There are a wealth of exciting and new products in private banking now. Crypto, ESG, impact investing, the list goes on. However, have they taken any market share away from hard assets such as wine? Patrick Brusnahan writes
Bordeaux Index is the largest trader of fine wine and premium spirits globally. The majority of its business is split between the UK and Asia with 10% in the US.
Matthew O’Connell, head of investments at Bordeaux Index, explains to PBI: “We particularly specialise in ultra-high net worth clients, and effectively are an alternative Asset Management Service. We have extremely wealthy collectors who have millions of dollars of wine in portfolios with us who just want to drink all their wine. And we have a number of family offices and, increasingly, more institutionally focused family offices who want nothing to do with their wine apart from the benefit from the attractive alternative asset dynamics of it.”
Wine investment
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By GlobalDataO’Connell says: “Wine’s an interesting asset, it has a long run performance of about 10% per annum over the last 30 years or so, largely over any time period, roughly 10% per annum compound growth. It has very clear and low correlation with other assets, and it also holds capital preservation dynamics.
“Last year, wine was very boring, it did exactly what we expect in such scenarios, which is it was almost entirely flat. We didn’t get any of this drama that you had in the equity markets, for example, the performance of wine last year was I think it was plus 1%.
“Equally, it is very difficult to find a five year period, for example, where wine has gone down in value. The capital preservation dynamics are very strong.
“If we saw wild swings last year, we would have been concerned or disappointed, I suppose.
“But at the end of 2019, we thought the market was due a significant rise. And this year, the activity has been very frenzied. The market is up about 7% year-to-date. And we expect that to continue in the second half of the year. It’s been very much driven by Bordeaux wines, but also Italian wines and champagne. The market has largely moved upwards, across the board, but Bordeaux has very much been at the front of the pack.”
While the rise in purchasing of wine was “very obvious” to the firm, how wine compares to other investments was less apparent.
How does wine compare to more modern products currently in the limelight?
O’Connell concludes: “With crypto, obviously, performance does slightly depend on which day you look. This year in crypto, some crypto currencies have obviously doubled or so.
“However, people are worried about inflation, there’s no doubt hard assets provide significant protection against inflation. Wine has shown itself, over time, to be very inflation proof.”
Bordeaux Index stats
- Bordeaux Index has had 60% more fine wine accounts opened in 2020 than 2019
- Bordeaux Index’s LiveTrade platform has seen £m volumes up over 30%
- Burgundy – In actual executed trades Bordeaux Index has seen some particularly frenetic activity in Burgundy, with record prices for top DRC vintages, for example. This activity has, as we expected, been limited mainly to the top “blue chip” names, rather than seen more broadly across the region. Bordeaux Index’s £m Burgundy volumes were c.60% higher in H1 2021 vs. H1 2020
- The pandemic has showed again how resilient wine as an asset is (roughly flat in 2020 and now up high single digits % YTD).
- Wine’s long-term performance is around 10% annual compound growth
