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The growth of the fine wine market

If you are interested in alternative investments, then investing in fine wines should definitely be a consideration. Fine wine is a proven asset for preserving wealth and achieving growth in a very tax-efficient manner which has a well-established history of delivering great returns for hobbyists, serious collectors, and investors alike. Fine wine is a top performer among the so-called "passion assets", which typically include things such as rare cars and fine art. Lets take a closer look at the growth of the fine wine market and what you could expect should you choose to diversify in this manner.

Investment grade wine only makes up around 1% of the global volume of wine made around the world each year. This rarity already makes it a highly sought-after commodity, and as varying amounts of particular vintages are opened and consumed, the remaining bottles in circulation become all the more valuable. This essentially means that there is a near constant growing demand for a dwindling supply of fine wine in circulation; making fine wine an exceptionally stable investment in the medium and long term. Reports currently put the global market value at approximately £2.5bn, with transactions in the secondary market reaching around £1.5bn per annum.

In fact, fine wine returns become even more consistent in delivering growth the longer it is held. Average annualised returns sit somewhere between 7-10% and can reach up to around 13% for particularly savvy investors. Volatility tends to start at around 7% over a three-year investment but can fall to as low as 1% over a 10-year period. This makes fine wine an incredibly stable investment option for long term growth. Additionally, the market has consistently delivered absolute positive returns over any given investment period.

Prices have shifted in the market over the last 15 years, with global financial events influencing the state of the market itself, for example, following the financial crash of 2008 there was an average price drop on fine wine of 20% when measured by the Liv-Ex 100 benchmark index. However, it then bounced back and climbed 70% by 2011, largely due to investment from Asia. Recent geopolitical events have also had an impact; Brexit has reduced the value of Sterling and the fine wine market has received a significant market boost since 2016, as stock held in the UK has been bought at a discount price by overseas investors.

"The secondary wine market is broadening" says UKV International and added "It’s growing significantly as wine from a more diverse set of regions begins to challenge the historical dominance of the Bordeaux vintages" In 2010, the trade share for Bordeaux was a whopping 95%, however, in the last decade this has fallen to under 60%. This is due to wine from Burgundy, Tuscany, and even further afield now being traded considerably more often. In line with the growing interest in investment from Asian investors, Chinese wine is now also regularly traded in the secondary markets and represents significant growth potential for the global market.

It’s clear from collating these trends that fine wine is a market that will continue to grow over time, especially as the influence of Asian wine and investors becomes more prevalent, adding to the already thriving secondary market. Fine wine delivers stable, long-term growth and there is no indication that the market is likely to drop off any time soon. As time goes on, older vintages which already command significant returns will continue to do so as they become rarer and their quality increases with age, in many ways fine wine investment is a self-fulfilling prophecy of returns.