The days following Brexit have been marked by volatility in the stock markets and a falling pound
Amidst this turmoil, fine wine as an asset class looks to be a safer bet. Importantly, overseas demand for fine wine tends to increase as the pound falls, because fine wine is sterling denominated. Although it has rallied since, on Monday the pound reached a 31-year low against the dollar, trading at $1.3148.
With the political and economic uncertainty likely to continue for a while yet, a stable and stronger pound is no sure thing. With this in mind, cheaper sterling should boost demand for the Wine Investment Fund. For example, although its Bordeaux wine prices are set in sterling, its consumers are mostly based abroad.
An early indication of this could be seen prior to the British EU referendum; as the financial world and various polls mistakenly predicted a Remain vote with greater (misplaced!) confidence, the bid to offer ratio on the Liv-ex, the fine wine exchange, declined below 1. As reality dawned on Friday, however, the ratio increased markedly to 1.5, on the back of a surge in dollar- and euro-denominated buyers. A similar phenomenon also occurred in February, when a weak sterling encouraged dollar/euro buy-ups.
As well as attracting foreign buyers, the current fluctuations in sterling exchange rates have also driven investors to stash money in wine, as a sanctuary
There is a long-term (28yr) trend for fine wines to outperform other, more traditional asset classes, such as gold, oil and equities. In addition to these superior returns, fine wine as an asset is associated with lower volatility. Being a physical asset, fine wine is also impervious to value erosion as a result of inflation.
It shows little correlation to more traditional assets, which suggests it can provide portfolio diversification and reduce risk. Despite a 36% price drop followed by market stabilisation from 2011-15, the asset class appears to be on the up, with a 6.7% increase so far in 2016 (as of May). In addition, annualised returns of around 7% have been recorded in the fine wine market since 2003.
The index history of the Liv-ex 100 shows that the market is currently significantly below the trend, but has experienced an upturn since the start of 2016 as mentioned above, resulting in consecutive gains since January.
The Wine EIS
The Wine EIS Company or to give its actual name, Huntsman Wine EIS Limited (the ‘Company’), is the sister investment of our Wine EIS Fund, an asset-backed investment. The Company is promoted by Enterprise and asset managed by Anpero Capital Limited, with a management team with over 60 years’ experience in the market.
The management team, comprising Andrew della Casa, William Grey, Chris Smith and Rodney Birrell, have between them experience ranging from fund management and wine trading through to corporate finance law and fine wine research analysis.
The wine is held in UK government bonded warehouses, with replacement value insurance and excellent storage conditions. Wines traded by the company are solely investment grade, from sought after vintages and with substantial ageing quality.