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How strong is fine wine as a diversification asset class?

Fine wine investment is next to its strong historical return also a great diversification product. When looking at a 10-year historical data-set, fine wine correlation with other securities is low, particularly with equities which makes its diversification characteristics attractive.

by Gregory Swartberg

Fine wine has long been promoted as a good hedge vs. other financial securities but little quantitative data is available to support this.

Cru Wine Investment, a london-based fine wine investment specialist in the Bordeaux region, has recently conducted research on this topic and their findings are very interesting.

On a 10-year historical data-set of equities, real Estate, bonds and commodities, a correlation analysis has been conducted on both a monthly and annual level. The Liv-100, the leading wine index, was used as the fine wine benchmark.

As the table above illustrates, correlation with equities is low on both an annual and monthly level. Within equities, although correlation is low, it appears that fine wine is more correlated with European equities than American equities.

Correlation with bonds is the highest among the different asset classes analysed, that is, according to Cru Wine Investment, due to inflation. Another positive characteristic of fine wine investment is its hedge vs. inflation.

Investing in fine wine with a professional organisation can offer durable diversification benefits and have a positive impact on the risk-adjusted return of a portfolio mixed with equities, bonds, real estate and commodities.

http://www.cruwineinvestment.com

*This post was published according to the "Contributed Article Terms and Conditions"

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