Finance Monthly - December 2021

ult Wine Investment’s view is that alternative asset classes not only diversify an investment portfolio but de-link it from the ups and downs of the economic cycle. Fine wine in particular has seen incredible stability during some of the most economically turbulent times of our recent past. Whether it is fine art, wine, vintage cars, scotch, or even a Hermes handbag, a new breed of deep-pocketed and blue- chip investors have the ability to transform personal hobbies and interests into financially beneficial investments. As with any investment, this new asset class comes with challenges, being naturally harder to sell and more subject to personal preferences of the owner. However alternative assets often deliver higher returns than shares in stock market-listed companies. A source of stability Historically, investors have seen the price of fine wine display relative stability during periods of wider economic volatility. The most recent example of this was during the COVID-19 pandemic which hit in early 2020. Fine wine’s downturn was both shorter and less severe than most mainstream financial investments, including government bonds that saw huge volatility during this time. At its 2020 low, the global marketplace for fine wine trade, Liv-ex 1000, had only declined by 4% compared with double- digit losses in most equity markets. Even assets that are traditionally considered ‘low- risk’ such as gold, saw greater price swings over these periods. Fine wine also tends to recover quickly and deliver positive real returns even during periods of higher inflation, such as we’ve seen in 2021. The reason for such stability is due to a number of factors including supply constraints. Only specific vineyards that can produce top quality wines, creating a market of product scarcity. This means that the fine wine market cannot be oversaturated with supply, as with other asset classes such as cars and watches. This demand-supply balance is aided additionally by the fact that leading producers only make a finite quantity of each vintage each year, with volumes strictly controlled by various authoritative bodies. Consequently, supply of fine wine cannot change by sudden shifts in policy the same way government and central bank policies can influence financial markets. With supply constricted, this can help keep price performance Inve s tmen t 44 Finance Monthly.