Does the Liv-ex 100 represent “the market”?
Anyone who works in or invests in fine wine investment will be aware of the Liv-ex 100 index. It is the default indicator invariably quoted in the mainstream media when assessing the health of the fine wine market, and it has attained unparalleled status as a lightning rod for the investment market as a whole. In short, you can’t get away from it.
There are other Liv-ex indices – the Bordeaux 500 and the Liv-ex Investables index for example – but these focus solely on Bordeaux, and are therefore not representative of the wider market. So, how good a reflection of the market is the Liv-ex 100? Is it fair to equate it to the FTSE 100, and does it enable investors to get a realistic snapshot of the market? Read on to find out more!
What the fine wine experts say about the Liv-ex 100 index
As a professional who earns his corn analysing fine wine investment data in order to effectively advise clients as to the wisest way to invest in wine, I’m more conscious than most of the significant impact it has on the psyche of would-be investors.
My personal view is that the Liv-ex 100 index once did a great job, but it is becoming less meaningful as the fine wine investment market advances. I would argue that it needs to evolve in order to continue to be relevant in this increasingly sophisticated and transparent market.
Please don’t think of this as a hatchet job. It isn’t. I like the Liv-ex 100. I really do. But I just feel it could be better than it is. As most of my teachers wrote on my school report, “Could do better if he just put his mind to it!”
Comparing to the Liv-ex 100 index itself
According to Liv-ex.com, “…the index is calculated using Liv-ex Mid Prices (a point for another day!) and then weighted to account for original production levels and increasing scarcity as the wine ages. As such, the index is designed to give each wine a weighting that corresponds to its impact on the overall market.”
The website continues, “In order to qualify for the index, wines must have attracted critical acclaim from a leading critic (a 95-point score or above) and attract a regular market on Liv-ex.”
So, from this, we can gather that big Parker scores and the recent date of the vintage are the two major factors in the creation of the Liv-ex 100 index. Hence, why 23 of the 100 wines are from the 2009 vintage, why 12 are from 2005 and 14 come from 2000, but only four are from 2006 and just three are from 2004.
However, this imbalance creates a problem. In the global fine wine investment market, the so-called ‘off-vintages’ of, say, ’04 and ’06 have persistently out-performed the ‘on-vintages’ of ‘00 and ’05, and since they were released the vast majority of ‘09s have barely moved as they were so very expensive to begin with.
Fine wine investment market advice you can trust
As a business, we at APM pride ourselves on out-performing the Liv-ex 100 index; an ambition we have successfully and consistently achieved in our five years in business. But truthfully, I would like the Liv-ex 100 index to make such achievements more challenging by better reflecting what is really being bought and sold out in the real world.
In other words, I would like the Liv-ex 100 index to force us and our competitors to do an even better job before we could boast about how clever we are!
Off vintages were the best performers in most portfolios, and the old truism of wine investment – buy only the best wines from the best vintages – has been disproven as an investment methodology, yet it is precisely this thinking that is currently reflected in the Liv-ex 100 index methodology.
James Sowden
APM
30.07.13
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