Diversify Fine Wine to capitalise on Brexit

Investors need to keep a broad and diverse portfolio of fine wines to maximize their return in the wake of the Brexit vote, new research by Vin-X has demonstrated.

The recent study by the fine wine investment management company looked at twenty-five of the top performing Bordeaux wines from the top twenty chateaux in the Liv-ex Power 100, analysing the performance of the prime, mid and off-vintages across the First Growths, Second Growth, Super Second and Right Bank wines to show how they had fared since 2008.

It showed a shift in the market, with a large variation of how the wines performed over the eight years, demonstrating that the best wines to have held in 2008 were not the same as the best wines to hold now.

Vin-X’s head of procurement Martin Pruszynski, who wrote the report, noted that between 2008-11, Off Vintage First Growth and their Second Wines performed most strongly, while the falling market between 2011-14 saw Off Vintage Super Seconds and Right Bank wines performing better, albeit in a narrower range. For the two years to 2016 and into 2016, mid vintage First Growths and their Second Wines outstripped the others.

“This emphasizes the need for a broad portfolio, varied not just be region but also by vintage and by extension quality,” he said.

Peter Shakeshaft, founder and CEO of Vin-X argued that a mixed selection was essential to drive growth and minimize risks, and would enable investors to capitalize on the boom in fine wine caused by the Brexit vote.

“With no clear end in sight to the current volatile financial and economic conditions, investors are expected to continued to seek safe havens like fine wine, for their capital. But you need a reasonable spread of and exposure to multiple sectors,” he said, adding that “people are bewildered by fine wines and crave good factual information that helps demystify it.”

The Angelus estate © Chateau Angelus

The volatility of sterling induced by the Brexit vote had helped fine wine investment he noted, making wine store store in the UK “affordable to the rest of the world”, but he warned that this would only last for a certain amount of time, noting that falling sterling was already affecting drinking wine and could affect investment-grade wine at a later date.

In the longer-term, it was likely that fine wine would become more of a holding asset for currency play than a ‘drinking asset’, he noted, especially with growing interest from China and India, and free-trade deals with countries such as Canada broadening the pool of investors and taking fine wine investment more “mainstream”.

“Alternative assets are becoming the assets of choice for the ultra high net worth client, and has been growing year-on-year,” he added.

Prime Vintages turnaround

Pruszynski argued that although prime vintages had not been the best performing in recent years, there were reasonable reasons to see that that could change in the next five to ten years, influenced by the retirement of Robert Parker and the changing demand and maturity of the Chinese market – although he said it was by no means certain.

“There are reasons to think that this might be the case. The retirement of Parker means the drip feed of 100 point wines are likely to stop in a meaningful way,” he noted. “With fewer 100 point wines, they are now an asset that will be diminishing in their availability, having had a number available in the 2009-10 vintage.”

“It is reasonable to suggest that as Chinese investor get more used to the market and, as it has more penetration and tradition, it becomes a more quality focused market. So we might reasonably expect to see prime vintages become the best performing, although there is no guarantee.”

Wines analysed in the report included First Growth chateaux Haut-Brion, Lafite-Rothschild, Latour, Margauz, Mouton-Rothschild and their Second Wines including Clarence Haut Brion and Carruades Lafte, as well as Super Seconds such as Beychevelle and Right Bank chateaux Angelus and Pavie.