We believe fine wine can satisfy this description of a favourable alternative investment. Its stability and low correlation make an investment portfolio more defensive against market risks. Fine wine’s track record of providing returns through different market backdrops demonstrates its ability to generate alpha, a term describing an investment’s outperformance versus the wider market.
Inclusion of fine wine improves risk-adjusted returns
Model portfolio performance 28 Feb 2018 – 28 Feb 2023
Source: Investing.com, Wine-Searcher as of 28 Feb 2023. Fine wine = Cult Wines Global Index; Equities = S&P500(TR); Gov’t bonds = iShares 7-10 US Treasury Bond; Corporate bonds = iShares High Yield Corporate Bond; Commodity = Bloomberg Commodity Index. Model portfolios are for illustrative purposes only. Actual performance may vary. Past performance is not a guarantee of future returns.
Of course, fine wine and other alternatives bring unique investment challenges, such as lower liquidity, storage, or fixed increments to invest. However, compared to some other alternatives, fine wine can offer relative flexibility.
For one, wine offers a relatively accessible entry point; investors can gain access to fine wine markets from as little as a few thousand pounds or even less to begin. Even other collectibles such as art or classic cars come with larger increments of investment. Many other real assets must be sold at once, whereas wine investments can easily be sold in variable sizes at different times.
As with any investments, past performance does not mean results will be replicated in the future. The Cult Wines Global Index history shows that fine wine does experience performance ups and downs and will do again like any investment.
But the reasons we outlined in the Fine Wine’s Credentials article indicate why we believe fine wine can continue to enhance the return potential and reduce risk in a diversified portfolio over a long-term period. Rather than increasing or decreasing exposure depending on the prevailing outlook, fine wine works best as a long-term component of a portfolio through shifts in macroeconomic conditions.