The unusual combination of attributes within fine wine as an asset is what makes it such an interesting solution to a wide range of financial problems. It is not just an investment that will give you something to talk about at your next dinner party, but one that aligns with your sensible side.
At the most basic level, fine wine is a tangible asset and will always hold some form of value or worth. The assets relative immunity to inflation and currency devaluation can be utilised as a store for capital in times of uncertainty, while truly global demand ensures maintained value and liquidity.
Wine As A Hedging Asset For Inflationary Economic Environments
A core attribute of a “Passion Asset”, is the lack of correlation between its own changing value and the fluctuations of central financial markets. Over the last 10 years the disparity in performance between the marketplaces has remained pronounced, even against the broadest measure of the market (Liv-ex 1000).
In addition to differences in overall performance, the graph below illustrates the difference in volatility between the asset classes. The FTSE has recorded extended peak to trough of over a 20% spread. The Liv-ex 1000 has remained stable, with a spread of under half that of the FTSE.
Liv-ex 1000 Vs. FTSE Past 10 Years
The following graph expands upon this and shows wine trajectory to be exceptionally different to the various other financial measures. This lack of correlation is what makes the asset so useful in times of financial turmoil. With 1.00 being absolute correlation congruence, it is worth noting that the Liv-ex 1000 showed less than 0.3 correlation across all measures—a staggeringly low unilateral rating.
Liv-ex 1000 Correlation and Stability Vs Global Markets
Fine wine continues to show low levels of volatility, even when core markets are under extreme duress. Throughout 2020/21 the Liv-ex 100 index traded within a 12% range, while equity and commodity markets saw widespread volatility. This level of stability is typically found in assets lacking in real potential for creating Alpha, or an active return. This is where fine wine differs with a remarkably strong history of compound growth.
Fine wine sits at odds with traditional assets in a number of fundamental ways. A core stability and juxtaposition to central markets, while combined with a propensity for growth comparable to high levels of risk asset classes. It is this unusual composition that makes it such an appealing diversifying asset.