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29 July 2014

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Liquid Gold - Investing in Wine

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The growing demand for and limited supply of fine wines makes them a good bet for a safe investment, says Charles Metcalfe


Wine Investment The FTSE 100 is down 7.5% over 12 months, so buy some fine wine – not to drown your sorrows, but as an investment. The price of fine wine has kept up with gold over the past year, and beaten gold and platinum over two years. And it’s much more fun to hold than one of the traditional alternative investment refuges. With as many wines actively traded as there are companies in the FTSE 100 index, you can build up a portfolio and watch how it performs.

Why fine wine? Because there is a limited amount made of any top wine in any year, and an increasing international demand. What’s more, as a great wine matures, and bottles are consumed, the supply diminishes and what’s left commands an even higher price. However if the wine ages too far and pundits write it off, then the value plummets.

The general trend over two years has been upwards, making it hard to see why wine is often overlooked as an investment. Indeed, in January, the London Stock Exchange gave prominence to a statement by Jason Butler, founder of Bloomsbury Financial Planning, criticising art, wine and antiques as ‘easy to buy, but hard to sell’.

Healthy Growth

Art and antiques may be hard to shift, but there is an extremely liquid market in fine wine. Liv-ex (www.liv-ex.com), an electronic exchange for the fine wine trade, was listed in The Sunday Times Fast Track 100 last December, for its 59% growth each year since starting up in 2003. It trades about 20,000 cases of fine wine a year and also publishes various indices tracking the price performance of groups of wines. Best known of these is the Liv-ex 100, its top 100 performing wines. Between the end of March 2007 and the end of March 2008, the Liv-ex 100 rose by 33.7%, and over a two-year period, from March 2006, it has risen by 100.38%.

Liv-ex trading is for the professionals, but there are numerous wine companies eager to sell and buy fine wine. However, beware! There are some wine traders who are too eager, too pushy, and you may never get your wine. (There have been a few bankruptcies over the past 20 years – check www.investdrinks.org to see if a company has a dodgy record.) So, stick with well-established companies such as Berry Bros & Rudd, Corney & Barrow, Justerini & Brooks and Lay & Wheeler, and good younger ones such as Antique Wine Company, John Armit, Bibendum, Bordeaux Index, Farr Vintners, Fine & Rare Wines, Richard Kihl, Michael Morgan and Seckford Wines.

All of these offer a wine-broking service, and will find you a particular wine even if they don’t actually own it themselves. Majestic, Waitrose and The Wine Society also offer fine wines regularly.

There are also a small number of reputable wine investment funds for those who want to make fine wine a major part of their portfolios. Largest is The Vintage Wine Fund (www.vintagewinefund.com), with €100m under management, and a minimum investment of €250,000.

The Fine Wine Fund asks for a less daunting minimum investment of £50,000 (www.thefinewinefund.com). Even more modest is the Wine Investment Fund (www.wineinvestmentfund.com), where you can make a play with just £10,000.

Golden Rules

Finding a reliable supplier is the first rule of fine wine investment. The next is to stick with the top wines. The wines to go for are the big names, from great years. There is no point in buying petit château Bordeaux – it will never make you money. And wine from a less-than-great vintage is also a higher-risk investment. If you look at The Vintage Wine Fund portfolio, it has around 70% of funds invested in first-growth clarets (Châteaux Haut-Brion, Lafite-Rothschild, Latour, Margaux and Mouton-Rothschild). No wonder these command such high prices, with institutional investors pursuing their limited availability. The two top Saint-Emilions, Ausone and Cheval-Blanc, and the two top Pomerols, Pétrus and Le Pin, are also highly prized by investors.

Bordeaux does dominate the fine wine market. The Vintage Wine Fund has over 95% of its net asset value in Bordeaux wines. The Fine Wine Fund has a ‘substantial majority of the scheme… invested in the red wines of Bordeaux’. The Wine Investment Fund states that its predominant choice is ‘Bordeaux Cru Classé fine wine’. So why the focus on Bordeaux?

The first reason is size. All the Bordeaux first growths release enough of their top wine (grand vin) to make a good market. The other main reason is that top Bordeaux reds mature well, over at least three decades from a good vintage, so there’s enough time to see good capital appreciation.

High Earners

And it’s not just the wine investment funds that concentrate on Bordeaux. Stephen Browett, of Farr Vintners, estimates that 83% of Farr Vintners’s turnover last year was Bordeaux. Stephen Mould, head of the European Wine Department at Sotheby’s auction house, reckons: ‘Sotheby’s are seeing fewer lots but of higher quality, such as first growth Bordeaux, Pétrus, and similar wines. We’re not getting as many mixed lists of eclectic ranges of wines as we used to.’

