values continuing to rise with inflation, providing a safe-haven asset for investors.
What kind of returns can you expect from fine wine?
YTD in 2022, the key Liv-ex 1000 benchmark, the broadest measure of the fine wine secondary market, rose 14.3%. Champagne and Burgundy investment wines are leading the market and have recorded average growth of 42.7% and 37.5% respectively. Individual wines are seeing significantly larger returns, for example the top performing Champagne, Pol Roger Sir Winston Churchill 2012 recorded a trade price rise of 14.2% in the month of October 2022.
Average returns by wine region:
Liv-ex Regional index | YTD | 1 Year | 2 Years | 5 Years |
Burgundy 150 | 28.5% | 37.5% | 70.9% | 115.1% |
Champagne 50 | 24.8% | 42.7% | 79.7% | 109.7% |
California 50 | 8.2% | 14.8% | 36.4% | 51.1% |
Italy 100 | 9.2% | 13.2% | 29.8% | 47.8% |
Rhone 100 | 9% | 11.2% | 26.7% | 35.7% |
Bordeaux Legends | 8.7% | 12.8% | 21.9% | 27.7% |
Bordeaux 500 | 6.1% | 8.3% | 18% | 20.8% |
Source: Liv-ex.com, Data at 31.10.2022
How do wine investments compare with traditional assets?
In comparison to wine’s 14.3% average growth this year, gold has fallen -10.7%, the FTSE 100 declined -3.9% and the US S&P500 index plunged -19.6%. Equities have rallied in early November, partly in response to changes at Number 10 and 11 Downing Street, Chancellor Hunt’s reversal on the Truss / Kwarteng Mini-budget, and a positive outcome for Biden in the mid-terms, but there’s still a lot of uncertainty in financial markets.
Gold has also struggled this year as a strong US dollar lured investors in preference to the yellow metal. Gold’s performance is trailing fine wine assets and is not providing the expected ‘hedge’ to rising inflation investors expect.
Asset performance comparison:
Asset / index | YTD | 1 year | 5 years |
Gold | -10.7% | -7.7% | 29.7% |
FTSE 100 | -3.9% | -2.5% | -5.8% |
Liv-ex 1000 | 14.3% | 19.6% | 49.5% |
Liv-ex Champagne 50 | 24.8% | 42.7% | 109.7% |
Liv-ex Burgundy 150 | 28.5% | 37.5% | 115.1% |
Source: Liv-ex.com, data at 31.10.2022
Presented with this evidence, many investors have chosen to acquire investment-grade wine for the first time in 2022, and others have added to their wine collections, diversifying their wine portfolios in the process by region, vintage and label.
How much money should you invest in wine to see the best return?
So, we come back to the original question. Firstly, everybody’s personal circumstances are different, and we are not here to provide financial advice. Like all investments, the value of wine can go down as well as up and capital is at risk. How much you invest will be determined by the amount of capital, the period of time you wish to hold your wine asset, and your attitude to risk.
Risk:
To reassure you, fine wine is generally a very stable, low-risk asset and can be used to de-risk a portfolio, but no investment is without risk. For example, some rarer wines have much lower liquidity in the market and can take longer to sell. The benefit of ‘blue chip’ wines that see strong trade in the secondary market is the ‘ease of exit’ they bring to a wine portfolio.
Investment term:
Generally, wine investments delivering stronger returns when kept over a longer period. The market is very stable, movements in price tend to be slower, whether up or down, as trends evolve at a gentler pace when compared to equities and other assets.
As a rule, you should consider holding your fine wine for at least 3 to 5 years or longer to achieve the best returns. For example, Liv-ex reported that Louis Roederer Cristal 2007’s value rose 9% in October 2022 and that Cristal 2009 has risen 152% since its release to market a year after the 2007 in 2016.
Wine investment spend
How much money you invest is ultimately determined by how much capital you have available to invest. Fine wine should be used to diversify an investment portfolio, not replace traditional assets. The brilliant thing about fine wine is its accessibility. Investors can enter the market for as little as £2,000 for an investable Champagne with average returns of 42.7% in the last year.
Wine investment cost can vary significantly. The most liquid wine assets are ‘blue-chip’ Bordeaux and higher volume Burgundy Grands Crus. Both come with heftier price tags but the returns can be outstanding.
Burgundy powerhouse, Domaine Leroy wines have seen growth exceeding 200 per cent in 2022. Domaine Leroy Pommard Premier Cru Les Vignots 2001 saw its value grow 207 per cent to £39,600 and Domaine Leroy Richebourg Grand Cru 2011 trade price rose 65.2% to £123,280 in the first eight months of the year (data: Liv-ex.com 31.08.22). The original investment was in the thousands, but the multiples make for exciting returns. Record-breaking Burgundy sales have seen single bottles of Domaine de la Romanée Conti, Romanée Conti 1945 sell for around US$500,000.
Ideally, to enjoy meaningful returns, investors should consider building a wine portfolio to have a value of at least £10,000 and there’s no cap on the upper limit. Obviously, 14 percent growth on a £2,000 wine doesn’t deliver the same cash return as 14 percent on a £20,000 wine. When building a wine portfolio, it’s important to diversify to take advantage of growth trends and manage risk.
What are the wine investment costs?
Storage
Beyond the wine itself, the other costs to investing in wine include specialist storage in a bonded warehouse to ensure the correct temperature and humidity conditions to protect the future value of your wine. Bonded storage brings tax benefits, as VAT and Duty are not payable until wine is removed from Bond. Investors do not need to transfer out of Bond to exit (or sell) their investment, so these charges may never be triggered.
Insurance
Investment-grade wine is valuable and should be insured, this is another necessary cost.
Portfolio management service and investor information
Investors looking for a specialist wine investment service, similar to Vin-X’s, which includes storage and insurance, ongoing valuations, investor information, portfolio management and sale fulfilment, can expect to pay a commission on their wine purchase.
Tax Treatment
Unlike shares and property investments profits made from the sale of investment wines do not generally attract Capital Gains Tax. This is because fine wine is classified by HMRC as a 'Wasting Asset'. Following Chancellor Hunt's Autumn Statement on the 17th November, this benefit is now even more valuable. The tax-free allowance for CGT will be halved from £12,000 to £6,000 in April 2023. Dependent on personal circumstances, CGT is not normally a cost that needs to be factored. See our Special Report on Tax and Fine Wine.
Find out more
For more information on investing in fine wine and how it could work for you, see our Guide to Investing in Fine Wine and have a discovery chat with a member of our team on 0203 384 2262.
Vin-X does not offer investment advice and investing in fine wine is not regulated. As with all investments the value of fine wine can go down as well as up and capital can be at risk.