Fine wine investment: safety in numbers

With our own Philip Staveley away sunning himself in warmer climes, it falls on me to offer a few notes this week on the health of the fine wine investment market. Which is, in fact, in rude health.

As you may have read, the Liv-ex 100 Fine Wine Index ticked up for the fourteenth month in a row at the end of January. The last time we saw unbroken growth for such an extended run was the remarkable bull-run which began back in March 2009, coincidently just weeks after Amphora Portfolio Management opened its doors for business – it is our eighth birthday this coming Sunday.

Now I say coincidentally, but of course it was no such thing – my fellow directors and I spotted a glaring opportunity at that time to help investors capitalise on China launching itself into the market. Notwithstanding a wee blip in June 2010 (which is why the current bull-run challenges that one for unbroken longevity), the good times lasted some two and a half years before coming down to earth with a nasty bump.

I am driven, naturally, to compare current market conditions to those in 2009, both from the perspective of how best to profit, but equally how to be on the lookout for a consequent correction. The burning question, I guess, is could we see another humdinger of a ‘crash’ (let’s call a spade a spade here) as we did in 2011?

Philip wrote about our optimism for continued growth throughout 2017, and the supporting reasons, in a recent article. So instead I will focus here on what we might expect as and when natural market corrections visit.

Straight off, let me offer some comfort: for several distinct reasons I am firmly convinced that we will not experience a correction in the same proportions. The first is that the current growth is much more gentle. Frenzied price appreciation such as we saw in 2009 and 2010 (42% in ’10 vs 25% in ‘16) creates problems galore, not least of which in this instance was bandwagon investors, who then leapt from the market like lemmings at the first sign of trouble.

Secondly, the market today is MUCH broader than in 2009, when it was disproportionately dominated by a narrow group of top Bordeaux wines. According to data released by Liv-ex, 4,396 different wines traded in 2016. This represented an increase of 27% on 2015, and 167% on 2010.

source: Liv-ex

This reflects investors taking advantage of one of the benefits of wine investment that you will often hear Amphora banging on about – the market is much like a mini stock market, with many producers in multiple geographical locations, offering a unique proposition each year. At Amphora we view this much like stocks and shares, and just like any stock market, risk is managed by way of diversification. It is this trend away from the polarised markets of ‘09 and ’10 which affords us additional confidence.

There will be corrections of course, like in any market, but these ‘sectors’ move up and down at different times and at different rates, and a nice broad market much as we enjoy today means that corrections will be more gentle and more localised (hint: we expect the next correction to be in Burgundy). Get your positioning right sectorially, and you’ll be alright.

Lastly, we find this same trend away from polarisation in the distribution of the marketplace. 2009 and 2010 was led almost exclusively by burgeoning demand from China. China is of course still a very important market – arguably the most important if you include Hong Kong – but today it is mature and developed, and a million miles from the craziness of ’09.

But at Amphora we have enjoyed major upticks in our other overseas businesses over the last two years, most notably in Japan, the US and India, the latter which I have just been lucky enough to visit again.

And so I shall leave you with some thoughts on India. Our business there suffered a slow rate of incline for some years, hampered by a lack of exposure locally to such exotic investments, and competition from burgeoning stock and property markets.

But currently our business is thriving, with an appetite for defensive positions, physical assets and – specifically in the case of wine – the appeal of the discreet nature of the investment. India, we reckon, is the big noise for the wine market in coming years. A deal to lower import duties on fine wine (currently a strangling 160%) was torpedoed by Brexit, but murmurings continue, and such a move could well be the catalyst to India going stratospheric. We are on the ground and watching….

David Jackson Originally qualified as a Chartered Surveyor, and following a subsequent career as a stock broker in the City, David entered the wine trade in 1999 and established Amphora Portfolio Management a decade later.