2015 was the least volatile year in the history of the market’s two monthly indices (since 2001 for the Liv-ex 100 and 1993 for the investables) as measured by the standard deviation of monthly price movements and by the gap between the lowest and highest index value during the year.
Fine wine prices finished 2015 on a lively note, with all the main indices rising in December (the Liv-ex 100 increased by +0.6% and the Liv-ex investables by +0.4% ). Over the year as a whole the 100 was effectively flat (-0.1%) and the investables slightly up (+1.4%).
This stability comes against a very difficult backdrop. Many major equity markets fell in 2015 (e.g. FTSE 100 at -4.9%). The bigger story was amongst other commodities. Of the 22 physical assets tracked in Bloomberg’s headline Commodity Index, only one (cotton) rose during 2015, while the index as a whole fell by 25%. Gold was down by 12% and oil by 33%. While fine wine certainly has the potential to rise rapidly in value, it was its more defensive qualities which came to the fore in 2015.
December saw a major change in the economic environment as the US raised interest rates for the first time since June 2006, with further increases promised in 2016. This should be positive for wine prices for two reasons. First, higher US interest rates should mean a stronger US currency, and also other currencies closely related to USD (e.g. the Hong Kong dollar and the Renminbi). That has indeed occurred since the Fed’s move, and probably benefited the wine indices in December. Second, it suggests that inflation is finally becoming a factor once again. Wine, as a physical asset whose value is not eroded by inflation, should benefit.
December’s positive figures came despite several large auctions around the world providing a level of additional supply which might have kept prices depressed. Sotheby’s ‘Sale of the Decade’ saw prices generally in line with expectations. Results for the 2000s vintages were strong. Many wines from that vintage sold for above wider market prices: e.g. Cheval Blanc (sale price £6,110, wider market £5,800). Liv-ex’s exchange, however, recorded gains across a wide range of vintages 1995-2010.
“After five difficult years we are, at The Wine Investment Fund, naturally cautious about prospects for 2016,” said Andrew della Casa, director, The Wine Investment Fund.
“There are reasons to be optimistic. US interest rate rises bode well for the fine wine prices. In the market itself, the anomalies caused by China’s entry and withdrawal have disappeared. The general trajectory of prices – a flat 2015 after four years of falls – suggests that the next move may be up.
“Finally Bordeaux has a strong vintage, the 2015s, to launch in the spring. After four poor en primeur campaigns, this year’s can do little harm to wider prices and just might benefit them. The downside risks, therefore, seem limited.
“2015 suggests that the current level of prices is sustainable, even when the wider environment is adverse. All in all, the outlook for the asset class appears positive.
“An investment in fine wine continues to make a very useful addition to a wider investment portfolio. Investors may also profit from the fiscal benefits of our EIS (30% income tax relief and carry back provision, no CGT, no IHT and CGT deferral), thereby locking in substantial downside protection to their investment.
“The fundamentals of fine wine as an asset remain sound and we remain optimistic for the long term.”