Wine investing can be strategic (and tactical)

June 1, 20224 min read
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Key takeaways

  • Market sentiment on fine wine investing has been overwhelmingly positive, as experts consider how it’s generally less correlated to broader macroeconomic factors, such as inflation and interest rates.

  • Driven by current market conditions, there is currently a tactical approach behind fine wine collecting and trading.

  • The fine wine trade has become more streamlined over the years, with the industry working to ensure higher quality, authentic and transparent sales.

On November 6, 2021, a man by the name of Don Steiner bid $1 million for a bottle of cabernet sauvignon in an auction house in New Orleans, setting a new record for the most expensive wine ever sold. Just three years earlier in 2018, the record was half that at $558,000 for a French Burgundy, sold at 17 times the original price. 

To the untrained eye, it may seem that the yieldy returns on passion assets like wine are at best, limited to avid collectors and at worst, aided by chance. Neither is really the case. 

It’s widely recognized in the collectors’ community that there is a tactical approach behind trading rare wines, which is driving an outpouring of investor interest into fine wine investing. In response to this traction, the trade has evolved to include a certain degree of professionalism that helps ensure quality, authenticity and ultimately, good taste.

Market sentiment 

As an alternative investment, wine is one of the most popular passion assets that can help diversify a portfolio. You can find a brief history of it outlined here. 

Market sentiment on fine wine investing has been overwhelmingly positive, as experts consider how it’s generally independent of broader economic factors, like inflation and interest rates. The benchmark Liv-ex Fine Wine 100 index, which tracks 100 of the most sought-after fine wines globally, provided a 1-year trailing total return as of May 25, 2022 of 22.2%, substantially outperforming the broader market. Even during bouts of volatility, such as the COVID-19 outbreak, fine wine prices experienced shorter, less severe downturns compared to equities and faster bounce backs than securities like bonds.

A recent Goldman Sachs survey of investors also showed that 60% of respondents planned to increase their allocation of private assets, which can include alternative investments like wine. 

Looking forward, the broader wine industry is projected to balloon to $457 billion dollars by 2028, up from $340 billion in 2021, on the back of strong demand for the commodity.

Though the industry won’t be immune to the pressures facing the economy forever, there are reasons to believe there won’t be a market wide selloff.

For one thing, inflation can translate to higher returns for wine stockholders over the long term. Some analyses also suggest that wine can be an effective hedge against inflation. Because wine is an illiquid, unlevered asset, it can’t easily be sold during a market shock, mitigating sharp selloffs. 

Palette Particulars

So how has the fine wine trade streamlined over the years?

As with any other appreciating asset, investing in fine wine is ultimately informed guesswork. However, the industry has become sophisticated enough to pinpoint specific characteristics that make for an investment grade wine, with potential to appreciate over time.

Connoisseurs have determined that the value for top notch wine is derived from its quality, rarity and ability to age. The cabernet sauvignon that fetched $1 million was Setting Wines 2019 Glass Slipper, the only one of its kind and made by the award-winning winemaker from Napa Valley, Jesse Katz. Meanwhile, the previous record holder was a World War II vintage, a 1945 Romanée Conti.

Equally important is the proper storage of the most valuable bottles, reduced to a science by experts in the field. Fine wines now come with instructions on the proper cooling unit, racking and installation needed to preserve their unique tastes. Annual maintenance upkeep and insurances are also standard add ons that investors can purchase to ensure proper care. 

Meanwhile, London International Vintners Exchange (Liv-ex), a platform for wine trading, paved the way for more transparent pricing and trends over the years.

Last, and perhaps the most important way the fine wine trade has modernized over the last few years is the authentication process. Counterfeits in the fine wine industry are a multi-billion dollar issue and can take on many forms, from misattribution of origin to intentional swaps. In recent years, with more awareness of the illicit trade and passion assets like wine gaining more traction, consulting firms have formed to advise potential buyers, often staffed with forensics-level experts. Moreover, high profile auction houses like Sotheby’s enforce a rigorous authentication process, while direct buyers require certificates of authenticity from third parties before purchases are finalized. 

State of the art technology has been proposed as a way to track particularly rare bottles around the world in the future, with blockchains in particular gaining more momentum. As the previously obscure platform becomes more integrated in a wide array of industries, it’s been hailed as a perfect solution to aid the counterfeit wine industry.

Yieldstreet and fine wine

Yieldstreet has yet to enter the space, but has been offering access to other passion assets, like Art equity and debt opportunities, on its platform. 

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