The Fine Wine Investment Market - An Inside View


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Liv-ex Director James Miles discusses the advantages and limitations of fine wine as an alternative asset class. He also outlines recent market trends and shifts.

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  • The Fine Wine Investment Market - An Inside View

    1. 1. James Miles Director, The Fine Wine Investment Market – An Inside View Saturday 5 th November 2011 Hong Kong International Wine & Spirits Fair
    2. 2. What is Liv-ex? HKIWSF 2011 Liv-ex is the global exchange for fine wine merchants. 400 members in 33 countries Global marketplace Price data, info and analysis Storage & transport Our customers account for 85% of world market.
    3. 3. A potted history HKIWSF 2011 <ul><li>2,000 years ago: Vines first planted in Bordeaux </li></ul><ul><li>900 years ago: UK becomes major export market for Bordeaux wine </li></ul><ul><li>350 years ago: Samuel Pepys first refers to a wine called “Ho Bryen” </li></ul><ul><li>150 years ago: Bordeaux 1855 classification </li></ul><ul><li>33 years ago: Wine Advocate first published </li></ul><ul><li>11 years ago: Liv-ex launches </li></ul>
    4. 4. The role of speculation HKIWSF 2011 /8 <ul><li>Wine is for pleasure but investment and speculation have always played a crucial role. </li></ul><ul><li>They facilitate price discovery and liquidity and help producers to finance their crop. </li></ul><ul><li>Transparency, driven by the internet, has democratised the market in the last 20 years, transforming it into a credible asset class. </li></ul>
    5. 5. Today’s market Merchants Auctions Other Hong Kong US$3.6b US$408m US$245m US$163m <ul><li>Is worth US$4bn per year. </li></ul><ul><li>Merchants account for 90% of trade. </li></ul><ul><li>New markets have led to strong growth. </li></ul>
    6. 6. How to define fine wine? <ul><ul><li>A wine with: </li></ul></ul><ul><ul><ul><li>Secondary market </li></ul></ul></ul><ul><ul><ul><li>Ability to improve in bottle </li></ul></ul></ul><ul><ul><ul><li>Long track record </li></ul></ul></ul><ul><ul><ul><li>Critical acclaim </li></ul></ul></ul><ul><li>For investment purposes, this means the 25 top Bordeaux chateaux and a handful of others. </li></ul><ul><li>Eight wines account for 80%+ of leading wine funds’ portfolios by value. </li></ul>Bordeaux wines accounted for 95% of Liv-ex trade in 2010. The five First Growths account for 52% of Liv-ex trade by value.
    7. 7. Factors that influence price Factors that influence price In the last few years, the key influence on price has been China. Economic conditions New markets Vintage quality Critical opinion Brand
    8. 8. Emerging market influence
    9. 9. The investment case <ul><li>Compelling supply/demand dynamic </li></ul><ul><li>CAGR 14.7% over 20 years </li></ul><ul><li>The best performing of the “SWAG” assets over a 20-year period </li></ul><ul><li>Useful portfolio diversification characteristics </li></ul>
    10. 10. Best in class SWAG: S ilver W ine A rt G old Wine is the best in class over a 20-year period, combining high returns with low volatility.
    11. 11. No panacea <ul><li>Low Liquidity – The market is small and dealing costs are high. </li></ul><ul><li>Opportunity costs are high – Wine generates no income. </li></ul><ul><li>Structural weaknesses – The post-trade infrastructure is antiquated and risky. </li></ul><ul><li>Regulation – The market is not independently regulated and is still very immature. </li></ul><ul><li>Emerging market exposure – Current buying is heavily concentrated in HK & China. </li></ul>
    12. 12. A correction underway HKIWSF 2009 On the turn: After three years of uninterrupted growth, the market is down 15% in three months.
    13. 13. Lafite drives the market up... HKIWSF 2009 Lafite Rothschild was the main driver of the market, vastly outperforming its First Growth peers in the five years to June 2011.
    14. 14. ...and down HKIWSF 2009 Since then, Lafite has also led the market down, with all recent vintages decreasing sharply in price since the summer.
    15. 15. A buying opportunity? HKIWSF 2009
    16. 16. Where next: The “Magical 20” HKIWSF 2011
    17. 17. A further broadening: DRC HKIWSF 2009
    18. 18. Conclusion HKIWSF 2011 <ul><ul><li>Fine Wine is now well established as an alternative asset class. </li></ul></ul><ul><ul><li>The fate of the market seems likely to remain closely aligned to changing tastes in China. </li></ul></ul><ul><ul><li>Could the value lie in the “Magical 20” or regions outside Bordeaux as the Chinese market seeks out a broader universe of wines? </li></ul></ul>Please visit us at stand 3D-B26 . Or visit our HK mobile site: