Should investors consider fine wine?

Andrew della Casa, founder director of The Wine Investment Fund, considers the year just gone and the outlook for the fine wine market.

Should investors consider fine wine?

January and February saw a solid start to the year in the fine wine market. Prices rose slowly but surely in both months, leaving the main indices +1.7% (Liv-ex 100) and +1.3% (Liv-ex Investables) above their 31 December levels.

Much commentary last year was focussed on the effect of exchange rate movements  on wine prices, particularly following the UK’s vote to leave the EU (see 2016 below). The Wine Investment Fund’s (TWIF) stated view is that exchange rates certainly were an influence, but the main reason behind the 2016 upturn was solid fundamentals: increasing underlying demand (led by the revival of USA and China), tight supply (due to previous merchant de-stocking), prices which look historically cheap to the vast majority of buyers worldwide and, last but not least, favourable macroeconomic conditions.

Official statistics show that China imported 16% more wine by value in 2016 than a year earlier (+15% by volume). For the USA, Liv-ex, the fine wine exchange, reported that purchases by US merchants on the exchange more than doubled last year – and that these purchases included “a significant volume” of high-value Bordeaux. Luxury goods group Louis Vuitton Moët Hennessy noted a “rebound” in shipments to China, and strong overall performance both there and in the US.

Leading UK merchants confirmed that the rash of currency-related buying in mid-2016 led to a significant drop in stocks, in turn squeezing supply: Bordeaux Index stated that, for their sales, there was “one of the highest ratios of non-EU export vs UK storage in many years”.


There has been little variation in the performance of different châteaux in recent months, but the picture by vintage has shown an interesting change. Whereas previously the great, but very young, 2009s and 2010s had lagged the market, they are now slightly out-performing. Since they are not (by and large) being bought to drink, this might signify the beginning of a return of investment demand, something TWIF began to detect from other indicators last year.

TWIF is also keeping an eye on recent reports of a crackdown on people physically carrying wine from Hong Kong, which has zero import duty on wine, to the Chinese mainland, where import duties are still very high. Given the official duty-free limit of two bottles per person moving from Hong Kong to China, one practice was to split a full case into 6 lots of 2 bottles (plus the case itself) and employ people to take these across separately, reuniting them once on the mainland. Again, it remains to be seen whether this reported crackdown has a significant impact.


As we begin 2017, therefore, the market has favourable macroeconomic conditions, constrained supply, robust demand and prices which to most buyers still look cheap in historical terms. With inflation re-emerging, prices still below their long term trend and low stock levels, we at The Wine Investment Fund are confident of an increase in prices over the coming twelve months.

As an asset-backed investment generating above average long term returns with low volatility, wine is a useful diversifier in investment portfolios. This is the more so for UK investors investing through our EIS, with all its fiscal benefits – particularly topical as we approach the end of the fiscal year.


2016 was a remarkable year in the fine wine market. Every month of 2016 saw rises on the two main indices: they finished the year up by 24.8% (Liv-ex 100) and 24.3% (Liv-ex Investables). December’s returns were +0.4% and +0.2% respectively.

Exchange rates, and in particular the weakness of sterling against the US dollar, played a major part in the market’s recovery in 2016, but they are not the only story. Even before the UK’s vote to leave the EU, the Liv-ex 100 had risen by 8%, one-third of its entire increase in the year. Over the final two months of the year the index continued to climb, even though sterling finished the year stronger than it was at the end of October.

Setting aside currency effects, 2016 also saw strong underlying demand for fine wine in its separate (but related) roles as a consumable and as an investable asset. As a consumable, the two key markets of the USA and China appear to have shown strong growth. The US recovery is largely anecdotal, albeit alluded to by several major UK wine merchants. The position in China is much more clear-cut: figures from CIVB, the Bordeaux representative body, suggest that exports of the region’s wines to China increased by 22% from between 2015 and 2016.


As an investable asset, fine wine has benefited from its inherent characteristics (a physical asset; supply which falls as wine is consumed; demand which tends to rise as global wealth increases), but also from low returns elsewhere.

Bank of America Merrill Lynch reported that the price of ‘real assets’ (collectibles, commodities and property) relative to equities and bonds, is at the lowest level since records began in the mid-1920s. The arguments for allocating a portion of an investment portfolio to alternatives have, therefore, rarely been stronger. Amongst alternatives, wine has perhaps the best established market position, with a recognised exchange, standardised contracts, reliable pricing, etc.


Real assets, such as wine, would also be attractive in a world where inflation begins to re-emerge. There are signs of inflation from the USA, where interest rate rises are now expected; China, where producer price inflation has turned positive; and the UK, where rising energy prices and a weakened sterling will both push prices up.

The wine market itself, the Liv-ex 100 is now at its highest level since November 2011. It is still, however, 18% below its peak of June 2011, suggesting that there is scope for further increases.

Moreover, only in sterling terms were there significant rises in wine prices last year; in US dollar terms, for example, the Liv-ex 100 is just 4% up on the year, and is no less than 39% below its peak. Meanwhile, the overseas buying spree caused by the weakness of sterling in 2016 has significantly diminished UK stocks – these have the best provenance and storage history (apart from ex-Chateau stocks, which are by nature very limited) and hence command the highest prices.

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