Fine wine enjoys pandemic growth
Lucy Aylmer talks to Matthew O'Connell, head of investment at the Bordeaux Index, about LiveTrade, the firm’s award-winning online trading platform designed to enable the buying and selling of fine wines.
Q: What are the benefits of using Live Trade for wine transactions?
The key benefits of LiveTrade sit across market access, trading volumes and guaranteed liquidity on key wines.
LiveTrade is the only platform which brings together all market participants: producers, Bordeaux negociants, global merchants, collectors and investors. However, at the same time Bordeaux Index sits in the middle of the trade guaranteeing that all transactions will be completed and that the condition of all wine traded will be in accordance with strict guidelines.
We see volumes in top Bordeaux around three times higher than any other exchange or marketplace, meaning that if you want to buy or sell these wines, LiveTrade is really the only one place to do so.
Finally, the guarantee of two-way liquidity on a 24/7 basis is unique in the space. We are continually deploying more and more capital to support this ‘market-making’ and ensure a continual upwards trajectory of volumes on the platform.
Q: In what way is wine lower risk than other trading assets?
Wine has a multi-decade track record of exhibiting strong capital preservation characteristics. It is underpinned by a continual supply-demand imbalance which dampens volatility and also drives a low correlation with other financial assets, especially in difficult market periods.
Q: What is your clientele and which target markets are you keen to break into?
The clientele for LiveTrade is the entire global fine wine marketplace and we already have numerous examples of all buyer and seller types. However, we are most focused on ensuring that over time we reach a position where far fewer people - in any client category - are losing value by not checking the prices on the LiveTrade platform before they buy or sell wine elsewhere.
One area we believe has always been surprisingly fragmented in the wine trading and investment space is the US. This market, in particular, has changed tremendously in recent years, and LiveTrade plays a key role in facilitating the speed of that change.
Q: How will you ‘climate proof’ your business against the growing challenges that climate change poses for vineyards?
Currently it is hard to forecast beyond the near to medium term on this front. Growing seasons appear to have increasing challenges between difficult springs and very hot summers; but there are fewer wipeout vintages and winemaking has improved significantly to combat some of the difficulties. On balance, we currently think that there is a rough equilibrium whereby the amount of fine wine being made has neither risen nor fallen significantly.
Q: What will be the likely impact of US trade tariffs on Bordeaux Index?
The suspension of the trade tariffs has been a positive in releasing pent up US demand for Bordeaux and Burgundy, in particular. However, when they were in place, we generally saw on LiveTrade an uptick in non-affected regions such as Champagne and Italy.
Q: How has the Chinese market influenced the purchasing power of high-end Bordeaux wines?
Sometimes the importance of the Chinese market in itself can be overstated in the context of fine wine prices. While a significant component of demand, there is much more of a pan-Asian element to the buying momentum from that region, and the US is as important as it’s ever been.
The global breadth and depth of the demand pool can be directly linked to the ongoing growth of the (Ultra) High Net Worth category, which is one reason wine prices have been so buoyant this year so far (almost +10 per cent) UHNW grew in wealth significantly over the course of the pandemic.
Q:Why is 2021 the year of hard assets, and bitcoin and crypto the beneficiary of this trend?
The clear trend towards hard assets in 2021 is in our view, driven by a combination of the volatility in more traditional asset classes (such as equities) across the pandemic, and also fears around inflation driven by the - arguably too - accommodative policies of central banks.
Hard assets are generally seen to be those which have a clear intrinsic non-zero value, and little or no linkage to central bank action; they as a result tend to have broad inflation protection.
Wine is a good example of a hard asset that has benefited significantly from demand in 2021, up by almost 10 per cent year to date. On LiveTrade we saw an increase in new account registrations of 60 per cent in 2020, with significant increases expected again this year.
Bitcoin and other crypto assets are generally seen as hard assets given their inherent decentralised characteristics. However, while they have seen headline-grabbing price movements - up and down - this year, they obviously don’t have the same sort of long-term track record of beneficial attributes - capital preservation, low correlation with financial assets, inflation protection - which an asset like wine or whisky enjoys.
Q: In your opinion, what will be the best performing wines and spirits for the next year ahead?
We are confident that in the wine space, Bordeaux is the place to focus in 2021 and 2022. It is already seeing good momentum so far this year, but there should be materially further to run for the region.
In Spirits, Japanese whisky has slightly outperformed Scottish whisky over the last couple of years and we expect this balance to tilt slightly in favour of the latter. As ever, blue chip names such as Macallan, Glenfarclas and Bowmore are good bets; below that level it is important to ensure good distillery trajectories - two interesting names with good momentum are Bladnoch and Glenturret for example.