Fine wine floating in a turbulent market

The premium wine segment is a springboard for high net worth individuals looking for a hedge.

© Shutterstock | The value of the world’s best wines is steadily increasing despite volatile economic conditions.

The global economy has been in deep turmoil this year, with higher-than-expected inflation, increasing interest rates, and in the world’s three major economies: the United States, China, and the eurozone.

Not surprisingly, stocks are down, too: the S&P 500 is down 17.02 percent, the Dow Jones Industrial is down 13.29 percent, the S&P MidCap 400 is down 14.46 percent, and the S&P SmallCap600 is down 15.53 percent year-to-date. end of August.

In many areas of the economy — real estate, household goods, electronics, personal care, and appliances — sales are stagnating. But interestingly, not only is fine wines in high demand, some experts say investing in fine wines is an excellent hedge against the kind of turmoil we’re seeing now.

Read on for insight into how good wine is, and why now might actually be the perfect time to invest.

The price of wine, on average, is remarkably stable at the moment, given what is happening in other sectors of the economy.

Unlike, say, the price of fuel (which is up more than 106 percent year-over-year at certain points this year, according to the Consumer Price Index), airline prices (more than 37 percent) or men’s outerwear (higher) More than 22 percent), the price of wine in general is already declining.

According to data from the US Bureau of Labor Statistics, the average price of table wine in July of 2022 ($13.33) is down 2.1% from its April 2021 high ($13.62).

Increase premium sales

While wine prices in general remain relatively stable, the wines that sell the best land at the higher end of the scale are pricier.

Consider the Direct-to-Consumer Wine Shipping report, which aggregates data from SOVOS ShipCompliant and Wines Vines Analytics: Overall sales were down 9 percent, but value was up 3 percent to $1.95 billion year over year. Sales of wines of $100 or more rose 34.2 percent in value and 36.1 percent in volume, while sales of wines of $30 or less fell 9.4 percent in volume and 8 percent in value.

Wine lovers have certainly been consumers when it comes to wines from Oregon and Napa. In Oregon, the value of DTC shipments was up 18.7 percent, with just 12.9 percent up in volume, and the average price per bottle up 11.8 percent. In Napa, DTC shipments were up 18.8 percent in value, and just 4.1 percent in volume terms, meaning the price of a bottle was significantly higher year over year, according to SOVOS.

According to a DTC report for the second quarter of 2022 from Enolytics and Wine Direct, fine wines $90 and up enjoyed sales of 32%, while prices for bottles of $20 and lower were down 1%.

“The more expensive wine, the higher the share of male consumers,” says Chris Huyge, co-founder and lead analyst for wine data aggregation service Enolytics. “Many of them tend to be collectors and are less affected by economic factors. Lower priced wineries have a larger consumer base of millennials and women who have less disposable income and are therefore more affected by economic factors.”

Small-scale individual wineries, such as the Wentworth Vineyard and Ranch in the Anderson Valley, enjoyed a 240 percent year-over-year increase in sales.

“There’s more demand for the wines I make than we’ve seen before,” says co-founder Mark Wentworth. “My business is certainly relatively small and there are many factors driving growth, among them, most notably, I think wine is very good. And the story of growing viticulture on raw lands instead of buying grapes intrigues many, which is where our organic farming and conservation work is.”

Wentworth, whose wines sell for between $52 and $114, notes that the strongest growth is DTC and wholesale channels through distributors.

For 8,400 Seña Cases, a collaboration between Eduardo Chadwick and Robert Mondavi in ​​the Aconcagua Valley, Chile, sales are up 25 percent year over year. Seña offers one wine – Seña 2020, at $150 a bottle.

“We’re seeing a very positive trend in the US and Asia,” says Michael Kotolink, vice president of sales and marketing at Sina. “We strongly believe that the premium product market in the United States has great potential for us, and we’re just beginning to capitalize on he-she.”

Luxury spending rises

Arguably, the average person who picks out a great bottle of wine on a random Tuesday has more purchasing power than ever before.

A report by Oxfam International revealed that the gap between fanatics and others has grown during the pandemic, as the world’s ten richest men doubled their fortunes from $700 billion to $1.5 trillion during the first two years of the pandemic. (This represents an accrual rate of about $15,000 per second.)

Spending habits are likely to continue apace, despite the poor economic outlook. Bain, the consultancy, expects sales of luxury goods, from high-end watches to Château Mouton-Rothschild bottles, to increase 5% this year.

In addition to buying delicious bottles from the Democratic Republic of the Congo, the wealthy now look to wine as a way to balance their collection of possessions. (Ultra-high net worth investors, or those with more than $30 million, hold, on average, about 50 percent of their assets in alternative investments such as art, precious metals, real estate, and wine.)

