The Liv-Ex is a wine industry index, based on market data from the Liv-Ex marketplace, one of the largest wine exchanges in the world.
Q. Now, this ties in to some news in the wine world today…. BBRG is reporting a decline in wine auction sales of 19%.
A. Bad day for Bordeaux. But the interesting thing is that wine sales have become more and more standardized, and the industry now has its very own index, called the Liv-Ex. It’s the index most wine funds use to value their holdings.
Q. So, how is it compiled? Is the market really robust enough to support a reliable index?
A. That’s a very fair question, but it does seem to be gaining credibility. The index is based on live data from an actual exchange, rather just on auction prices. And the exchange is used by hundreds of wine merchants, who actually are making legal commitments to buy and sell at the prices on the screen. It’s pretty darn close to a real market.
Q. So how many different kinds of wines are in the index? Everything?
A. No. To get a decent price quote, of course, you need liquidity, and there are only a few wines that really trade enough to give you that. So, first off, you’re talking younger wines– nearly all of the trades concern wine in the last 10 vintage years. And they are nearly all the super famous labels, like Lafite Rothschild and Latour.
Q. Now, are these like commodity futures, where people trade but don’t really expect to deliver or take delivery? Is there speculation?
A. Fortunately or unfortunately, it hasn’t gotten to that point yet. It’s like the early days of commodity futures… you really are expected to buy and sell physical property. You deliver the wine a specified warehouse, and take control of it after making payment to the exchange. Nice and old fashioned.
Q. So, what’s this all mean for investors?
A. To me, it signals that the wine funds do have a reasonably reliable way of marking their holdings to market, unlike, for example, diamond funds, or many other kinds of collectibles. Now, that doesn’t mean that wine funds are necessarily a good idea, of course… but at least they do have a credible way of valuing the LP interests from time to time.