Surely I can’t be the only one who has noticed that everything is measured these days. Social media posts are measured by the number of likes. Work is measured by results. Time is measured in years. Even our speech is measured, for goodness sake.
For investors, the portfolio is measured by an index. This index tracks the performance of a group of assets, which in our case is fine wine. For the non-financial wizards among us, indices (or indexes) are a measurement of the price performance of a group of entities from an exchange. For example, the FTSE 100 tracks the 100 largest companies on the London Stock Exchange, while the S&P 500 does the same for the top 500 companies trading on the Dow Jones in the US.
The benefits of having such measuring entities are evident. Trading indexes offer exposure to an entire economy or sector at once, while only having to open a single position. These indexes are of paramount importance when investing in wine.
What Are Wine Indices?
As with all assets, fine wine’s market performance needs to be tracked, and as such there are a few different wine indexes. The most trusted of these is Liv-Ex – or the London International Vintners Exchange. Of course, there are other non-Liv-ex wine indices, such as the AWE, Sotheby’s, Wine Owners, and WinePrices.com that might calculate their indices in a different way, but they are not as popular.
I have decided to concentrate on Liv-Ex as the main research tool when creating or maintaining a wine portfolio for this article. This index tracks the movements of the most traded wines on the market and compares them to other indexes, such as the FTSE 100. The various Liv-Ex indexes are subdivided by the wine countries that produce fine and rare wines and shows equal weighted average returns on them.
The company is relatively young. Founded in 2000 by two stockbrokers, James Miles and Justin Gibbs, the Liv-Ex started with just 10 members. Their ambition was to streamline the very archaic and old-fashioned way fine wine was traded. The result was instant. It appeared that people were crying out in the new millennium for some transparency in the infamously impenetrable fine wine market.
It was after Miles sold four cases of Lafite Rothschild 1990 for three times more than he had bought it three years before that he began to think that a global fine wine index was missing in the trading market. This was a very turbulent time for investors and the industry was very depressed, thanks in part to the Asian economic crisis. “Here was a product that was clearly being traded like a commodity, but the system was opaque, inefficient and fragmented,” recalls Miles.
Miles and his friend and fellow hobby sommelier Gibbs started Liv-ex with just 10 founding members in London. Since then the company has grown to be really the only reference point for modern fine wine investors today. They have even tackled the archaic 1855 classification system, the benchmark by which French fine wine is universally measured.
By analysing and studying past performance and the different price points, thanks to Liv-Ex even novice investors can make informed and educated decisions on what wines to invest in. More experienced investors with established portfolios can consider which wines are best for hedging and diversifying.
What Are the Major Liv-ex Wine Indices?
Let’s concentrate on the four major wine indexes that have revolutionised the fine wine investment world.
Liv-ex Fine Wine 50
This index is perhaps the most useful when you’re finally ready to make that trade. The Fine
Wine 50 shows the daily market fluctuations of the top 50 wines being traded across all major index platforms. It offers real-time transaction prices allowing both buyers and vendors to see the price movement of the day of the top most recent vintages of the most heavily traded wines. These are, for the most part but not exclusively, the Bordeaux First Growths. En-Primeur is not usually considered in this list.
Liv-ex Fine Wine 100
Anyone who has even just considered fine wine investment will (or should) be aware of the Liv-ex 100 index. It is the benchmark gauge most often quoted when evaluating the health of the fine wine market. The Fine Wine 100 considers wine from all over the world and enables investors to get a realistic snapshot of the market. In order to qualify for the index, “wines must have attracted critical acclaim from a leading critic (a 95-point score or above) and attract a regular market on Liv-ex” (source: Liv-Ex).
Liv-ex Bordeaux 500
The clue is in the name here. The Liv-ex Bordeaux 500 calculates the top 500 traded wines coming from Bordeaux on a monthly basis. Investors should note that there are some sub-indexes here: the Fine Wine 50 (see above), the Right Bank 50, the Second Wine 50, the Sauternes 50, the Right Bank 100 and the Left Bank 200. It goes without saying that these are not representative of the wider market.
Liv-ex Fine Wine 1000
This final (for our purposes) index monitors 1,000 wines from across the world. It is calculated on a monthly basis and includes seven sub-indexes: the Bordeaux 500, the Bordeaux Legends 40, the Burgundy 150, the Champagne 50, the Rhone 100, the Italy 100 and the Rest of the World 60.
How Are the Wine Indices Calculated?
Liv-ex explains its calculation module as such: “indices are calculated using the Liv-ex Mid Price. The Mid Price, which is based on merchant transactions, is the most robust measure for pricing wines available in the market. It is calculated by finding the mid point between the current highest bid price and the lowest offer price on the Liv-ex trading platform. Each price is then verified by our valuation committee to ensure that the number is robust after taking into account all data at our disposal, including merchant offer prices and historical Liv-ex transaction prices.”
But, there is a but. It is often the case that off vintages become some of the best portfolio performers in the long term. Therefore, the old adage of wine investment – where you should only buy the best wines from the best vintage – isn’t necessarily true (and has been disproven time and time again). As Liv-Ex deals only with high-scoring wines, their methodology doesn’t reflect the “bad” vintages, which can potentially make good investment sense. So while it’s important to consider the index, you would be foolish not to look at satellite factors that can affect a wine’s price point. As always with fine wine, the choice is up to you.
Looking at the index is not enough when starting to invest in wine. We’ve collected other important factors in our extensive guide on how to invest in wine, so please keep reading!