It is increasingly viewed as one through which to launch alternative investment vehicles as individual investors look for assets able to hold their value in the current environment.
Institutional investors are also seeking alternatives in line with liability driven investment objectives, as well as matching assets and liabilities for regulatory purposes over the extreme long-term - a particular issue for pension funds. So a product like fine wine, which can be stored for decades, is increasingly being viewed as a viable alternative financial asset by institutional investors.
Prices have risen 14 per cent per year since 1950 and the Liv-ex 100, a barometer of prices for the most acclaimed wine, has performed well when compared with western and emerging equity market indices, rising by 11 per cent per annum since 2001, according to data cited by Wine Asset Managers.
Wine has been noticeably less volatile when compared with emerging market equities and gold. Even during the second half of 2008 fine wine on average faired relatively well despite a prolonged period of outperformance leading up to it.
Relative performance - 3 years
Source: Financial Express Analytics, gross bid-bid, local currency
Average annual % return for wine since 1950 (gross)
Source: Wine Asset Managers
Wine Asset Managers' co-founder William Beck believes that the fine wine market is currently ripe for investment.
He says that the strong relative and absolute performance is expected to continue in the medium to long-term owing to increased growth in demand from established western markets as well as strong demand growth from emerging economies, notably those of China and others in the Far East.
It is a trend that takes place against a background of strictly fixed supply of fine wine - as a vintage matures and is consumed, its value increases to reflect the growing scarcity.
Beck explains: "Fine wine is a rare commodity for a number of reasons. In normal market conditions, prices of the great wines in the best vintages are consistently driven up by increased global demand versus decreasing supply as the wines mature."
WAM currently manages two wine funds. The Fine Wine Fund has returned 18 per cent since inception in 2006. It requires a minimum investment of £50,000, management fees of 2% and a 15% performance fee.
The Fine Wine Investment Fund is an offshore mutual fund which requires a minimum investment of $100,000 and is targeted at institutional investors. Launched in September 2007 it has returned -16 per cent to the end of 2008 (fully hedged , +16 per cent for 2008 in sterling terms) and about 1 per cent year to date in 2009.
The Caymans-domiciled Vintage Wine fund from OWC Asset Management has a minimum investment of €250,000, 2% management fees and a higher 20% performance fee. UK-based OWC reports the value of shares in its fund returned 4.61 per cent through January 2009, and 29.9 per cent since inception in February 2003.
Against global commodity and energy indices the performance of top clarets over the past year has been strong, according to data on the Guernsey-domiciled Vinum Fine Wine Bordeaux fund.
These, together with other more recently launched wine funds from providers such as Arch and Curzon, have produced what might be called a mix of non-vintage, but in certain cases stable performances.
Different fortunes
Source: Financial Express Analytics, gross bid-bid, local currency
Beck explains: "Very occasionally major economic upheaval leads to a downward correction in fine wine prices as a temporary increase in supply occurs when collectors sell down their portfolios. Wines that are usually very difficult to find become temporarily available and at lower prices. These conditions do not tend to last long and such periods have historically provided the most attractive point at which to invest in what is already a very compelling long-term proposition. "
According to Beck the current economic upheaval means that the sterling based secondary market is looking extremely attractive to overseas buyers, particularly in China which recently scrapped high import duties, seeking to wrestle control for the lucrative Asian market from London. Demand from the Middle East should also keep the market buoyant, Beck says.
Other performance measures
Other data cited by WAM demonstrates that the return on risk compares favourably against other assets. It says fine wine has a low standard deviation compared with equities and low downside standard deviation, making prices extremely stable and inclined to rise.
Performance – returns and volatility since July 2001
| FTSE | Gold | UK Property | Fine Wine | |
| Average monthly return % | -0.16 | 1.48 | 0.51 | 0.94 |
| Annualised return % | -3.7 | 18.0 | 5.9 | 11.2 |
| Annualised standard deviation% | 13.0 | 14.9 | 3.2 | 9.4 |
| Downside standard deviation % | 9.1 | 6.1 | 1.9 | 3.2 |
Beck advises investors to take a five-year view when considering whether to seek exposure to a wine fund.
He points out that unlike the FTSE 100 or gold there has been no negative rolling 5-year period for wine in the last two decades.
Rolling 5-year average annual return
| Year | FTSE 100 | Gold | Fine Wine |
| 1987 | 17% | 1% | 13% |
| 1993 | 14% | -1% | 7% |
| 1998 | 11% | -6% | 19% |
| 2003 | -5% | 8% | 3% |
| 2008 | 0% | 16% | 16% |
Wine also has a low correlation versus other asset classes. Beck explains: “The correlation between the performance of the Liv-ex 100 Index and other asset classes remains low, which is partly explained by the lower volatility, but is mainly the result of the unique fundamental characteristics of fine wine as an investment. This suggests that it represents a genuine form of diversification for institutional and private investors who are looking to achieve above average returns."
Live-ex 100 index monthly correlation with other indices since 2001
Source: Wine Asset Managers, Live-ex.com, Bloomberg, MSCI, Laxey Partners
Liv-ex 100 versus selected indices
Source: Live-ex.com, Bloomberg, MSCI, IPD UK Quarterly Property Index.