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In Troubled Times, What's The Investment Case For Fine Alcohol?
Tom Burroughes
4 November 2024
With elections, budgets, trade rows and geopolitical conflicts causing heartburn, it is easy to see how the market for luxury goods with an investment angle can attract attention. And if you can occasionally drink the contents (sensibly, of course), even better. Listed equity markets have not fared badly so far this year, and it is not immediately obvious whether high-end alcohol will necessarily come out in front of stocks. Since January, to give an example, the S&P 500 Index of major US shares has been up 21.5 per cent. The MSCI World Index of developed countries’ shares (measured in US dollars) is up 13.7 per cent (and it is higher when one adds reinvested dividends). How has fine wine and whisky done? The Liv-ex Fine Wine 1000 Index of top-class wines, a broadly based measure, is up just 3.5 per cent this year, although it rose 22.3 per cent over a 12-month period, showing that the early part of 2024 has been difficult, with a large correction. With whisky, the Whiskystats Whisky Index, which tracks value changes each month of the historically 500 most-traded whiskies, shows that prices fell slightly in 2024, having recovered from a sharp sell-off in June. From 2013 to 2022, the index almost relentlessly rose, then fell for two years before hitting a bottom. In the short-term, then, the verdict isn't that fine alcohol will always outperform in a rising stock market, but there is some evidence that correlations vary over time. Diversification (Assistant editor Amanda Cheesley contributed to this article.)
This is the case for investing in fine wine, whisky – as this news service noted recently – and cask tequila. The argument goes that these products offer some shelter against forces such as inflation. It’s up for debate whether they can ride out all or most market gyrations, however.
While inflation has been easing in the UK, US and certain other nations since it flared after the pandemic, it hasn't gone away. An open question, however, is how well can fine wine or whisky, for example, protect against inflation. With the risk-free rate, as it is called, of government bonds at 4.4 per cent for the 10-year US Treasury bond, for example, that might be decent protection - at least for now - against inflation. Bond dividends attract income tax - although this can be mitigated if they are held in a structure such as a UK Individual Savings Account. There are funds that hold wine and other luxury investible assets, although specific details vary on where the fund is registered. The risks involved in fine alcohol investments are idiosyncratic - there are issues to consider such as vintage, purity, provenance, changes in fashion, wastage, etc. With bonds, on the other hand, they tend to be more straightforward.
According to Sam Gordon, co-founder and CEO of , a UK platform, said interest is in fine wine and cask whisky: “This reason is partly due to the correction in fine wine markets which has adjusted down by 20 to 25 per cent since their peak in November 2022.” The firm referred to last week’s UK government announcement of higher capital gains tax, from which both wine and whisky are exempt. This has also triggered enquiries.
“Some people have always looked at wine and whisky as a 'safe haven' with its low correlation to the mainstream markets and low volatility and currently, with the fine wine market correction, people are seeing this as a great entry point for purchasers. As with all assets, there are risks involved and markets will go up and down,” Cru Wine said.
Whether these types of collectable, high-end alcohol achieve all that is claimed is something that only time will tell. At the very least, the owners of it can enjoy the comfort of knowing that if the investment case does not pan out, they can always reach for a glass.