While South Africa has a very small fine wine market, a new Stellenbosch University study has found that South African fine wine has a favourable influence on portfolio growth and diversification. The study, ‘Cheers to Enhanced Portfolio Performance: Wine as a Unique Asset Class’, is the first of its kind in South Africa and recognises the positive value of wine as an alternative asset class.
Fine wine has gained popularity as an alternative investment over the last two decades as trading platforms have been developed, increasing market information and liquidity. ‘Fine wines are those that trade on the secondary market. The consumer finds value in holding onto fine wines, rather than drinking them immediately. Fine wines are long-term assets, priced in hard currency,’ explains Roland Peens, Director of Wine Cellar, CEO of Wine Business Advisors, and Strauss & Co Wine Specialist. The global fine wine market is estimated at over R100 billion, and the trend is driven by an increase in HNWIs, globalisation and liquidity. The study aimed to develop a Top 10 index and analyse its impact within an investment portfolio. This comprises the most liquid, high-scoring wines from South Africa.
Transactions from Strauss & Co Fine Wine Auctions along with Wine Cellar’s brokerage platform have provided meaningful data for the South African secondary market for the first time. For comparison, the Stellenbosch University study analysed major ETFs in Satrix Top 40 ETF, 1nvest S&P 500, Satrix MSCI Emerging Markets, Satrix MSCI World, 1nvest Gold, 1nvest SA Bond and Satrix Property Portfolio. The SA Top 10 Fine Wine Index was constructed and analysed (with wines selected based on liquidity and scores) along with the Liv-ex Fine Wine 100 – the international benchmark index of the world’s most traded fine wines. Employing a repeat-sales, regression methodology with modern portfolio theory, a portion of both the Liv-ex Fine Wine 100 and the SA Top 10 Fine Wine Index increased growth rate and decreased portfolio volatility.
‘Wine generally contributes positively to portfolio growth and risk-adjusted returns, as evidenced by the growth rate,’ concludes the University of Stellenbosch white paper.
The paper follows international wine investment studies that examined data from the US, Australia, Bordeaux and internationally through Liv-ex – the global marketplace for the wine trade. These revealed that wine prices were generally uncorrelated to the stock market and outperform bonds and often equities. Wine is less liquid than other assets, however, and therefore prices can be more stable over longer periods. Other studies also revealed that producer, reputation and critic ratings were important to price growth.
‘The wine market has received not only attention from the stakeholders (producers and consumers) but also from the financial world, and in particular from speculators and fund managers specialized in alternative investment,’ says researcher and author Dr Mesias Alfeus, Lecturer of Statistics and Actuarial Science at Stellenbosch University. ‘Notably, we have found that the inclusion of wines effectively contributes to risk reduction and portfolio diversification. These favourable outcomes suggest that South African wines could serve as a valuable addition to a broader investment strategy.’
Notes
The SA top 10 Wine Index was constructed according to liquidity, by both volume and value, as well as a 5-year average of Tim Atkin MW scores. Considering 2,756 transactions, two-thirds of which were for red wine, it resulted in the SA Top 10 Fine Wine Index as: Sadie Family Columella, Kanonkop Paul Sauer, Porseleinberg, Klein Constantia Vin de Constance, Sadie Family Palladius, Meerlust Rubicon, Boekenhoutskloof Syrah, Vilafonté Series C, Sadie Family Skurfberg, and Alheit Family Makstok. Wines within the index have returned 80+% over 4 years, taking into consideration storage and brokerage fees.
A Growth-Optimal and Minimum Variance Portfolio using Modern Portfolio Theory is the process of selecting the best mix of assets from a range of options to achieve specific investment goals, while managing risk. The main aim of portfolio optimisation is to either maximise returns, minimise risk, or strike a balance between the two.
Strauss & Co Fine Wine Auctions was founded in 2019 by Wine Cellar Fine Wine Merchants, Sommelier Higgo Jacobs and Africa’s leading art auction house, Strauss & Co.
Wine Cellar stores over 500,000 bottles of fine wine in professional conditions in Cape Town and has been offering wine investment portfolios since 2018.
