According to new research from leading fine wine investment firm Cult Wines, 66% of advisers and wealth managers say certain investors should consider diversifying their portfolios though fine wine.
The study revealed that two-thirds of financial advisers feel that investor portfolios have become too heavily weighted towards equities in recent years, and 75% are concerned that these investors are over-exposed to increased levels of volatility.
The firm said that, “given the robust defensive qualities” of fine wine versus equities, 66% of advisers believe that certain investors should consider diversifying their portfolio by investing in fine wine, citing its low correlation to traditional asset classes (75%). This is supported by the increasing demand from China and other emerging markets with limited supply (57%) as key reasons for increasing exposure.
In its report Fine Wine versus Global Equities, economists at Cult Wine revealed that, during periods of economic deterioration, fine wine compares “favourably” to the performance of global equities. The company found that over a ten-year period from December 2008 to December 2017, the Liv-ex Fine Wine 1000 experienced less than a third of the volatility of the MSCI World Index, in turn providing investors with greater consistency and more stable returns.
The study also highlighted how the Liv-ex Fine Wine 1000 compared favourably to those of the FTSE All-Share index and gold future, particularly during the financial crisis and the peak of the economic recovery that followed.
Between 2008 and 2010, the Liv 1000 returned a little less than zero, whereas the FTSE All-Share lost more than 25% and gold futures dropped by almost 5%. Furthermore, during the peak of the economic recovery, the Liv 1000 returned 10%, while the FTSE All-Share and gold futures returned 9% and 8% respectively.
Commenting on the findings, Plurimi Wealth LLP partner Piers Cushing said: “While interest rates remain suppressed, ‘luxury’ investments will remain a compelling complement, or even alternative, to conventional asset class investment. This is increasingly the case for fine wine given the scarce nature of the market. With scarcity comes pricing power.”
Furthermore, the study illustrated that 69% of advisers expect their peers to become increasingly familiar with the role that fine wine can play within an investment portfolio. However, 82% of advisers stated that the availability of credible performance data that compares fine wine to traditional assets will be “key” to boosting its popularity.
Cult Wines managing director Tom Gearing commented: “With global equity markets potentially facing the end of a record bull market, financial advisers are increasingly recognising fine wine’s ability to help investors avoid downside risk. Our report shows how fine wine can act as a defensive asset class in times of economic crisis but also benefit from periods of economic growth.
“We’re seeing growing demand among advisers for data showing the relative performance and volatility of fine wine versus equities. Advisers are seeing a role for fine wine beyond a ‘passion asset’ and we expect to see growing interest among everyday investors. We’re optimistic about the future growth of the fine wine investment market. With the right expertise, investors will have significant opportunities to bolster their portfolios with a stable, defensive asset class.”
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