Alexander Westgarth is the founder and CEO of WineCap, an investment platform that makes wine investment affordable, transparent and simple.
Between April 2020 and September 2022, the average bottle of fine wine rose 43.5% in value. While the wine market has dipped and corrected since, the general trajectory has historically pointed upwards.
Since 2004, Liv-ex data shows that the average bottle price tag has risen by 329.9%. While it can be a good investment, better still, I see fine wine as a great means to plug the gaps left by struggling assets, helping to steady and raise performance across a whole investment portfolio. In July, my company conducted a survey where we found that 92% of U.S. wealth managers believe demand for fine wine will increase over the next year.
As business owners are already aware, knowledge is power. I’ve found three distinct reasons behind the current demand for wine. Here is how to take advantage of this asset’s potential for stability, sustainability, and profitability.
We live in uncertain times. In the last year, U.S. businesses have had to cope with rocketing energy bills, inflation and interest rates. In times of hardship, people want something solid. Literally. Tangible assets like property, gold or fine wine tend to feel more precious during market downfalls. My company’s survey found that 56% of wealth managers invest in wine to add stability to portfolios across different market conditions.
It is not only wine. Across the entire investment landscape, I see a hunger for reliability. In the past few months, gold prices have been rallying too. When the gold prices go up, this often indicates that investors are looking to preserve their wealth and shield it from market shocks.
At the same time, investors have been shying away from bullish investments like technology stocks. Apple, for example, has suffered significant dips. Microsoft shareholders have endured wobbly turbulence (though, at the time of this writing, the company is beating financial expectations). Likewise, the tech-heavy Nasdaq Composite has been on a rocky ride over the past months.
As the choppy waters continue, many investors want steady ships to ride out the storm—not fancy speedboats.
With its historically low volatility, fine wine could deliver just that. Unlike stocks or bonds, fine wine prices do not tend to fluctuate massively as the market operates with its own dynamics. Regions like Champagne are currently seeing high levels of demand, not only because of the quality of the wines but the stability the region has historically offered.
Similarly, wines from Bordeaux, Tuscany and the Rhône may be more solid. However, not all fine wines are made the same. Extremely rare and highly coveted wines can make a great investment but remain a riskier asset if stability is what you are after.
My company’s survey also found that investors are prioritizing environmentally friendly assets, and 56% say they invest in fine wine because it is a sustainable asset class with a low carbon footprint. This trend is hardly surprising; 2023 has been the hottest summer on record.
Dozens of wildfires are actively blazing through the USA. Meanwhile, elsewhere, the excess water caused by melted ice caps means that flooding and torrential rains are washing away entire communities. In August, flash floods tore through Pennsylvania, killing five people. Naturally, investors are keen to put their money into assets that will mitigate some of the climate risks.
I assert that the intrigue for fine wine can be attributed in part to environmental considerations. Vineyards contribute positively to soil health and support pollinators, both vital aspects of biodiversity. It is noteworthy that a hectare of vineyard absorbs an impressive 2.84 tonnes of carbon annually. The finest winemakers employ age-old sustainable techniques, often preferring to use a horse and cart rather than disrupting the landscape with a tractor.
Certain renowned organic producers include the Burgundy Domaine Leflaive and the Bordeaux Fifth Growth, Château Pontet-Canet. Albeit not officially certified, Domaine de la Romanée-Conti from Burgundy adheres to organic and biodynamic principles as well. In the meantime, some wine producers are making strides towards sustainability by reducing the weight of their bottles, such as the Burgundy négociant Albert Bichot, which has cut down the weight of its bottles from approximately 700 grams to 450 grams.
Investors attuned with the climate can keep a lookout for wineries that are investing in a more environmentally friendly future.
At times, it can be stimulating to treat yourself with risk, to experience the thrill of adding a thrilling new stock to your portfolio. However, there are instances when things boil down to practicality. As of the current situation, many investors are in a pragmatic mindset, and according to a survey from my company, nearly half of them are investing in fine wine for its robust returns.
Historically, fine wine has often provided generous returns over prolonged periods without compromising quality or environmental values. Obtaining historical data, critic ratings, and current prices can assist an investor in determining whether a wine is a good investment. Things to keep in mind include brand reputation, price per point, appreciation over different time periods, and drinking windows. Experts who understand the complexities of the market, use the most recent technology, and keep up with trends can also be of assistance.
Investors today are seeking stability, sustainability, and profitability. Unlike last year, I noticed that they are less inclined to invest in cutting-edge technologies for the future. Instead, many are aiming for reliable investment returns—preferably ones they can keep. Fine wines are a perfect fit for this need. Even though it is already included in 45% of HNW portfolios, with average allocations of 13%, I believe fine wine will become increasingly popular. Like a traditional vintage Champagne, the market is ready to pop.
Thanks to its variety and the growing interest from experts, producers, and wine lovers, fine wine could be well-positioned to cater to investors’ shifting priorities in the coming years.
The information supplied here is not investment, tax, or financial advice. For advice about your specific situation, you should seek advice from a licensed professional.