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June 21, 2014

The Times: Invest in a liquid asset that will mature with age

times

By Robin Ask, 21 June 2014, The Times

After a turbulent few years, some fine wines now offer outstanding value, says Robin Ash

Wine lovers have had their spirits lifted by research revealing that throughout the 20th century wine investment outperformed government bonds, art and stamps and almost matched stocks, achieving an annual return of 4.1 per cent.

The study, led by Professor Elroy Dimson of the University of Cambridge and London Business School, found that annual returns over the same period were 1.5 per cent on British government bonds, 2.4 per cent on art and 2.8 per cent on stamps.

With an increasing number of wealthy investors buying fine wine, brokers believe the prospects for growth are strong. Putting your money into wine is not without its risks, however, so should your view be glass-halffull or could a case of fine burgundy leave you in the red?

The market
Those seeking quick returns should look elsewhere. David Nathan-Maister, co-manager of the Oracle Paradis wine fund, says that the first rule is to be patient. “Successful investment requires time and expertise,” he says. “It should be seen as a five to ten-year commitment; three years might be regarded as an absolute bare minimum.”

Recent years have not been rosy for investors in the main market. The Fine Wine 100 is a benchmark index representing the price movement of 100 of the most sought-after wines, weighted towards newer vintages of Grand Cru bordeaux. Run by Liv-ex, the London based wine exchange, it has fallen by 5.45 per cent this year and by 33.42 per cent over three years. This follows a run between 2009 and 2011 when Bordeaux prices surged by 80 per cent, driven by buyers in China and the US.

There are signs that confidence is returning. Matthew Tipping, sales manager at Berry Bros & Rudd, says: “It’s a good moment to start looking at investing. Anybody who doesn’t have wine already would be buying into a market that’s well down from its previous peak. There are no fundamental changes that mean we won’t see trading at previous high levels.”

According to Bordeaux Index, a fine wine merchant and trader, demand for bordeaux is up 30 per cent in Asia this year. Gary Boom, its founder, says: “Activity in Asia and the US has picked up. Pricing may take a few months to catch up but we believe the market may have turned a corner.”

Ways to invest
You can buy bottles or shares in an investment fund, but if you opt for the former they should be stored in a climate-controlled professional facility. Investors want wine that they know has been properly looked after.

Most investors buy wine through a broker, although this attracts fees of up to 10 per cent when purchasing and selling. The wine is then stored in a bonded warehouse which has an annual charge of about £10 a case.

Fabian Cobb, of Fine Wine magazine, says: “A lot of the top wines are sold in bond, and keeping it this way is likely to add a premium over what you’d otherwise get for it. If you’re keeping it under your stairwell buyers might be a bit more circumspect.” London City Bond and Octavian are two of the largest and most popular warehouses. Duty and VAT are not payable on the resale of wines stored in bond and because wine is classed as a “wasting chattel” profits are exempt from capital gains tax.

The other way of investing is a wine fund, a pooled investment selected by a fund manager. You do not own the wine directly and most funds require a minimum investment of £10,000 and charge management and other fees.

What to buy
Bottles for investment are usually in the £160 to £2,500 range. Mr Tipping says: “A new investor looking for a spread of options should be looking at £10,000 for a few cases, but you don’t need to do that. You can buy one half case at £500-£1,000 to get started.”

Some of the most popular investment wines are Château Lafite Rothschild, Château Latour, Château Haut-Brion and Château Ausone St Emilion, which has an average price of £495 a bottle. For middle-ranking wines Mr Tipping recommends 2009 Penfold’s Grange at £1,560 and 2002 Dom Perignon at £550 for half-cases in bond.

Jonathan Hirsch, a partner at IG Wines, a merchant and investment company, says that over the past five years the leading “Super Tuscans” —Sassicaia, Ornellaia, Solaia, Masseto and Tignanello—returned more than 90 per cent. Prices of wines from Champagne and the New World, according to Liv-Ex, have also continued to rise.

The risks
More than £100 million was lost through the collapse of 50 wine investment companies in the five years to 2013, and the market is notorious for scams, so using a reputable company is essential. As they are unregulated, wine investment schemes are not covered by the Financial Services Compensation Scheme. A major driver of price rises has been the rise of the super-wealthy in emerging markets, so wine is vulnerable to any worsening of economic conditions.

Nevertheless, stock up on gold at the wrong time and you have an expensive doorstop, but invest in a wine that doesn’t turn a profit and you can reach for a corkscrew and derive some pleasure liquidating your investment.

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