The age old adage is that wine tastes better over time. Interestingly, the same can be said about wine as an investment. Estimates from consultancy Knight Frank put the market value for fine wine at US$686 billion ($921.8 billion). This comes as the price of fine wine appreciated by 127% in the last decade, outperforming the corresponding gains enjoyed by luxury handbags, coloured diamonds, new chip art and even rare furniture.
At this rate of appreciation, the annualised returns for fine wine came in at 13.6% over the past 15 years. Anthony Zhang, CEO of wine investment platform Vinovest says other benefits of wine investing include being inflation and recession resistant, having low volatility, as well as a low correlation with traditional markets. Collectively, these factors portray wine investing as a good medium for one to diversify his/her overall investment portfolio.
Yet, just like many traditional asset classes, what drives the price – and eventually the returns of fine wine – is the economics of demand and supply. “The quality and scarcity of fine wine appreciates over time, and so does its value. That is the underlying principle of investing in wine,” Zhang explained in The Edge Singapore’s inaugural Alternative Investments webcast which aired on Jan 24.
Demand for fine wine – for both investment and consumption – has been growing steadily in Singapore and around the world, with more people signing up for tastings or even taking up wine appreciation workshops. Zhang notes that even countries like the United States which do not typically have a culture of enjoying fine wine, have been seeing higher demand on a per capita basis. Similarly, Asian clients and collectors have been a “source of driving a ton more demand to wineries,” he quips.
However, there are often difficulties for the supply of fine wine to match the demand. Being an agricultural produce means that wine production is largely dependent on weather conditions. This means that the harvest sizes differ across batches depending on the prevailing weather conditions. “Wineries are at the mercy of mother nature [because] there is going to be good years and bad years [which will in turn cause] harvest sizes to vary,” notes Zhang.
With major wine growing regions getting warmer as a result of climate change, the harvest sizes have been consistently lower over a longer time frame, observes Zhang. This has in turn caused smaller wine production levels and a resultant spike in prices, he adds.
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Colder regions that have traditionally not been deemed suitable to produce wine are now stepping up to make up for the shortfall. These include regions like the United States, parts of North America, South America and some parts of Europe. “We are really seeing great, world class wines being made in the colder regions, so in my mind really when one door closes, another opens,” mulls Zhang.
These are positive developments for the industry as a whole, given how these new producing regions have sparked “exciting change and opportunity to what is normally a pretty slow moving and stable wine market,” says Zhang.
To this end, market watchers have penciled a 5.8% CAGR (compound annual growth rate) for the global wine market between 2019 and 2024. This comes on the back of a 17% appreciation in the value of wine between 2019 and 2020 and 34% between 2020 and 2021.
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The world-famous Screaming Eagle is brewed in the southern part of Napa Valley. (Image Credit: Jason Tinacci)
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Even as the fine wine market looks forward to new opportunities, there have been concerns that wine investments come at a steep price that only the ultra-rich can afford. That might be true for certain rare and highly-valued vintages. However, wine investing has increasingly become more accessible for people.
Zhang says this paradigm has been changing over the past decade with technology democratizing the process such that it is more seamless. For one, the Vinovest platform serves to lower the barriers to investing in wine by abstracting the challenges that come with transporting and storing physical wine bottles. “Buying a single bottle of wine is unattainable to most people. I felt that way too when I first started investing which is why I started Vinovest,” says Zhang.
To get started via Vinovest, investors just need to have a minimum balance of US$1,000 on the platform (below). Going through Vinovest means that investors do not need to take on – what Zhang calls – the ‘headache’ of building their own wine cellar. Depending on the size, such facilities could cost around US$33,000 for the construction and upkeep of a climate-controlled storage that is away from sunlight and has constant temperature of 10 to 15°C.
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Depending on the size, the set up and upkeep of a wine cellar could cost around US$30,000 (Image credit: Shutterstock)
While storage is a major barrier, there are other benefits of investing through the platform. These include authentication (or making sure that what you bought is not fake) and knowing what the fair market value for the wine is so as to avoid overpaying or underselling. Other pluses include saving on the fees involved in buying and selling at an auction house and knowing which wines will appreciate to avoid making a bad investment.
Aside from this, a platform like Vinovest allows investors to make their investments at the swipe of their smart phones, without having to worry much about the physical infrastructure of where the wine is stored, quips Zhang.
Vinovest now offers an actively managed fund that is benchmarked to the Liv-ex Fine Wine 1000 index and bespoke strategies customised around a time horizon or ESG (Environment, Social and Governance) preferences. “The purpose of having the fund is to give professional investors—family offices, broker/dealers—the opportunity to easily diversify into wine as an asset class for their clients,” notes Zhang.
In addition to investing in physical wine bottles, investors can also try their hand at investing in blue-chip alcohol stocks and funds. These include scooping up units in counters like Constellation Brands and Diego.
When pressed on whether it is better to invest equities of wine producers or physical bottles – Zhang stressed that they are both very different in nature. For instance, investing in a wine stock is equivalent to investing in the company’s business operations which includes the set up and upkeep of its winery as well as the shipment of the wines to customers. “This would require investors to have a lot of confidence in the company and people running that business,” he adds.
By contrast, Zhang says that investing in wine bottles is “much more simple” since the cost of production is already priced in. “All you have to do then is to hold on to the bottle and let it age for the next consumer to enjoy”.
So, what percentage of an individual’s portfolio should wine investments make up?
That really depends on what time horizon an investor wants to work with, says Zhang. For instance, wine investing may not be the right fit for someone looking to get their money in two to three years. However, it would be viable for investors going in for the longer-term due to the diversification benefits it allows.
“[Investors should] come in knowing what they want in terms of returns, how much allocation they want to put in and what time horizon fits them. Once you these expectations of yourself, I think you will be able to find a solution that is tailored for you, with Vinovest,” stresses Zhang.
Vinovest offers several portfolio plans (Image credit: Vinovest)
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