It’s hard to believe it’s only been a month since the EU referendum.
Around £2 trillion was wiped off the value of global markets within a fortnight, the pound has fallen to its lowest point in three decades and British politics has descended into a virtual musical chairs, transforming in the process.
The investors who have benefited most since the surprise pro-Brexit vote are those who have strayed from traditional asset classes such as bonds and equities and have looked to alternatives such as fine wine.
This asset class has traditionally been the preserve of the elite, but now that there are risk-managed ways for retail investors to invest in them, they’re taking advantage.
Alternative investments offer three key benefits to buyers: higher return potential – they seek to outperform traditional markets by being continuously active; market protection – unlike traditional ‘buy and hold’ investments, they can profit even when markets fall; and true diversification – as they’re not correlated with the stock market.
When most people think of alternatives however, they think of safe havens such as gold.
In the run up to the vote, we saw a rush of investments into this commodity which lead to its value increasing exponentially.
While gold is certainly a popular way to diversify and since 2011 has generally moved inversely to stocks, it is not the only alternative asset retail investors should consider, especially given its premium price tag.
Red, white and rosé gold
The cheaper sterling means investment in wine (usually limited to wines produced in regions such as Bordeaux) is experiencing something of a renaissance among foreign investors, particularly those in the US and far East.
They have watched this asset deliver annual returns of almost seven per cent since 2003… and at their favourable exchange rates, they’ve also bought in bulk since the Brexit vote.
As an asset, it has a strong long-term track record and because it is considered as a “wasting asset” – i.e. its predictable life span does not exceed more than 50 years – it is exempt from capital gains tax.
This means investors can make up to £250,000 in profits on their wine investments without paying a penny of capital gains tax.
For those at the lower end of the spectrum who may only have £1,000 to invest, fine wine is an asset that is becoming increasingly available to them.
Many small and medium-sized wine producers are underfunded in an industry that requires significant investment, and as such are giving investors the opportunity to become a stakeholder for the same amount of money that it would usually cost for a case of good wines.