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Fine Wine Investing - Back to Basics

Introduction

Investing in fine wine can be opaque, riddled with pitfalls, and heavily reliant on expertise that often feels inaccessible to new investors. Bad actors in the market and a lack of robust, data-driven analysis have created barriers, preventing investors from truly understanding how wine stacks up against more conventional assets.

At WineFi, we believe that clarity and insight should be the foundation of any investment decision. With the right information, investors gain the confidence to see how fine wine behaves as an asset, identify its unique value within a portfolio, and appreciate the rationale behind each wine selection—moving away from a blind "trust us" model to one built on knowledge and transparency.

To find out how you can gain exposure to a diversified portfolio of wine from £3,000, click here.

Wine Investment - Minimum Requirements

1. Invest in Bonded Wine: Bonded storage guarantees optimal aging conditions and better resale potential. Keeping wines stored in bond is crucial for maintaining provenance and quality, both of which are highly valued by buyers.

2. Verify Condition and Provenance: Never purchase wine without understanding its condition and history. These factors are key in determining a wine’s investment potential, and reputable sellers will provide information on both. Remember to inquire about any associated fees to avoid hidden costs.

3. Focus on Liquidity: Quality alone doesn’t guarantee a sound investment. Many exceptional wines lack a secondary market, limiting their liquidity and making them harder to resell. Wines with secondary market demand, even if not as highly rated, can often yield better returns.

4. Don’t drink them!

Overlooking any of these factors can lead to poor outcomes, but when implemented alongside strong return analysis will yield strong returns. The WineFi Index (our broadest measure of the market) has returned 204% over the past ten years, underscoring the value of the asset class.

Understanding Wine Performance: Beyond the Basics

To make informed investment decisions, it’s essential to understand past performance. Wine, like equities, has its own benchmarks, primarily those set by the Liv-ex indices—the wine industry’s equivalent of the S&P 500 or FTSE 100. Liv-ex describes itself as "the global exchange for the wine trade," accessible to trade members who can actively buy and sell wines.

The Liv-ex publishes several indices, notably the Liv-ex 100 and Liv-ex 1000, which respectively track the top 100 and 1000 most traded wines. While the Liv-ex benchmarks are informative, they are weighted towards highly traded wines like Bordeaux, which has underperformed since 2011. This narrow view may not capture the full potential of other wines that could be strong investment options but are less actively traded.

At WineFi, our goal is to identify wines with growth potential, not merely those with the highest trading volume. By incorporating a broader data set, we strive to measure market performance in a way that includes more nuanced and potentially high-return opportunities across regions, labels, and vintages.

The WineFi Indices

All of our indices include wines that meet specific criteria for inclusion:

• Liquidity: Wines with sufficient market depth and visible demand.

• Price threshold: Minimum price of £80 per bottle (inflation-adjusted).

• Vintage criteria: Wines from 1968 onward.

By setting clear, data-driven criteria rather than limiting inclusion to a fixed number, the WineFi Indices allows us to capture a more diverse picture of the fine wine market. This approach highlights wines that might not be as widely traded but have the potential for different, often stronger, performance dynamics compared to the Liv-ex indices.

Click here to view our Q3 Market Report

Identifying Value Within Labels

An industry standard method is to look at price per critic point. This number of critic points out of 100, or 20 that a wine receives by the price of the given vintage.

If the 2005 got 100 points and is worth £100 then you are paying £1 per critic point.

If the 2009 got 95 points and is worth £90, then you are paying about 95p per critic point.

If the label average is 98p per critic point, then you could infer that the 2009 is relatively undervalued, and the 2005 overvalued.

It is important not to take this as a quick fix investment method. For starters, as WineFi's Data Tsar Aaran Daniel would tell you, it's worth removing outliers.

To use an extreme example - if the 2004 got 70 points, then it is (according to that critic) a much worse wine. It is likely that secondary market demand will be lower, and it is very unlikely to age as well as the higher scoring vintages. So even if it only costs 50p now - there's a much lower chance of appreciation.

Conclusion

As we enter Q4, the fine wine market is trending to stabilisation, and continues to illustrate its resilience and unique value as an investment asset. The art of ‘stock-picking’ - the process of identifying wines that outperform - is crucial.

As nuanced factors like vintage quality, producer prestige, and shifting global demand patterns drive returns, it is key to leverage deep market insight and data analysis when deciding to invest in fine wine.

To find out how you can gain exposure to a diversified portfolio of wine from £3,000, click here.

What’s happening at WineFi?

Last week, our CEO Callum joined the team at Noyack Wealth Club to discuss WineFi and Fine Wine Investing.

Noyack Wealth Club (NWC) is a nonprofit whose mission is to provide financial education to Millennials, GenZ and specifically High Earners Not Rich Yet (HENRYs). NWC is a global leader in financial literacy operating with the pillars of Education & Enablement; i.e access to private markets.