Investors increasingly looking to invest their cash in fine wine

Investors are increasingly looking to plough their cash into fine wine as they look to diversify their options away from equities and bonds.

Domaine Weinbach - a star producer in Alsace

More than one in four wealth managers said they expected appetite for wine investing to increase over the next 12 months as the impact of Brexit drives the sector to new highs and fuels greater demand among investors for asset class diversification and safe havens.

Since the UK decided to leave the EU in June, the industry benchmark index – the Liv-ex Fine Wine 100 index – gained 3.6 per cent to close on 269.07, the largest positive monthly movement since November 2011 and it’s the highest level since August 2013.

Sign up to our Business newsletter

Sign up to our Business newsletter

The research, published after research with UK intermediaries by Cult Wines, saw more than two in five investment managers describing wine as attractive in the medium to long term.

Nearly half of intermediaries highlighted the main reason for anticipating this increase was because fine wine acts as a diversifier to mainstream assets such as equities and bonds.

Since 1988, the compounded annual return for the most ‘investable’ wines in the market has been 10.65 per cent.

For the week following Brexit, Cult Wines’ trade sales increased by 106 per cent on the pre-referendum average figure in June and this trend has continued thereafter with particularly strong demand from US and Asian investors spurred by the fall in Sterling against the US and Hong Kong dollar.

Tom Gearing, managing director at Cult Wines, said: “Intermediaries are clearly seeing increased levels of interest in wine and in light of market volatility and poor returns; it is being recognised as a genuine alternative asset class, providing significant diversification benefits from mainstream financial markets.

“Not only can the sector provide strong returns under expert guidance but it is an enjoyable, collectible, tangible asset that has a very exciting future.

“An allocation towards fine wine provides investors with a number of guarding characteristics, and has the advantage of not necessarily following the general trend of lagging behind the rest of the market during economic expansion because demand is consistently strong. Real assets remain an attractive option as they tend to change in value independently of the core financial markets.”

The fine wine sector is worth more than $4bn annually and tend to perform well when the pound is weaker and boasts a number of defensive characteristics. Holdings in wine are not normally linked to other asset prices, with the long term correlation between wine prices and the FTSE 100 at just 0.04.

Elissa Bayer, Senior Investment Director at Investec Wealth & Investment told The Yorkshire Post: “The recent fall in interest rates and the buy-to-let tax changes have prompted many investors to re-evaluate their portfolios.

“It is not surprising that collectable real assets such as fine wine and classic cars are becoming more popular among some wealthier investors seeking diversification but these should only account for a small portion of a portfolio as they can be illiquid.”