Liv-ex 100 – does it reflect the market?

17-Apr-2014

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Liv-ex comes from London International Vintners Exchange, and it was established in 1999. The exchange offers a secure marketplace for merchants who want to trade wine. The Liv-ex features 2 main wine price indices – Liv-ex 50 and Liv-ex 100 – that are being used to determine general developments in price and establish the fine wine market.

Typical wine types traded on Liv-ex are investment-grade wines or collectibles, and most of them are sold by the case. As opposite to wine auctions, traders are not permitted to trade their product directly on Liv-ex. Only wine traders, wine brokers and some other types of wine professionals are allowed to buy and sell wine on Liv-ex.

Calculating the index

Wines should have critical acclaim from a reputable wine critic to qualify for the Liv-ex index. A score of 95 points and above is highly recommended. Also, the product should be physically available in the United Kingdom, which makes en primeur wines ineligible. A committee will be reviewing and analyzing the wine to make sure its quality if irrefutable.

Liv-ex 100 uses a Liv-ex Mid Price as a main calculator for each component wine. The Liv-ex Mid Price is considered the market’s most robust measure used to label the wines available on the current market. Each price offered is verified by the Liv-ex valuation committee to make sure the number is accurate after all information (historical transaction pricing on Liv-ex and merchant offer prices) has been thoroughly verified. Afterwards, the Liv-ex Mid Price is multiplied by the average production level of the wine, and after 25 years the vintage is removed from the Liv-ex because the volume becomes too low to draw attention.

Does Liv-ex 100 reflect the market?

Ever since it was founded in 1999, Liv-ex has strived to become a respected company. Slowly but surely, it became an acclaimed enterprise with a wide variety of self-created indices similar to the stock market. Some experts are calling Liv-ex the Stock Exchange of the wine business, because it helps facilitate wine trading in the safest way possible. With over 400 active wine merchants, Liv-ex has turned into a multinational wine company.

A lot of people are wondering if Liv-ex reflects the market entirely. There are other indices such as Liv-ex Investables and Bordeaux 500, but they are solely focused on Bordeaux wine. Simply put, they’re not meant for a wider market. Is Liv-ex 100 an accurate reflection of the current wine market? Rumor has it that it used to be precise, but not anymore because it’s not evolving.

Because it uses the Liv-ex Mid Prices, the index is meant to offer each type of wine a weighting that matches up with its impact on the current wine market. To qualify for the Liv-ex index, all wines should be critically acclaimed and have a score of 95 points and above. -This statement should make investors and traders understand that big Parker scores and vintage currency are 2 major factors that make up the Liv-ex index. That’s why a number of 23 wines from 100 are included in the 2009 category of vintages: 14 are from 2000 and 12 types are from 2005. Surprisingly, only 3 wines are from 2004 and 4 from 2006.

Some would argue that this imbalance can create problems. In the international fine wine market, the wines labeled “off-vintages” from 2004 and 2006 have steadily surpassed “on-vintage wines” from 2000 and 2005. Since their release, most wines from 2009 have just moved because of their extremely high prices in the first place.

Liv-ex has completely changed the way people invest in wine

Liv-ex has successfully managed to convince people that investing in fine wine can be profitable. Most investors were afraid to spend money of this liquid asset because there was no way of verifying that the product’s quality was genuine. Liv-ex has shed some light on the wine market. It injected transparency and it made others trust the system.

Since the launch of Liv-ex 15 years ago, prices for fine wine have soared. The increase also happened because of a boosting Asian demand. While some experts don’t agree that the 100 index reflects the market entirely, others are confident that the only way to invest in quality wine is to trade via Liv-ex.

 


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