Popping the Cork on Fine Wine Investing

The third quarter of this year saw an intensified economic slowdown due to continued high inflation, supply chain issues and tighter financial market conditions. Among many other issues, the British pound fell to its lowest level against the U.S. dollar since 1985 leading to UK stocks plummeting, while the US market took a dip due to global recession fears.

While this equates to a dim outlook for mainstream markets, alternative assets such as fine wine have performed well. The fundamentals of fine wine investing come down to two factors: supply and demand. As fine wine matures and improves with age, it becomes more desirable – and therefore valuable – over time, while the consumption of fine wines increases the rarity of certain vintages, pushing the price up as more investors seek out fewer bottles. And the situation is compounded by an ever-increasing global demand for this particular asset.

Weaknesses in Sterling were one of the reasons for leading fine wine indices making gains in Q3 of 2022. Champagne was the main force behind the increases; however, Burgundy also enjoyed consistently high levels of demand and overtook Bordeaux as the most traded fine wine region in August. While Burgundy is well known for producing some of the world’s most expensive wines, right now it is enjoying its biggest gains from the value-driven segment of the market. Those wines are naturally more attractive to retail investors looking to build a diversified portfolio. Exclusivity has been another driving force behind the high demand for both Burgundy and Champagne.

Although, the beginning of September saw Bordeaux return to the spotlight thanks to the 2022 revision of the Saint-Emilion classification. Château Figeac was promoted to Premier Grand Cru Classe A status, which led to new price records for some of its older vintages like 2008 and 2013. The more recent 2019 and 2020 also rose in value following the announcement.

With many predicting a winter of discontent for major markets, investors are looking to reduce risk through diversification; a key beneficiary of this will be the fine wine market. The top end of the fine wine market is self-contained and, to a large extent, separated from the financial markets, because it, much like a tracker or passive investment vehicle, shadows the movement of wealth around the globe rather than being attached to a single economy. This unique characteristic means it is less susceptible to the volatility experienced in conventional markets and makes it an appealing investment option.

The price of a fine wine can be affected by several factors, well beyond the simplicity of it being heralded as a good vintage from a reputable producer. The market is constantly evolving; more information is available to collectors than ever before – including a wealth of statistical data – upon which to base purchasing decisions.

Although collecting wine as an investment to trade in the future is not a new concept, over the past 25 to 30 years it has become one of the most popular soft commodity markets due to its flexibility, limited production, and stability. It also has an extremely strong track record of providing inflation protection, which has become an increasingly attractive quality with inflation remaining stubbornly high across many developed economies.

Fine wine’s performance in the past quarter has placed it in a good position to face the economic volatility that has already affected mainstream markets. Even within the relatively small universe of this alternative asset class, diversity thrives. The past three months were proof of the increased broadening, both within the market for older investment wines and among the new releases we’ve seen.

While there is no guarantee that price increases will continue at pace, some labels have continued to deliver great investment returns. Burgundy and Champagne seem determined to continue their ascent, but it remains to be seen for how long. The inflation pressure might prompt buyers to look for fine wines from less traditional wine regions that, first and foremost, offer value.

While the winter months will test the strength of the market, fine wine has many assets in its favour and a tipple for every investment taste.

As fine wine becomes a more popular investing option, companies such as WineCap are trying to democratise what was once only the playing field of high-net-worth individuals and sophisticated investors. By harnessing cutting-edge technology, and lower fee models, retail investors can now make the most of the fine wine’s stable and diversifying powers in the current inflationary environment.

About WineCap

With decades of experience navigating the international fine wine market via Los Angeles, Bordeaux and London, WineCap aims to democratise wine investing while offering propositions that translate into maximised profits for their customers.

Their proprietary in-house technology enables them to continually monitor the global marketplace while also tapping into many other third-party fine wine authorities, securing only the most current and reliable market data, trends and fluctuations.