Fine wine returns more stable in a downturn than many other assets classes, says new report
According to a new report released by Cult Wines, a specialist in fine wine investment and collection management, fine wine returns display remarkable stability compared to a range of other asset classes during market downturns – including the Covid-19 pandemic.
The firm’s Alternative Investment Report for 2021 explores the potential benefits of alternative assets – including hedge funds, real estate, commodities and fine art – and examines how fine wine’s performance track record and market dynamics make it an attractive option to include in an alternative asset exposure.
The case for incorporating or expanding an allocation to alternative assets is stronger than ever, with ‘collectible’ passion assets providing an antidote to many of today’s investing challenges. Since the 2008 global financial crisis, accommodative monetary policies have propped up equity markets and kept bond yields low or even negative – a situation the Covid-19 pandemic has only exacerbated.
Real assets can form an attractive option in this backdrop. They are less susceptible to changes in the economic outlook or shifts in macro policy than alternatives based on financial instruments, such as hedge funds, and passion assets such as fine wine can help in a rising inflation backdrop. As real assets, collectibles have an inherent value and typically a more stable supply and demand dynamic.
When the pandemic struck in early 2020, fine wine’s downturn was both shorter and less severe than most mainstream financial assets. At its 2020 low on 21 March, the Liv-ex 10001 had only declined by 4 per cent, compared with double-digit losses in most equity markets.
This trend could also be observed during the Global Financial Crisis (GFC) of 2008-2009, when fine wine’s more consistent recovery from a shallower dip means it posted a higher total return over the full breadth of the GFC period. The Liv-ex 1000 dropped roughly 10% from its peak in August 2008 to a low in December – steadily recouping all its losses by the end of 2009. By contrast, major equity indices plummeted by over 30 per cent.
Fine wine’s stability stems from its internal supply-demand dynamics. As a real ‘passion’ asset, demand for fine wine goes beyond its immediate benefit as a financial instrument. Limited and stable supply levels also provide a steadying influence, as supply cannot significantly change by sudden shifts in policy the same way government and central bank policies can influence financial markets.
Tom Gearing, CEO of Cult Wines, says: “With alternative assets including fine wine offering a new frontier for investors to identify alpha opportunities, appetite for them is growing in the wealth management industry – garnering more attention from a global audience.
“The Covid-19 pandemic has underscored the resiliency of fine wine in particular, which managed a favourable return while displaying low volatility relative to most financial markets.”