It’s widely known that nothing ages better than a fine wine, and now a team from Stellenbosch University has combined finance and oenology to develop a fine wine index that proves the positive value of the beverage as an investment asset.
Together with honours students Anton Blignaut and Jean-Pierre Viljoen, Dr Mesias Alfeus, a NITheCS Associate and lecturer at Stellenbosch University, has co-authored a paper that looks at an investment model for fine wine in South Africa. Titled ‘Cheers to Enhanced Portfolio Performance: Wine as a Unique Asset Class’, it is as far is known, the first study of the positive influence of wine on portfolio growth and diversification in the country.
“This research represents the initial successful endeavour in constructing a wine index within the South African investment landscape, thus contributing a valuable addition to the array of financial instruments accessible to investors,” note the authors. “The study is centred around the evaluation of the long-term growth rate of a portfolio that incorporates South African fine wines as assets.”
Alfeus explains that the study used five years of data on 30 fine wines to create an index featuring SA’s top ten wines. “We employed the Growth-Optimal Portfolio methodology, based on the benchmark approach, to evaluate the portfolio’s growth rate. Our findings indicate that the newly constructed fine wine index serves as an excellent proxy for the Growth-Optimal Portfolio.”
A “meticulous process”
Alfeus explains that the selection of top 10 wines for inclusion in the wine index is a “meticulous process” factoring in essential criteria. These include liquidity – gauged by each wine’s trading volume – and the monetary value of the wines. The third criterion is the expertise of renowned wine critic Tim Atkin. “This ensures that the selected wines not only hold market value but also exhibit consistent quality and appeal as recognised by a trusted industry authority. The combination of these three criteria guarantees that the top ten wines in the index are both financially sound and respected for their quality, making them representative of the wine market’s dynamics.” The index will be updated quarterly.
In the paper, the authors note that wine introduces an interesting layer of risk often overlooked in traditional assets. “The allure of indulging in the very assets in which you’ve invested can disrupt conventional investment strategies. It emphasises the need for a nuanced approach that evaluates not only the financial aspects but also the behavioural and psychological dimensions of investing in assets that are both for enjoyment and investment.”
The study holds cultural and financial significance, as it underscores the importance of wine in local history and identity. “Through the creation of this wine index, we celebrate the rich heritage and potential of the South African wine industry on a global stage,” state the authors. “It is our hope that this pioneering effort will inspire further research and investment opportunities, enhancing the recognition and appreciation of South African wines in both the local and international financial markets.”
Read the full working paper: ‘Cheers to Enhanced Portfolio Performance: Wine as a Unique Asset Class‘.
This article was first published by Stellenbosch University on 4 December 2023.