WineFi Weekly: Investment Strategy and Backtesting

In this edition of WineFi Weekly, we’re talking about:

As part of our series on The Fine Wine Collection, this week we will be giving a further insight into our investment strategy, our approach to data, and our backtesting results.

Let’s pour over the details.
(estimated read time: 2 minutes. Capital at Risk)

The Fine Wine Collection is a diversified portfolio across a number of different regions which will offer syndicate members diversified exposure to a basket of wines from select producers in Burgundy, Bordeaux, Champagne, Tuscany and Napa Valley.

We heard from a number of existing collectors and investors that they wanted the option of a low-cost vehicle to access a regionally-diversified portfolio.

This allows investors to spread their investment across a range of different regions, broadly in-line with secondary market trading volumes -- with some adjustments made to optimise the risk-return profile.

Our Approach to Data

Our data-driven approach combines analytics, exploration, and industry expertise to level-up wine investment.

Data utilisation in the wine trade is in its relative infancy, our philosophy is to enhance expert investors' strategies using advanced computational methods.

We begin by studying industry experts, formulating hypotheses based on their proven techniques, and then rigorously testing these approaches as trading strategies using cutting-edge analysis, data science and quantitative finance.

WineFi Investment Score (WIS) Summary

The WIS score is our proprietary way of ranking groups of wine based on their past performance, highlighting those producers/labels/groups of wines for which supply most regularly outstrips demand and as such, prices consistently rise.

Wine labels are given a weighted score based on:

1. Return Performance — Higher average CAGR over varying periods contributes to a better score.

2. Consistency — Returns being achieved consistently across all vintages improves the score.

3. Liquidity — More unique vintages in the market, more frequent price updates and higher offer depth also up-ranks the score.

4. Data Reliability — Given wine is a rare asset, pricing can we sporadic, so we include factors to account for the reliability of data in the scoring process.

5. Temporal Price Dynamics — This score considers historical pricing trends over time, identifying wines whose market value has demonstrated a consistent upward trajectory as they mature. This highlights labels with ageing potential that have historically experienced sustained price increases.

The final score is used to rank wines based on the investment performance and risk-return profile.

Optimisation Through Backtesting

Trading strategies based on the WIS score are regularly back-tested; running millions of portfolio simulation that use the WIS system in a trading strategy.

The strategies are tested every year from 2006 onwards and judged on their performance vs industry standard benchmarks like the Liv-ex 100 and Liv-ex 1000.

The results of these backtests are used to optimise the weightings of the WIS score in different scenarios. For example, different regions, due to their unique characteristics may have different optimal weightings.

The resulting final version of the WIS score is used to guide present day investment decisions for WineFi customers.

What Does This Mean for the Fine Wine Syndicate?

Based on a regional split of:

Example Portfolio Performance vs. Liv-ex 100 Benchmark

Fine wine is an alternative and illiquid asset class and should only form a small part of a well-diversified portfolio. The value of your investment can go down as well as up and you may not get back the full amount you invested.