Fine wine a ‘safe haven’ in the wake of SVB failure

Investors are looking for safe havens and diversifying portfolios  amid “significant financial market stress” and disruption in the wake of the collapse of Silicon Valley Bank (SVB), rising inflation and Fed tapering, a new report has said.

According to CEO and co-founder of Cult Wine Investment, Tom Gearing, said that the last two weeks had  highlighted the “inherent risks” that exist within the financial system, as he pointed to newly release data from Cult Wines Global Index that showed fine 6.77% compound annual growth.

“Fine wine’s performance over different market backdrops demonstrate its ability to generate alpha and improve risk-adjusted returns in a diversified portfolio due to its stability and low correlation with the equity market,” he argued.

He cautioned however that the investing in fine wine came with “unique investment challenges” including lower liquidity and the need for storage.

“It’s best to approach it as a long-term component of a portfolio through shifts in macro-economic conditions,” he said.

According to the company’s  Alternative Investment Report real assets such as wine, can form an attractive option to investors, it said, being less susceptible to changes in the economic outlook or shifts in macro policy than those based on financial instruments, such as hedge funds. Passion assets such as fine wine can also “help in a rising inflation backdrop”, it said, as collectibles “have an inherent value and typically a more stable supply and demand dynamic”.

The company cited an October 2022 report from research and analytics company Preqin, which expects the global market for alternative investments to grow to $18.3 trillion in five years – nearly double the size of the market in 2021, which was $9.3 trillion.

Moreover, the collapse of SVB two weeks ago and the more recent rescue of Credit Suisse has shaken investor confidence and “further amplified this trend away from traditional investment towards safe-haven assets like bonds and gold”, Cult Wines said. It noted that the Knight Frank Wealth Report 2023 reported that around 39% of Ultra-high net worth individuals (UHNWIs) were likely to invest in wine this year. “Interest in alternatives is on the rise and will be where wealth is grown over the coming decade,” the report said.

Greater demand likely likely to add to the performance potential of many alternative assets, it noted, especially ‘real’ assets and collectibles, which generally have fixed supply levels, with the result that growing demand exerts upward price pressure.

Fine wine has demonstrated “healthy, consistent long-term growth” against other assets, it said, and although not completely insulated from market risks, “their different market dynamics can provide a degree of insulation in the event of a sudden shock to the macroeconomic environment”.