Top Champagnes (Krug, Roederer Cristal, Dom Pérignon, Salon and the like) from great years can also yield good returns, as can occasional Burgundies from really superb domaines such as Domaine de la Romanée-Conti (the best bet), Domaine Leroy, Comte Georges de Vogüé and a handful of others. Wines from other countries may have a huge local (even an international) following but don’t feature in the lists of investment-worthy wines.

Gary Boom, managing director of fine wine traders Bordeaux Index and one of the fund managers of the Vintage Wine Fund, underlines the importance of Bordeaux: ‘We invest in second-growth Bordeaux as well. But we don’t buy New World wines, and not many from other countries, even famous wines such as Sassicaia. They’re not investment wines. They’re for drinking.’

When considering who to buy from, compare prices on different merchants’ lists, and do take account of costs. With the investment funds, costs are clearly stated, usually 2% management each year, and 15-20% ‘performance fee’ (ie commission on your profit when you sell). Auction houses will charge you a ‘buyer’s premium’ in addition to the price you bid (the ‘hammer price’). Sotheby’s and Christies both charge 15% on wine sales (plus VAT). If you are buying from a merchant, you won’t have these charges, but you do have wine storage to consider. One of the advantages of buying and selling wine as an investment is that you don’t have to take possession of the wine yourself. You can leave it ‘in bond’, and thereby avoid paying customs duty and VAT. But you do have to pay storage charges to the bonded warehouse where the wine is stored, usually about £15 per case per year, or more with all the other costs added in (insurance, handling, paperwork and a ‘Certificate of Pristine Storage’). However, the more you store, the less you’ll pay per case.

Safe-keeping

That ‘pristine storage’ is important. The value of your wine is determined not only by the name on the label and the wine in the bottle, but also the condition of the label and the packaging. If the wine originally came in a wooden case (‘OWC’ stands for ‘Original Wooden Case’), this should be preserved, if possible, in an untampered form.

In storage, your cases should also be clearly identified as belonging to you. If you are very unlucky and the merchant from whom you have bought goes bankrupt, you stand a good chance of recovering your wine as long as it is clearly marked as yours. And if the world runs out of money, and all investments go into meltdown, at least wine has one last advantage. Unlike gold, oil or shares, you can always drink it. Some say that’s what wine’s for…

What Type Of Wine Investor Are You?

Cautious Chris - the careful investor

Lacks confidence, more at home with ISAs, wants safe tips and can’t quite bring himself to believe there isn’t some catch to investment in alcoholic drinks. So he has chosen utter blue chips.

  • Château Lafite-Rothschild 2000 – £10,700
  • Château Latour 2005 – £10,400
  • Domaine de la Romanée-Conti La Tâche 2000 – £8,750

Total: £29,850 (in bond, London, excluding duty and VAT)

Flash Felicity - the new money investor 

The adventurous type, very much at home with commodity and options trading. She fancies some of the small-volume, high-price Bordeaux as well as first-growths, with some high-end Champagne in case she can’t resist a party. And the second-growth Montrose for a bit of rough.

  • Champagne Krug 1996 – £2,500 
  • Château Lafite-Rothschild 2000 – £10,700
  • Château Lafite-Rothschild 2005 – £9,200
  • Château Le Pin 2000 – £24,800
  • Château Montrose 2005 – £900
  • Château Mouton-Rothschild 2000 – £6,000
  • Château Pétrus 1998 – £22,500

Total: £76,600 (in bond, London, excluding duty and VAT)

Traditional Terence -  the classical investor

Sticks solidly to first-growth Bordeaux (and Léoville-Barton, because Anthony Barton speaks proper English). His idea of a risky investment is a flutter on Yquem – but only from a great year.

  • Château Haut-Brion 2000 – £5,600
  • Château Lafite-Rothschild 2004 – £3,000
  • Château Latour 2000 – £8,400
  • Château Latour 2005 – £10,400
  • Château Léoville-Barton 2000 – £920
  • Château Margaux 2005 – £9,200
  • Château Margaux 2000 – £8,200
  • Château Margaux 1996 – £5,400
  • Château d’Yquem 2001 – £4,100

Total: £55,220 (in bond, London, excluding duty and VAT)


Editorial feature from Square Meal Lifestyle Magazine Summer 2008


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