The Knight Frank Wealth Report 2022 is out
We have long been extolling the benefits of investing in fine wine, but last week further proof was published. According to the famous Knight Frank Wealth Report, fine wine delivered a huge 16% return in 2021, one of the highest returns of the year. This new data cements fine wine as a top-performing luxury investment, equalled only by collectable watches (which saw the same 16% ROI over the same 12-month time period).
If you are unfamiliar with the Wealth Report, then let us explain. The Knight Frank Wealth Report is a referential benchmark among financiers the world over. It is by far the leading annual publication that tracks the investment trends among high-net-worth individuals and their advisers. The report is based on findings and analysis from confidential surveys taken by 600 of the world’s leading private bankers, analysts and wealth advisors. In a nutshell, if Knight Frank reports it, then you better take note.
Results showed that on average the luxury good market grew by nine per cent in 2021, highlighting its strongest overall performance since 2018. This comes on the back of two years of pandemic panic which saw a gradual moving away of traditional placements such as the stock exchange. Knight Frank’s findings confirm that regardless of what is happening in the world, the enthusiasm of collectors for alternative investments is immensely popular.
A fashion for passion
These so-called ‘passion assets’ – which include items such as fine wine, art, classic cars, coins, jewellery and antiques – offer no monthly income stream to which traditional valuation techniques can be applied. Their primary purpose is enjoyment, but they are nonetheless playing an increasingly pivotal role on the alternative capital asset landscape.
According to Liv-Ex, 28% of high net worth individuals have a wine collection, and that 2% of their wealth is tied up in wine. Warren Buffet has even gone on record saying that at least 1% of your wealth should be invested in wine, regardless of your net worth. Forbes magazine states that: if you had invested $100 in the fine wine market in 1952, your investment would now be worth $420,000. On the other hand, $100 invested in the stock market would now be worth a modest $100,000. Let’s do the math – that’s a massive 419% increase vs. a “measly” 99%. Thanks to this impressive track record, the majority of financial advisors would support investing in fine wine as a way to diversify certain client portfolios.
The beauty of alternative or passion investments is that they are not only open to HNWI and UHNW individuals. The sheer spectrum of objects is mind-boggling, appealing more and more to younger generations with lower entry points. Editor of The Wealth Report Andrew Shirley confirms that they are seeing an upsurge of collectors “who have continued to pay significant amounts of money for an increasingly eclectic mix of assets including basketball sneakers, comics and even meteorites’. Sneaker? Comics? We are far from the stilted and staid world of investments it once was.
Nothing to wine about
But let us here concentrate on fine wine. As mentioned above, the asset grew by an astonishing 16% in 2021. This figure translates to an overall increase of 137% over the past decade, making wine the highest performing luxury asset between watches, art (which made a strong recovery after falling by 11% in 2020), coins, whisky, handbags, cars, jewellery, coloured diamonds and furniture.
Additionally, the entire fine wine market performed overall very well in 2021. Some wines such as Champagne, which saw a growth of +31% and wines from Burgundy, which saw an increase of +25%, performed particularly well, most certainly due to a boost by US and Asian investors who showed immense interest for the respective regions. Burgundy’s increased popularity in the east also saw new world records being set, securing the region as one of the most covetable in the world.
Continuing the trend with northern France’s golden terroir, Champagne’s amazing, incredibly investment-worthy and supremely lucrative 2008 vintage stood out in particular, thanks to huge demand coupled with a few supply chain issues (which led to limited supply for high demand). It is thought that Champagne’s popularity in the US may have been brought about (at least in part) after investors were hit with a series of imposter wines during the year. Wines from Bordeaux (which includes all the first growths and many of the big names) took third place on the podium with an increase of “just” +10% during 2021.
Fine wine’s decade-long strong performance indicates a new wave of investment money coming into the wine market. Some of this may be led by macro factors, such as inflation worries and current affairs, with investors looking at assets that are both tangible and can be seen as a hedge if needed. However, fine wine’s popularity is also based on a growing awareness of the asset’s supply and demand ratio. Simply put, as the wine enters its prime, supply dwindles thus seducing inventors with its short supply and high returns.
