Monday 27 February 2017

Start savouring profits from the ultimate liquid investment

Thomas Molloy

Thomas Molloy

ALTERNATIVE investments such as gold, art and wine always seemed a little suspect during the recent 10-year bubble in equity markets. It was hard not to think that those promoting alternative investments were trying to turn their hobbies into your investments.

But things have changed. Shares, and the people selling shares, have proven far less reliable than many previously believed. Old reliables such as gold have enjoyed a renaissance as inflation fears once again stalk the western world.

Sharescope has always been sceptical about wine as an investment. It seems pointless to buy a bottle with no intention of ever opening it but new research suggests that doing exactly that is far from pointless and can be very lucrative indeed.

Swiss economists Philippe Masset and Jean-Philippe Weisskopf have gathered a vast amount of data together and concluded that top-quality wine has outperformed the Russell 3000 Index for 13 years and withstood two recessions.

The economists compared wine prices with the index (which represents the 3,000 biggest listed US companies) between January 1996 and January 2009 to construct a general wine index and a gauge of top vintages.

Crisis

"Our findings show that the inclusion of wine in a portfolio, and especially more prestigious wines, increases the portfolio's returns while reducing its risk, particularly during the financial crisis," wrote Mr Masset, a professor at the Lausanne Hotel School, and Mr Weisskopf, a researcher at the University of Fribourg, in their study, 'Raise Your Glass: Wine Investment and the Financial Crisis'.

The general wine index beat the Russell 3000 over the period, largely because it held value over the most recent market downturn, and did so with lower volatility than equities, Bloomberg reported this week.

Since mid-2008, the wine measure fell 17pc, while the stocks gauge declined 47pc.

The index of highest-quality wines, "first growth wines of top vintages only" in particular from 2005 onward, "hugely outperforms" the other two indexes, the authors said.

Doubled

The elite gauge has a more than five-fold return, while the regular wine index has more than doubled. The Russell 3000 gained about 50pc.

A similar trend can be seen in the monthly Liv-ex 100 Fine Wine Index which tracks the price movements of 100 of the most sought-after wines offered in the resale market.

The index rose 11.7pc during the first three months of 2010 and jumped 27.6pc from a year earlier as of March 31, according to data compiled by Liv-ex.com.

Sharescope believes few readers are likely to want to buy wine despite these advantages.

Modern art has proved an even better performer and hopefully has the added advantage of giving the owner pleasure, but the resilience in wine prices is a valuable reminder that at a time when central banks in the West are printing money, the demand for hard assets can only increase.

It may well be that there is a bubble building in some hard assets such as wine, stamps or art but every investment portfolio should contain some easily portable hedges against inflation and war.

Irish Independent

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