WEALTH (W): Why do you think wine has become the best performing luxury investment asset?
Joe Alim (JA): There is a combination of factors that have led to fine wine establishing itself as the best performing luxury asset class. Firstly, the proliferation of wealth in emerging economies, particularly in China and Southeast Asia, has resulted in a significant increase in the demand for the top investment grade wines. By law, and appellation regulation, these top wineries around the world are not permitted to produce more than the specified maximum yield of grapes per hectare, therefore the significant rise in market participants has impacted on this very acute supply and demand imbalance, pushing prices higher. Added to this, has been the demand from investors for diversification, and for assets that provide a shelter for capital away from traditional market volatility and record low interest rates. The fundamental characteristics of wine as an asset class, allow for it to be the ideal investment class of this nature, not to mention the added enjoyment that collectors and investors gain from owning a collection of fine wine.
W: Do you see this trend continuing for the foreseeable future?
JA: In short, yes. With the volume of new market participants increasing year-on-year and the quality of the product improving at a similar pace, it is difficult to argue against an increase in prices for the world’s most sought-after wines over the next five to ten years. Interestingly, the European Commission says that this year’s regional harvest is expected to be the worst since 1982. Europe is set to produce 14.5 billion litres of wine this year, a drop of 14% from 2016. The laws of supply and demand have stood the test of time in all markets, and for our market, these laws appear to be as strained as they’ve ever been.
W: What advice would you give a first-time investor?
JA: The wine market is relatively complex and can be quite a daunting prospect, particularly for new investors. When investing, it is vitally important to work with the right advice, ensuring that your portfolio or collection reflects the current key wine market trends. Like most forms of investment, diversification is important, and therefore building a portfolio with exposure to the key regions of Bordeaux and Burgundy, alongside wines from the US, Champagne, Italy and Spain amongst others, will provide a stable foundation for the investment and mitigate against risk. Like any other investment, we advise clients to undertake due diligence on the potential pitfalls such as ownership, pricing and liquidity expectations.