The fizzy market in fine wine
The wine investment trade is going mainstream, says Chris Carter
Investors in alternative assets, such as art, cars and stamps, are used to a lack of liquidity. After all, the things investors collect are rare and often unique. So it follows that there aren’t a lot of them to go around in the market. That means prices can jump around, and if you want to sell something in a hurry, you may struggle to find a buyer. On the other hand, you might find lots of buyers. It’s really up to the whims and fashions of the market on any given day. That’s certainly true of collectables in general.
But Cult Wines, a leading investment manager in fine wines, released a report last week arguing that wine is less volatile than commonly thought. Cult has a vested interest in presenting wine investment in a favourable light, of course. But to make their case the authors constructed five model portfolios based around equities (60%) and bonds, spanning the ten years to 2018. To each they added 30% of either commodities, property, hedge funds, fine wine, or nothing at all. Lo and behold, the portfolio with the wine had the highest Sharpe ratio of 0.75. (The Sharpe ratio is a measure of risk – the higher the ratio, the lower the volatility.) It also produced the second-highest returns behind the portfolio with property.
Another advantage of investing in fine wine, as the report points out, is its low correlation to stocks. That would have come in handy last year when the FTSE All-Share Index fell 12.6% over the course of the 12 months. Wine actually rose in value by 9% in the year to the fourth quarter of 2018, according to the Knight Frank Luxury Investment Index.
It seems the fine-wine market has been on a tear of late. Auction house Sotheby’s has certainly been toasting the start of spring. Its worldwide wine sales in the 30 days to 9 April pulled in a whopping $47.5m. That’s $1.7m a day in auction sales. Among the highlights were a dozen bottles of Echézeaux 1989 Henri Jayer, Georges Jayer, a top-flight Burgundy, which sold for $80,600 in New York. Sotheby’s was hoping to see further success in London this week.
These days, it doesn’t really matter where an auction is held. Christie’s enjoyed a sale last month in London where nine out of ten bottles sold, for a total of £1.3m. Yet there were only around 20 people physically present in the room, since it’s now so easy to compare prices and bid on online. Such transparency creates “a virtuous circle”, Philippe Masset, a Swiss-based academic, tells The Economist. That higher level of trust in turn attracts more money and more wine into the swelling market.
The internet is also attracting a younger crowd (41% of Christie’s new clients are drawn in online). Taken together, the wine-investment market is fast becoming mainstream. And even if your vinous investments don’t turn out as planned, you can, at least, always drown your sorrows and drink it.
A bottle of whisky for £10,000
Last month, we looked at the burgeoning market in rare whisky, which soared by 40% in 2018, according to the KFLII. So Mortlach’s timing for the release of its 47-year-old single malt looks to be propitious. Since 1971, three casks have lain undisturbed at the Moray distillery, known as affectionately as “The Beast of Dufftown”.
The first yielded 94 bottles, together making up the first of Mortlach’s new Singing Stills series. The series apparently takes its name from the hum the stills make during the unique distillation process Mortlach terms “The Way”. So tuneful are the stills said to be that the distillery even commissioned Alexis Ffrench to compose a three-minute musical piece inspired by the soothing sounds.
The 47-year-old is described as “polished copper” in colour, with “tropical fruits” on the nose, and “soft, ripe fruits” on the palate, leading to a “spicy… touch of wood ash” on the finish. The bottles, sold by wine and spirits merchants Justerini & Brooks, come with a £10,000 price tag, although one bottle fetched S$50,000 (£28,000) in March at Bonhams in Singapore. You can register your interest to get your hands on the others. But hurry, you only have until Tuesday.
This article was originally published in MoneyWeek