Bordeaux experiences an Indian summer
In this week’s blog we delve into the findings of a recent in-depth study into the historic returns which a range of diversified portfolios structured with different risk profiles could have potentially gained by including fine wine investments into the mix. The message is that in the long run, investing in the highest quality fine wines not only provides the highest returns but also optimised the risk-return profile of a diversified portfolio.
Lowering risk with wine and gold
The paper, written by researchers from the Montpellier Business School, and published in the American Association of Wine Economists, concludes that investors should seek out the highest quality Bordeaux fine wines in order to benefit not only from the best returns but also to the risk reduction attributes of diversification into a lowly correlated asset. They considered optimised portfolios including wine, gold, stocks, bonds and cash; the wine component of their study was further analysed to assess whether baskets made up of the Liv-ex 100 or the WineDex 100 performed better. The research used monthly data from the beginning of 2007 through to December 2013 – maybe rather an unusual period of performance covering the banking crisis which started in September 2008 and the resultant worldwide economic collapse and the systematic change in wine investment.
WineDex Bordeaux outperforms other asset classes
Nevertheless, the study concluded that in times of uncertainty that wine and gold investments are assets which protect a diversified portfolio from volatility and yield returns in access of a risk-free benchmark, such as Treasury bills. Taking the six year period as a whole, gold increased by an average 9.12% per annum compared with 9.18% for the WineDex Bordeaux index of 40 top left and right bank wines and super second growths. The WineDex Bordeaux index is a subset of the WineDex 100 which consists of Bordeaux, Rhone and Burgundy. The full report can be read here.