Fine wine returns outperform UK blue-chips and gold
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Fine wine investors will be raising their glasses as their returns for the year are set to outperform UK blue-chip shares and gold. The index charting the movements of 1,000 leading fine wines on the secondary market, the Liv-ex 1000, had gained 11.3 percent at the end of November in pound sterling terms from the start of the year, setting a record high thanks to increasing interest in wines from Burgundy and Italy. This compares with pound-denominated gains of 1.4 percent for gold in sterling terms and a return of 6.6 percent for the FTSE 100 by the same local currency measure, which also includes the reinvestment of dividends for the year ending November 30. Fine wine merchants in the secondary market are predominantly based in London and the market is traded in sterling. However, thanks to the weaker dollar, a US-based wine investor would have seen a gain of 21.8 percent in the Liv-ex 1000 calculated in dollars, beating the S&P 500’s total return of 20.5 percent at the end of November. In dollar terms, gold had risen 11 percent for the year at the end of last month. “Buying interest broadened beyond Bordeaux, pushing up prices of Burgundy and Barolo wines,” said Ed Jackson, the analyst at Liv-ex. Chinese buyers, who had deserted the fine wine market after Beijing’s anti-corruption and austerity campaigns, have been returning, say wine experts. Once solely focused on Bordeaux reds, the Chinese market for fine wine is maturing and diversifying into other areas in France, such as Burgundy. “Australian wines are becoming quite big, like Penfolds,” said Mr. Jackson, adding that the free trade agreement between China and Australia had also helped demand. Oenophiles outside of China also showed interest in wines outside of Bordeaux. The main catalyst for the rally has been the Burgundy market, where production at the wineries tends to be much smaller compared with Bordeaux. Reports confirming a small 2016 harvest in the region also spurred buying of top Burgundy wines. The Liv-ex 100, the narrower index that tracks some of the most actively traded fine wines, rose 5.4 percent for the year to end-November, fluctuating on the value of pound sterling. Fine wine prices saw a bounce last year after the UK’s EU referendum when sterling plunged. Prices continued to rise until the pound strengthened in April this year, which brought the Liv-ex 100’s 16-month winning streak to an end. A strengthening euro during the summer encouraged buying while Asia based investors have been stocking up ahead of the Chinese new year, according to Liv-ex. The broadening of the market is expected to continue into next year with more wine merchants trading an increasing number of wines, says Liv-ex. Andrew della Casa, the co-founder of the Wine Investment Fund, expects that the market has room to rise further. “I expect the market recovery to continue at least to trend and possibly beyond,” he said. Liv-ex warned that there were several uncertainties which could affect prices next year. Volatility in sterling, which is down 3 percent against the euro since the start of the year, is one leading factor, especially as Brexit negotiations progress. Another is the departure of the respected wine critic Neal Martin from The Wine Advocate magazine, founded by the wine guru Robert Parker. Mr. Martin, who took over Mr. Parker’s main tasting responsibilities, announced his exit last month and will join the wine website Vinous in February next year. Mr. Parker’s tasting scores could make or break a Bordeaux vintage and the departure of Mr. Martin could mean that the market has lost a key influencer of prices, says Liv-ex. When Robert Parker stepped back, the importance of the critics’ ratings declined, “but the scores can still affect the prices”, said Mr. Jackson.

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