A provider of wine-based investments has claimed fine wines have the capacity to protect investor portfolios in times of market strife but an investment adviser claims this is far from the full picture of ploughing cash into plonk.
Cult Wines cited the performance of an index tracking the prices of 1,000 wines from around the world, called Liv-Ex Fine Wine 1,000, as showing the value of investing cash in the alcoholic beverage when other markets are tumbling.
In its new report, titled Fine Wine versus Global Equities, analysts at Cult Wines calculated that during periods of economic deterioration fine wine compares favourably to the performance of global equities.
According to Cult Wines' analysts, over a 10-year period from December 2008 to December 2017 the Liv-ex Fine Wine 1,000 experienced less than a third of the volatility of the MSCI World index, providing investors with greater consistency and more stable returns.
Between 2008 to 2010, the Liv 1,000 returned a little less than zero, whereas the FTSE All-Share lost about 25 per cent and gold futures fell almost 5 per cent.
Over the period spanning 2015 to 2017, on the other hand, according to Cult Wines analysts, the Liv 1,000 returned 10 per cent, while the FTSE All-Share returned roughly 9 per cent and gold futures 8 per cent.
Tom Gearing, managing director of Cult Wines Ltd, said: "With global equity markets potentially facing the end of a record bull market, financial advisers are increasingly recognising fine wine's ability to help investors avoid downside risk.
"Our report shows how fine wine can act as a defensive asset class in times of economic crisis but also benefit from periods of economic growth.
"We are optimistic about the future growth of the fine wine investment market. With the right expertise, investors will have significant opportunities to bolster their portfolios with a stable, defensive asset class."
He said the firm had seen growing demand among advisers for data showing the performance and volatility of fine wine versus equities.
Piers Cushing, partner at Plurimi Wealth, had told it luxury investments were a compelling alternative in times of low interest rates.
But Patrick Connolly, chartered financial planner at Chase De Vere, said while there can seem to be a good story for investing in alternative investments and headline performance figures for fine wine seem strong, it is important that investors fully understand the downside risks.
He said: "These investments are unregulated, which means that investors cannot fall back on the Financial Services Compensation Scheme (FSCS) or any other body if their investment goes wrong.
"Investing in wine has further drawbacks including being potentially illiquid (no pun intended), so investors may not be able to sell when they want and at the price they want, requiring expert advice and having transaction and other costs which might be steep.
"In addition, they don't produce any earnings or income and so price movements are based solely on supply and demand.
"This means there can be some big upward or downward fluctuations if there are changes in the economic environment or if a certain wine vintage comes in or out of favour.
"So what you get is an investment which is unregulated and illiquid, with potentially volatile performance, high costs and that produces no income. This isn’t exactly attractive to most investors."
david.thorpe@ft.com
