After a tumultuous start to 2020, a relative calmness returned to both Fine Wine and the FTSE100 in the first half of 2021. But calmness doesn’t mean inactivity, and both indices have continued to rebound strongly following the shock of the early months of 2020.
The Liv-ex Fine Wine 50 (FW50) rose 4.63% in the first six-months of this year compared with a 7.09% rise for the FTSE100.
When adjusted for risk (using the Sharpe Ratio), the FW50 returned 2.8% compared to 1.2% for the FTSE100.
This is due to the differing volatility of the indices, which is a measure of the price movement of an investment/asset.
Although the FTSE has retuned more than the FW50 in H1, the risk associated with each index, as shown by the lines across the bottom of the chart, is very different.
Both indices are on track for a positive 2021. However, with 2020 exposing many unknowns, and showing just how vulnerable financial markets can be, can wine offer a positive risk adjusted return? The maths seems to suggest so.
Risk adjusted returns are useful as they take into account the degree of risk that must be accepted in order to achieve the return and can be compared against virtually risk-free investments, in this case 10-year UK government bonds (06/30: 0.72%).