A fine (wine) investment
To say the fine wine investment market is flourishing is no understatement. If we want to look even deeper, then the analysis shows that fine wine placements have delivered annual returns of between 10%-14% for the past consecutive 30 years. Experts anticipate market growth of around 54% in the next two years, reaching a global sum of $7.8 billion worldwide.
And we are not alone in wanting to stock up our cellars. Fine wine in general remains the passion asset of choice in the UK and Europe, while wines from certain regions, notably the aforementioned Burgundy and Champagne, far outperform others for Asian and US investors respectively. Australasian investors too have woken up to fine wine’s potential – almost 40% of the experts surveyed by Knight Frank during Q4 2021 confirmed that their southern hemisphere clients had increased their portfolios to include passion assets.
To infinity – and beyond
The reasons for fine wine longevity at the top of the alternative investment tree are simple. Not only is wine profitable, but it has proven itself to be a relatively safe and stable way to diversify your investment portfolio. Despite global financial market turbulence, fine wine has proven time and time again that it has very little correlation with the rollercoaster trends of the traditional stock market. Moreover, this type of tangible asset, where supply is limited is largely protected during financial uncertainty – as the last two years have proved. Unique qualities, limited supplies and of course the thrill of owning a sought-after physical object make fine wine attractive from a collector’s perspective, but their investment performance is difficult to ignore. Fine wine has outperformed many established commodities over the past 10 years, and looks set to continue to be one of the top-performing assets for the future. As long as inflation and supply chains continue to fuel demand, the market will continue to rise.
Additionally, Covid-related lockdown restrictions introduced a huge number of the population to the joy of drinking expensive wine at home, a trend that does not look set to abate any time soon. And the market is moving with the times; Australia’s Penfolds, one of the world’s most respected wine estates, has launched a limited edition NFT tied to its rare Magill Cellar 3 barrel of wine, made from the 2021 vintage, available for purchase for US$130,000. The single barrel NFT will be converted into 300 bottle NFTs at the date of bottling the wine in October 2022 with each bottle being identified with both a barrel and bottle number. So far Penfolds is the only estate to venture into NFTs and cryptocurrency, but depending on their success, others will certainly follow.
Opportunities in the metaverse
The brave digital world has opened countless doors for modern inventors. Digital innovation and industry investment opportunities today offer opportunities that we could not have dreamt of a decade ago. Wine investment companies such as vindome.net offer an easy to use app that provides customers with a simple, transparent and effective way to invest in the fine wine market. The app’s simple model allows users to benefit from the team’s vast background of fine wine knowledge, whether you are an experienced collector, or wine investment newbie.
Vindome’s strengths are manifold. Not only do they guarantee the provenance of all wines by only sourcing directly from the producers or négociants, but the short supply chain allows them to offer competitive wine prices. This means you are not paying for any costly third party. What’s more, their fully transparent costs and fees of just 4% are among the lowest in the arena. Vindome’s passion for their product is tangible; they truly believe in fine wine as a genuine alternative asset and offer their clients significant diversification benefits from mainstream financial markets. And when we say clients, we mean everyone: no minimum investment is required to start investing, opening the market to all ages and budgets.
The beauty of an app such as Vindome is the ease with which you can become a wine investor – I mean, how long does it take to download an app? The integrated trading kit allows you to manage all aspects of your wine investments in one place and to make informed choices using certified market value data from Wine Decider, wine ratings from world-famous critics, information about drinking windows, detailed wine guides and investment tips plus alerts and news.
But what about the actual wine?
Because wine is a tangible asset, evidently it needs to be stored somewhere. All wines bought on Vindome.net are stored in approved, VAT free, bonded warehouses, in their original wooden cases. These state of the art warehouses keep your wine at ideal temperatures and humidity – essential if you want to maintain and insure your investment in optimal conditions.