More than one in four (27 per cent) wealth managers and IFAs expect appetite for wine investing to increase over the next 12 months as the impact of Brexit drives the sector to new highs and fuels greater investor demand for asset class diversification and safe havens.
That’s according to research with UK intermediaries by Cult Wines, a specialist in the acquisition and investment management of fine wines.
Since the UK decided to leave the EU in June, the industry benchmark index – the Liv-ex Fine Wine 100 index – gained 3.6 per cent to close on 269.07, the largest positive monthly movement since November 2010 and it’s the highest level since August 2013.
For the week following Brexit, Cult Wines’ trade sales increased by 106 per cent on the pre-referendum average figure in June and this trend has continued thereafter with particularly strong demand from US and Asian investors spurred by the fall in Sterling against the US and Hong Kong dollar.
Nearly half (48 per cent) of intermediaries highlighted the main reason for anticipating this increase was because fine wine acts as a diversifier to mainstream assets such as equities and bonds. More than two in five (43 per cent) said it was because of attractive medium to long term returns. For example, since 1988 the compounded annual return for the most ‘investable’ wines in the market has been 10.65 per cent. The same number (43 per cent) cited the popularity of owning tangible assets while a third (33 per cent) said it was because of wine’s low correlation with mainstream asset classes.
With reduced returns forecast over the next few years from mainstream asset classes and increased levels of volatility, the study found that more than a quarter (28 per cent) of intermediaries predict the level of awareness among high net worth retail investors of alternative physical assets such as wine will grow over the next two years.
The fine wine sector is worth over USD4 billion a year and is increasingly recognised as a genuine alternative asset class, providing significant diversification benefits from mainstream financial markets. Indeed fine wines tend to perform well when the pound is weaker and boasts a number of defensive characteristics. Holdings in wine are not normally linked to other asset prices, with the long term correlation between wine prices and the FTSE 100 at just 0.04.
Tom Gearing, managing director at Cult Wines, says: “Intermediaries are clearly seeing increased levels of interest in wine and in light of market volatility and poor returns; it is being recognised as a genuine alternative asset class, providing significant diversification benefits from mainstream financial markets. Not only can the sector provide strong returns under expert guidance but it is an enjoyable, collectible, tangible asset that has a very exciting future.
“An allocation towards fine wine provides investors with a number of guarding characteristics, and has the advantage of not necessarily following the general trend of lagging behind the rest of the market during economic expansion because demand is consistently strong. Real assets remain an attractive option as they tend to change in value independently of the core financial markets.”
The research also revealed that two in three (65 per cent) intermediaries believe the fact that fine wine is an unregulated asset class is the key challenge affecting the growth in popularity among high net worth retail investors. More than a third (37 per cent) highlighted the restricted liquidity compared to other asset classes as challenge of investing in fine wine.
Gearing says: “As an unregulated market, investors need to ensure they do their own due diligence and only use reputable companies. We have introduced our own unique procedures when working with intermediaries to protect their clients’ assets at all times. There are also benefits of the market being unregulated as it allows investors greater flexibility with regards to ownership and structuring, as wine is an easily transferable asset, as well as offering tax benefits as its regarded as a wasting asset by HMRC.
“In terms of liquidity, the fine wine market also boasts an enviable market position in comparison to other passion assets such as classic cars, fine art and stamps. As the only one of these with a recognised market exchange, thriving international auction market and established secondary market worth over USD4 billion per annum, it offers sufficient liquidity to investors looking for alternative sources of return.”
Cult Wines opened a new office in Hong Kong earlier in the year to take advantage of increasing demand in Asia for investing in fine wine. Half of Bordeaux’s finest wines went to Asia last year and Asia’s share of Bordeaux’s export market has more than doubled over the past decade.
