Whether it is fine wine, whisky or cask tequila, there is a case, so advocates for investing say, to hold these amidst geopolitical troubles. There will always be arguments about just how correlated these items are when set against equities or bonds. We talk to a few players in the space.

With elections, budgets, trade rows and geopolitical conflicts causing heartburn, it is easy to see how the market for luxury goods with an investment angle can attract attention. And if you can occasionally drink the contents (sensibly, of course), even better. 

This is the case for investing in fine wine, whisky – as this news service noted recently – and cask tequila. The argument goes that these products offer some shelter against forces such as inflation. It’s up for debate whether they can ride out all or most market gyrations, however. 

While inflation has been easing in the UK, US and certain other nations since it flared after the pandemic, it hasn't gone away. An open question, however, is how well can fine wine or whisky, for example, protect against inflation. With the risk-free rate, as it is called, of government bonds at 4.4 per cent for the 10-year US Treasury bond, for example, that might be decent protection - at least for now - against inflation. Bond dividends attract income tax - although this can be mitigated if they are held in a structure such as a UK Individual Savings Account. There are funds that hold wine and other luxury investible assets, although specific details vary on where the fund is registered. The risks involved in fine alcohol investments are idiosyncratic - there are issues to consider such as vintage, purity, provenance, changes in fashion, wastage, etc. With bonds, on the other hand, they tend to be more straightforward.

Listed equity markets have not fared badly so far this year, and it is not immediately obvious whether high-end alcohol will necessarily come out in front of stocks. Since January, to give an example, the S&P 500 Index of major US shares has been up 21.5 per cent. The MSCI World Index of developed countries’ shares (measured in US dollars) is up 13.7 per cent (and it is higher when one adds reinvested dividends). 

How has fine wine and whisky done? The Liv-ex Fine Wine 1000 Index of top-class wines, a broadly based measure, is up just 3.5 per cent this year, although it rose 22.3 per cent over a 12-month period, showing that the early part of 2024 has been difficult, with a large correction. With whisky, the Whiskystats Whisky Index, which tracks value changes each month of the historically 500 most-traded whiskies, shows that prices fell slightly in 2024, having recovered from a sharp sell-off in June. From 2013 to 2022, the index almost relentlessly rose, then fell for two years before hitting a bottom. In the short-term, then, the verdict isn't that fine alcohol will always outperform in a rising stock market, but there is some evidence that correlations vary over time.

Diversification
According to Sam Gordon, co-founder and CEO of GORDON PWC, such goods are a hedge against instability and higher inflation.

“During geopolitical crises, paper investments like stocks, bonds, or currencies are subject to wild fluctuations and government interventions, such as capital controls or trade restrictions. In contrast, tangible assets like tequila casks offer more stability, as their value isn’t tied to financial markets or government policy,” he said in a recent note. 

“History shows that tangible assets – whether it's gold, real estate, art, or casks of aging spirits – maintain their value during political or economic crises. For instance, during the financial instability of 2008, gold surged in value, offering protection when stocks plummeted. Similarly, tequila casks can act as a store of value, appreciating as the spirit matures,” Gordon wrote. He argues that cask tequila is not correlated with market swings. 

His point about gold is also a reminder that the yellow metal – to the possible frustration of sceptics – retains its value as a ballast in a portfolio. Gold on Friday 1 November fetched $2,746 per ounce, rising from $1,940 a year earlier. 

The eye-popping prices that can be paid for wines from Burgundy and Bordeaux as well as “New World” wines from Australia and South Africa, for example, sometimes make headlines. With whisky, specific bottles can fetch fortunes. For example, the record price for a bottle of whisky was $2.7 million, paid for a bottle of The Macallan Adami 1926 at a Sotheby's auction in London in November 2023. So it is not surprising that this market attracts investors keen for the thrill of backing a winner as well as hopefully sheltering from financial trouble. With such goods, investors need to cultivate a knowledge of vintages, regions, particular market tastes and changes – a skill akin to understanding fine art, antiques, classic cars, and jewellery. 

Fine wine
Market uncertainties are driving interest in acquiring fine wine investment, Alexander Westgarth, CEO at wine investment firm  WineCap, told this publication. 

“We've generally seen enquiries from investors who are looking to diversify their portfolios and hedge against inflation or currency fluctuations. This growing interest is manifesting itself in higher demand for top-tier wines, particularly from regions like Bordeaux and Burgundy, where scarcity and consistent historical performance continue to appeal to those looking for stability in uncertain times.

“Additionally, we are seeing a shift towards long-term investment strategies, with more investors interested in holding fine wines as part of their broader wealth preservation plans,” he said. 

Tangible and uncorrelated
“Given fine wine is both a tangible asset and uncorrelated to other asset classes, we are increasingly seeing it held specifically as a store of value,” Callum Woodcock, founder of WineFi, a UK-based next-gen investment platform, said. 

Woodcock said private wealth managers and family offices are more interested in this area than before. “This is largely due to incentives – IFAs are highly restricted around the fee-paying products that they can offer to their client base, and are interested in fine wine as an asset class mainly because their own client base are asking about it and they want to be able to deliver recommendations,” he said.

Havens
Westgarth said fine wine has always been a "safe haven" asset for investors seeking stability: “It’s an improving asset in diminishing supply – a characteristic unique to fine wine. It is tangible which helps insulate it from some of the risks associated with other investment classes. The fact that fine wine’s value is driven by global demand, scarcity, and critical reputation rather than economic cycles makes it an attractive hedge against macroeconomic instability.” 

There are potential risks to consider. “When it comes to risks, liquidity can present an issue – while fine wine is a stable asset over the long term, selling during certain periods or market downturns may take longer compared to more liquid assets like stocks. Moreover, while the fine wine market is generally stable, prices can fluctuate due to shifts in consumer demand, trends in wine regions, or regulatory changes affecting international trade,” Westgarth said. “It’s also important for investors to be cautious about proper storage and provenance, as the condition of the wine can significantly affect its value. Investing via a specialised reputable wine investment company, however, eliminates much of these risks.”

“Wealth managers and private client advisors are increasingly interested in understanding how fine wine fits into a diversified investment strategy. Many of the enquiries we receive revolve around how wine investments can serve as a hedge against market volatility and inflation, while offering portfolio diversification,” Westgarth added. 

Cru Wine, a UK platform, said interest is in fine wine and cask whisky: “This reason is partly due to the correction in fine wine markets which has adjusted down by 20 to 25 per cent since their peak in November 2022.” The firm referred to last week’s UK government announcement of higher capital gains tax, from which both wine and whisky are exempt. This has also triggered enquiries.

“Some people have always looked at wine and whisky as a 'safe haven' with its low correlation to the mainstream markets and low volatility and currently, with the fine wine market correction, people are seeing this as a great entry point for purchasers. As with all assets, there are risks involved and markets will go up and down,” Cru Wine said.

Whether these types of collectable, high-end alcohol achieve all that is claimed is something that only time will tell. At the very least, the owners of it can enjoy the comfort of knowing that if the investment case does not pan out, they can always reach for a glass.

(Assistant editor Amanda Cheesley contributed to this article.)