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Investing in Wine: shrewd move or act of folly?

Just as diners seek to set off their meals with a good claret, thirsty investors can put fine wine into their portfolios in the hope that it will beat gold like last year. But, apart from adding an exotic flavour, is fine wine really good for investing? 

 
Investing in Wine: shrewd move or act of folly?

Just as diners seek to set off their meals with a good claret, thirsty investors can put fine wine into their portfolios in the hope that it will beat gold like last year. But, apart from adding an exotic flavour, is wine really good for investing?

Demand from Asia

This demand, which comes amid efforts to safeguard against inflation and the rising purchasing power of fast-growing Asian economies, sent the Liv-ex Fine Wine 50 Index – a gauge of the top five Bordeaux brands across ten different vintages – up almost 60% in 2010.

A broader measure and the industry benchmark, the Liv-ex Fine Wine 100 Index, rose 40.5% over the year.

Yet economists from the International Monetary Fund recently warned that although fine wine can be considered as an ‘investable asset,’ its behaviour is not significantly different from that of crude oil, and may actually ‘fail to enhance portfolio diversification.’ In other words it will go up and down in price just as much as oil and will do so at the same time. Canny investors prefer alternative investments to behave differently from their mainstream assets.

So is fine wine really an alternative asset class that can reduce an investor’s risk exposure, or is it just another volatile commodity? And how sustainable is the demand for it?

Taking a long-term view

You can invest in fine wine from Bordeaux in a number of different ways: from purchasing bottles via a merchant or auction house; to buying a unit of an investment fund that will acquire and trade for you; to putting money into a winery.

In addition, you can buy wine en primeur – whereby the alcohol is purchased early while a vintage is still in a barrel, offering the opportunity to invest in a wine before it is bottled.

The UK-based Bordeaux Wine Investments is a merchant that procures wines wine for its clients, and can also store and sell for them. Robert Lench, managing director, said many of its clients simply like to enjoy wine and wish to build a cellar.

‘We have a lot of clients who buy an even number of cases of wine, on the basis of selling half and retaining half – and the half they sell... will have paid for the half they drink,’ he told Citywire, adding that a ‘long-term’ view can provide very good returns.

Lench acknowledged that a dramatic rise in prices of wines over the last three years, driven by buyers flush with new wealth in the Far East, had distorted the market. He did not know how long the ‘China effect’ to generate investment returns would be maintained.

According to Marc Duschenes, chief executive of investment manager Braemar Group, which is backing a UK vineyard in a bid to raise £4 million, Asian markets are consuming ‘extraordinary’ amounts of very fine Bordeaux.

‘Just like you and I go to a dinner party, and we turn up with a bottle of wine or a bottle of champagne; the glitterati in the Indian, Japanese, Chinese markets – they’re turning up with a bottle of £500 Chateaux Laffite,’ he said.

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8 comments so far. Why not have your say?

Roger Mills

Jan 18, 2011 at 10:26

Never invest in anything that you don,t no anything about, I will stick with Tesco

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sharw

Jan 18, 2011 at 10:36

Don't forget this is also an area for fraud (see "How to spot a boiler room scam"). If you invest in wine use a reputable company based in this country - do not respond to a cold call from abroad from a fine sounding company with an impressive website.

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Howard Wood

Jan 18, 2011 at 10:51

Last year, and for the first time, I have taken advice from a reputable wine merchant and purchased several cases of Bordeaux-fine wine purely for investment and good quality for drinking.

As the article states, I also have purchased the quality wine for drinking-hopefully paid for by the profit from the fine wine.

I have been told to take a minimum seven year view, as on average, the first two years growth in value will cancel the merchant's profit. The next 4.5 years will grow my investment, and the the last half year profit will be the auction commission.

If profit doesn't materialize, at least I will be very popular on our dinner circuit.

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robert munro

Jan 18, 2011 at 13:41

Just drink it. That's what I do!

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Drake

Jan 19, 2011 at 12:17

You have to know what you are doing and you have to go on buying over a period of years. Just like shares. Don't forget that second rate wines will cease to be saleable after a few years (3-5 in the case of white and 8-12 in the case of red). Wine is a wasting asset, which is why you don't pay tax on any gain.

The best way is to buy en primeur with a reputable dealer. Watch out for dealers offering you a tailor made portfolio - recently one well known dealer offered a "starter" cellar costing £10,000 largely made up of 2007 red Bordeaux. 2007 was a dog in Bordeaux.

I have been buying en primeur since 2000. It has been great fun, I've learnt a lot about wine, I've made money and I've drunk more good wine than I would otherwise have done. If you don't like fine wine, don't do it!

Oh, and finally, make sure you keep it well. Some dealers will store it for you, otherwise it's easy to open up a storage facility with someone like Vinoteque. It costs about £12-15 a case per annum. If you are buying to invest you should buy all your wines in bond.

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Allan Harris

Jan 19, 2011 at 15:21

Buy through the Wine Society, store at their cellars (£8 per case per year) and buy their recommendations. Hang onto it and then sell, if the worst comes to the worst you can at least drink it.

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Drake

Jan 19, 2011 at 16:21

I absolutely agree with Allan on the Wine Society - I have been a member for 30 years and think they are brilliant. However, they only store wines duty paid and that means it won't be quite so easy to sell, so I just keep wines with them that I'm going to drink.

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Wino

Feb 24, 2011 at 08:11

I have been investing heavily in wine for the past 7 years.. In the past 18 months alone I have made as much as 500% profit on certain wines such as Lafite 2008, which I bought in size when it was trading around £3k a case.. Make no mistake. Wine can be an extremely profitable investment if you take the time to do your research and don't take silly risks...

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