market report

Liv-ex is an electronic exchange for fine wine used by professional merchants and collectors. Market Report is part of a package of services offered to subscribers of Liv-ex, with subscriptions starting at £49.95 per year. Below is just a brief extract from the latest Market Report. For the full report and to access Liv-Ex's services, sign-up with them at www.liv-ex.com

Liv-Ex Market Report
by Liv-ex.com, October 2011

Trading

The Bordeaux First Growths continued to release their grip on the fine wine market last month. Lower prices and soft demand saw September’s exchange turnover drop 6.5 per cent on August. The Liv-ex Indices followed the same downward trajectory, with the Liv-ex Fine Wine 100 falling 6.4 per cent. The 2008 vintage accounted for 22 per cent of Bordeaux trade last month. Mouton ‘08’s rapid descent captured merchants’ imagination, as did Duhart Milon 2008, which fell from £1,000 at the start of the month to £880 by month end. The 2006 vintage also benefited from drifting First Growth prices and generated 17 per cent of turnover. Outside the Firsts, Pontet Canet and Lafleur saw increased activity. Bordeaux’s share of turnover dropped below 88 per cent last month—its lowest level in two years. Italy and Burgundy competed for second place, with heated demand for the Super Tuscans driving the former over the finish line first. Burgundy finished a pace behind, having accounted for just over four per cent.

(more analysis in the full report)

Major Movers

This month’s major movers are an eclectic group from Bordeaux, Sauternes and Italy. Demand for the Super Seconds held firm in September, with Lynch Bages punching above its weight and filling two of the top spots. The Top 5 shows the wines that have posted the heftiest price drops over the last month. Unsurprisingly, the table is dominated by the First Growths. The Firsts’ second wines also edged lower, whilst the ‘08 vintages of Mouton and Lafite retreated to levels last seen a year ago, before the unveiling of their respective Chinese designs. This reflects a peak-to-trough fall of more than 40 per cent.

(analysed in detail in full report)

Watching Brief

Joe Roseman, former economist at Moore Capital Management, argues that investors should prop up their portfolios with a new style of asset class: SWAG (silver, wine, art and gold). An ideal investment is one that combines low risk with high return. Our analysis of the SWAGs' individual fortunes over the last decade reveals that fine wine recorded the lowest volatility (a measure of risk) and the second-highest return in the ten years to August 2011, making it one of the group’s top performers. To view analysis in full, visit www.blog.liv-ex.com.

Final Thought - Fund performance

In the latter half of 2008, during the last major fine wine market correction, the wine fund sector took a battering. A number of funds failed—mostly due to questionable valuation methodologies and poor investment decisions— and the better operations faced a wall of redemptions. It is estimated that the total value of funds under management halved in less than a year (from a high-point of €300 million in June 2008). Those funds that survived have, for the most part, prospered in the intervening period. On all but the shortest of timescales, the funds listed below have provided investors with excellent returns—buying into any of the major funds at the tail end of 2008 would have resulted in a handsome profit of between 30 and 60 per cent. Little else outside of precious metals has performed so well during the difficulties of the last few years. Nevertheless, it would appear that the majority of funds failed to attract massive amounts of new money. Indeed, the total amount of funds under management in the UK has not risen significantly faster than market pricing— there appears to be far less ‘hot money’ in the system than we saw in early 2008. (It is the BRICS that have been the most active in this regard, with new funds having launched in India, Brazil and China in the last 12 months.) The counterpoint to this is that despite the relatively sharp correction of recent months, the level of redemptions appears (anecdotally) to be significantly less than during the latter half of 2008. Those investors who have targeted the sector in the last few years have proved, so far, to be rather more sticky. The question now is, will the recent market correction attract new long-term investors who view fine wine as a legitimate alternative?

The table above lists all of those funds that provide a monthly, published NAV. There are a number of factors to consider when making direct comparisons between them. Currency, in particular, is a complicating factor. The sterling-based funds are flattered over longer timescales when compared to those priced in dollars or euros due to the weakness of the pound. The gearing of the Fine Wine Geared Growth, which causes large volatility, should also be considered. Despite its rapid rise in recent years, those who had invested in the fund at launch would still be sitting on losses. Similarly, the Fine Wine Investment Fund has created a simulated “NAV” across all of its tranches, net of fees, for comparative purposes. It has not been independently verified and, as an average across several tranches, may not reflect all investors' experiences in the fund. Finally, there is no common valuation methodology across all of the funds. We continue to believe that the Liv-ex Mid Price is the most robust and transparent, currently available in the market.

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