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Fine wine outperforms property over 20-year period

Proof that fine wine is a safe and lucrative long-term investment has emerged in a new comparative analysis from Liv-ex.

Pitching leading labels against the major asset classes of property, equities and gold has shown that fine wine has the highest compound annual growth rate over a 20-year period.

Liv-ex has used its recently launched Fine Wine Investables Index, which tracks fine wine prices back to January 1988 and looked at the performance of property, equities and gold over the same period.

As the table below shows, wine has the highest CAGR of all the assets listed, at more than twice the level of its nearest competitor, property. The best investments are those that combine both high returns and low volatility and it is interesting to see that fine wine also shows the second lowest volatility, behind only property.

When considering alternative investments such as wine it is also important that the asset is able to demonstrate low correlation with mainstream options if it is going to act as a useful portfolio diversification tool. This analysis shows that wine has a tiny positive correlation with equities over our 20-year period, and a similarly small negative correlation with property and gold.

Each of the asset classes in the Liv-ex analysis is represented by an accepted benchmark – the FTSE 100 Index, the Halifax House Price Index, and the London PM Gold Fix, respectively – all priced in GBP. Liv-ex measured returns by comparing the CAGR of all four assets classes since January 1988. Volatility was compared by looking at each series’ annualised standard deviation over the same period. This data was then used to analyse the correlation to wine shown by equities, property and gold.

Liv-ex point out, however, that the stated CAGR for the FTSE 100 Index does not take account of the income from dividends, and the house price index the income from rent. Similarly, the cost of upkeep (for property) and storage (for gold and wine) should be equated when looking at potential returns. High potential transaction costs, particularly for property and wine, should also be considered.

Nevertheless, the fine wine exchange concludes that these results clearly show that wine has been an extremely worthwhile investment in recent decades: showing excellent growth, low volatility and limited correlation with mainstream assets.

Index/commodity                                  CAGR¹     Volatility²     Corr³    

Liv-ex Fine Wine Investables Index     12.60%     11.78          NA
FTSE 100 Index                                    4.30%      14.75          -0.12
London Gold PM Fix                             4.10%       15.71          0.02
Halifax House Price Index                    5.50%       3.16           -0.04

Sources (top to bottom): / /
1. Compound Annual Growth Rate: Jan 1988 to May 2009
2. Annualised Standard Deviation: the lower the number the lower the volatility
3. Correlation (Pearson) with the Liv-ex Fine Wine Investables Index: 0.5 to 1 equals high positive correlation, -0.4 to 0.4 suggest a low correlation and -1.0 to -0.5 a high negative correlation

For more information on this see August’s edition of the drinks business.

Patrick Schmitt, 23.07.09

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