In the midst of weakened investor confidence due to market volatility, fine wines – as an alternative investment – can effectively reduce investment risk and increase the total returns of an investment portfolio, according to the 2019 Fine Wine Investment Report released by Cult Wines, a global wine investment firm.
In terms of long-term investment return rates, the LIV1000 index – which is widely recognized by domestic and foreign wine investors – has seen an annualized return rate of 6.9% over the past ten years (December 2008 to December 2018), while the CSI 300 saw returns of only 3.2% in the same period, according to the report.
Furthermore, the risk of fine wine investment has stayed at a relatively low level during the US-China trade tensions and even a longer duration of three to even five years, implying that wine investment performance and stock market movements have a negative correlation – showing that wine investment is capable of achieving significant returns and asset preservation in a volatile market.
The report also shows that at a time when investors are growing more conscious of risk, they may better withstand the impacts of unfavorable market factors through appropriate asset allocation, by adding fine wine investment to their portfolio.
For instance, over the past three years, when compared to an investment portfolio with 60% cash and 40% CSI 300 stocks, an overall investment return rate with 30% fine wine or gold allocation is much more preferable. Fine wine in particular has been found to outperform the traditional safe-haven asset of gold when it comes to investment returns.
Tom Gearing, managing director at Cult Wines, says, “Fine wine investments provide an attractive and sustainable investment option for investors who are looking to expand their investment portfolios or diversify their global asset allocation. During this period of economic crisis, allocating fine wines can play a defensive role and avoid market risks to some extent."
"During economic booms, fine wine investment continues to enjoy stable performance, supported by investors' demand for luxury goods boosted by their rising wealth. Even when there is downward pressure on the global economy under turbulent global situations, consumer demand for fine wine tends to be mostly unaffected, making fine wine one of the most compelling alternative assets that can’t be ignored,” says Gearing.
Cult Wines also officially opened a new office in Shanghai, its first office in mainland China, to tap opportunities arising from the increasing demand for fine wine investment in China. The company, founded in London, has also opened offices in Hong Kong and Singapore.
“With the rise of wealthy and HNW individuals in China, we see further enhancements of knowledge in wine and wine tasting, as well as an increasing demand for fine wine. HNW investors are paying more attention to asset retention and wealth management with their preferred risk tolerance and corresponding portfolio diversification and optimization strategies, creating new opportunities to invest in fine wines,” says Gearing.