Diversification, risk mitigation, low volatility, hedge against inflation… the list goes on.
What does a smart investor’s portfolio look like? Traditional schools of thought would say that the long-established 60/40 asset allocation model is the right avenue for success.
But in these increasingly turbulent times, this simplified portfolio no longer cuts muster with savvy investors looking for diversification, to mitigate risk, a hedge against inflation which is why many are choosing to incorporate alternative assets into their portfolios.
According to Connection Capital, more than two-thirds of its HNW clients dedicate upwards of 10% of their portfolios to alternative assets such as fine wine.
With fine wine one of the most interesting and lucrative alternative investments available, let’s look at exactly why investors are putting it at the top of their portfolio wish lists.
Every investor knows you shouldn’t put all your eggs in one basket and that diversification is crucial. A diversified portfolio is not simply a case of picking a range of stocks and bonds, as these are all vulnerable to the same risk factors aligned to the stock market. Fine wine has a low correlation to traditional markets and therefore provides diversification through reduced risk exposure.
Potentially higher returns than traditional asset classes
Between its launch in 2003 and the end of March 2022, the Liv-ex 1000 index, the broadest measure of the performance of the fine wine market, delivered a total return of 355.2%.
A hedge against inflation
Rather than increasing or decreasing exposure to fine wine depending on the prevailing inflation outlook, fine wine can form a permanent component of a portfolio that can perform through shifts in inflation and other macro conditions.
This is because the primary drivers of fine wine prices are internal factors, including supply/demand, wine quality, and brand prestige. Fine wine is, therefore, less susceptible to changes in inflation or the wider economic outlook than other financial assets.
Fine wine displayed lower volatility over the last five years compared to major markets including the S&P 500 and gold investments*. This translates to peace of mind for investors who needn’t worry about ‘timing the market’.
Cult Wine Investment, the global leader in fine wine investment management, is on a mission to make investing in wine as enjoyable and rewarding as the wine itself. With over 15 years of experience, our deep-rooted passion for fine vintages, close relationships with the most prestigious and respected growers, and market-leading investment expertise we have the competitive edge. Paired with the latest technology, Cult Wine Investment offers exceptional knowledge, insight, and reassurance to their clients with investments starting at $10,000 USD.
*Disclaimer: Annualised 5-year standard deviation of monthly returns as of 31 March 2022 –
Liv-ex 1000 3.88%, S&P 500 15.78%, Gold USD/oz 12.71%.
Source: Liv-ex, investing.com. Past performance is not indicative of future results.
Written in partnership with Cult Wines