Investors eager to avoid some of the turmoil in the stock market are seeking alternative investments. Cryptocurrencies have had their day, but interest in collectibles – such as art and wine – is growing.

© Paguera wine | The value of La Tache for 2009 in the Democratic Republic of the Congo has risen over the past decade.

Wine offers consistent returns over investment grade wine, with a low correlation to overall market performance.

“When the stock market goes up, rare wines tend to go up more, and when stocks go down, rare wines might go down a little, but not nearly as much,” notes David Parker, founder of buyer and seller of rare wines Benchmark Wine Group, which is based in Napa.

Liv-Ex, the world’s largest wine exchange, has posted an annual return of 13.6 percent over the past 15 years, compared to an annual return of 7.8 percent for the Dow Jones Index, and 8.58 percent for the S&P 500. The broadest index, grew 22.9 percent in percent in the past 12 months, and 47.4 percent over the past five years.

Parker explains that there are several ways to invest in wine: through wine stocks or ETFs like LVMH, through wine mutual funds like Vinovest, or through individual acquisitions of premium wines.

“Obviously you’ll want to buy it depending on the condition,” Parker notes.

And for many, the interest in investing in wine goes beyond their bottom line.

“The majority of buyers of fine wines view their collections as expendable and collectible,” says Justin Gibbs, Vice Chairman and CTO at Liv-ex. for what is in the cup and they like to drink it, and second, because they perceive it as a store of value. Its relative rarity (which only grows over the years) and its tangibility distinguish it as a real alternative, for example, to stocks and bonds. It is thus considered a portfolio diversification tool. Its tangibility becomes particularly attractive in Times of inflation where paper money loses its value over time.”

Exchange rate bonus $

For high net worth individuals in the United States and Asia, now is a great time to start or finish a selection of investment grade wines.

“Weaker sterling against the dollar means good wine prices are more affordable for American and Asian buyers,” Gibbs says. “The dollar has been strengthening against sterling. Over the course of one year, sterling has fallen: the dollar exchange rate from $1.38 to $1.16. This drop is reflected in fine wine prices. Measured in sterling, the proportion of listed wines is currently 15.9” percent cheaper for dollar buyers than they were in December last year.”

During the summer, for the first time in two decades, the dollar and the euro also reached parity.

If you’re considering investing in a wine collection, Asher Rubinstein offers some guidelines. Rubinstein is a trust and real estate attorney with Gallet Dreyer & Berkey in New York, and advises high net worth individuals about their wine collection, among many other things.

“Not every wine will increase in value,” Rubinstein points out. “You want to make sure you’re investing in premium wines: Burgundy like Domaine de la Romanée-Conti, champagne like Cristal, Tuscan like Biondi Santi Brunello di Montalcino, Bordeaux First Growths like Latour, and unrated right bank like Petrus. Napa, like Harlan. And the scream of the eagle.”

You want to buy several cases, have a rigidly planned time horizon – usually five to 20 years – and plan to sell them in their drinking window. Set aside money for insurance, ideally suitable storage conditions not in your home, and be sure to have a series of sources and papers from your storage facility explaining temperature and humidity levels. He adds that when you sell, most likely through an auction house, be sure to report profits when you file taxes.

Rubinstein says he’s seen his clients’ investments yield a 20 percent return on investment, even after factoring in the costs and taxes you have to pay on capital gains.

Rubinstein notes that “investment in wine is slow and steady, while the stock market has many peaks and valleys.” “It offers diversity to your portfolio, but it is also more interesting. I think a good wine investment attracts a whole new type of investor because it includes history, geography, climate change and aristocracy. And you can drink it if all else fails!”

But. Good luck finding multiple instances of Screaming Eagle and DRC.

Rubinstein admits that “rarity is part of the value inherent in fine wines.” “Most of the big companies have waiting lists.”

Working with rare wine sellers like Benchmark is an option though.

“We have the largest stock of investment-grade wine in the country,” Parker says. “We have around 16,000 volumes, and high availability. We work directly with producers and can source from rare wine brokers. Additionally, we have a sales team that can advise high net worth individuals on purchasing and storage options.”

As with any investment, impressive returns are often the result of an unpredictable combination of smart insight, educated guesswork, market conditions and miserable luck.

But it is hard to ignore the superior performance of fine wines in the stock market. That’s an eye-catching 888 percent 10-year return on unicorn investments like La Tache in the Democratic Republic of the Congo, which were bought in 2009 for $693 a bottle, and sold for $6,851 in 2020.

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