Is wine worth a punt?

By Senior Writer Jody Clarke Nov 10, 2009

Jody Clarke

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Up 9.5% over 12 months, the Liv-ex 100 Fine Wine Index (below) has clawed back some of last year's losses, when the industry's main benchmark index fell 14.6% in 2008. So should you be piling into the fine wine market?

Probably not. First off, new Asian buyers and a "whole pile of Johnny-come-lately types" are fuelling current demand. A six-litre bottle of Château Pétrus 1982 recently sold for a record £60,000 at auction in Hong Kong, a city where wine imports rose by more than 40% in the first eight months of the year.

Meanwhile, in Christie's spring 2009 global sales, Asian and Chinese buyers accounted for 61% of the total sale value, compared to 7% in 2005. "With demand coming almost entirely from Asian buyers, and with that demand so heavily biased towards one particular producer, it would be wrong to start heralding the return of a bull market", say the people over at the Vintage wine fund.

Asia is beginning to resemble Japan in the late 1980s, when cash-flush companies and property developers splurged on trophy works by artists such as Van Gogh.

 

But there's another reason why wine just isn't such a great investment. Yes, it's true, the price of 'blue chip' wines should increase with age. After all, the volume remains limited. The number of bottles of a certain 'brand' - say, Château Mouton Rothschild 1998 - will only decrease after harvest. However, if you are storing it, you'll need a cellar with carefully monitored humidity and temperature levels. And when it comes to selling the stuff, you often end up turning to the broker who you originally bought it off to do so. That doesn't sound like a great idea.

Of course, you can plump for a wine fund such as the Wine Investment Fund, which is currently taking subscriptions for a new tranche at a minimum investment of £10,000. But we have never been a fan of large fees. And the hedge fund-like subscription fees of 5%, followed by a 20% performance fee charged at maturity, means you would have to be exceedingly bullish on the market if you were to plump for it.

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  • 1. J Fletcher

    (11 November 2009, 11:26AM)  Complain about this comment

    "But there's another reason why wine just isn't such a great investment....." I think that when you finally make your point here it’s "don’t invest in wine because you have to store it in a “cellar with carefully monitored humidity and temperature levels." Granted that not everyone has a wine cellar, but let’s face it, telling people not to invest in wine and that’s your reason why? It’s not like you can find many bonded warehouses that offer to store your wine in a controlled environment for less than a tenner per case per year....... Oh wait....you can.

  • 2. Helen Smeaton

    (12 November 2009, 01:34PM)  Complain about this comment

    Fine wine CAN be a great investment if you use a specialized wine investment company, one that charges a 1% initial fee for buying wines and thereafter just 1.5% per year. The higher the return on the investment, the higher their fee - a GREAT way to ensure they do the best job possible.
    As the previous poster mentioned, costs for storing wine in a climate controlled bonded warehouse and insurance costs around £10 per case per year.

    I personally have a 10k investment in 2003 vintage Bordeaux. I knew nothing about fine wines other than the names of the best Chateaux in France and I've made a 32% return in the first 5 years - and 2003 wasn't that great a year by all accounts.

    Novices can find how how to safely invest in fine wine by reading this article:
    How to Invest in Fine Wine

  • 3. Route out the Rouge Brokers

    (24 January 2010, 05:37PM)  Complain about this comment

    I have to say, overall wine has been a sound investment and as our frnds above have stated, storage isnt the concern here - its the broker you buy from and their mark ups and bullshi! promises in returns and time frames. Be warned, just like any other non-regulated market place; you wil be cold called and sold on this as an alternative as everywhere else is just oh so gloomy! Do your due dilligence, your own research and you could enjoy a tax free, bumpy ride to profits along the way. Buy it, store it and just forget about it for a long while...

  • 4. Route out the Rouge Brokers

    (24 January 2010, 05:55PM)  Complain about this comment

    Wine Investment for Portfolio Diversification by Mahesh Kumar, perhaps the most thorough piece of academic analysis on investing in fine wine ever published. The author has constructed an index of 50 wines, made up of the best Bordeaux names. He has then observed and contrasted the performance of his index over rolling five, ten and 20 year periods against the FTSE 100 and UK bonds.
    His conclusion? Fine wine not only produces comparable returns to equities, but low volatility and an even lower correlation to the performance of traditional assets makes it a fantastic diversification tool. In the 20 years to 2002, for example, Kumar’s Fine Wine Index produced an annual return of 12.3% against 9.2% for the FTSE 100
    The right approach to investing in wine would seem to be to buy into weakness.

  • 5. agooner

    (26 January 2010, 08:24PM)  Complain about this comment

    Jan 09 i 1st invested in Bordeaux wines through a London broker.It was a "cold call" investment which i later got "cold feet" over and decided to make further investments with known brokers in the trade. Since June 09 i have gained a 25% profit and have now sold at this gain and re invested in what i hope is a sound Latour vintage. This investment has been made with my profits since Jan 09. Not bad during a recession.

  • 6. J Fletcher

    (02 February 2010, 01:09PM)  Complain about this comment

    All good points. There are some bad apples out there when it comes to investing in wine but follow these simple tips.

    1: Get wine from the BEST chateau. (This is 90%+ Bordeaux) People will argue about new world wines etc but personally I would never touch them for investment. Look for the First Growth wines primarily)

    2: Get wines from a good vintage. (90+ on Robert Parkers points system is a good guide)

    3: Know who you are dealing with. Avoid cold calls, high pressure sales tactics and wild promises. Find an established merchant then check the prices offered on the web.

    Today the internet makes it very easy to price check wine. www.wine-searcher.com is a good place to start. http://www.liv-ex.com/pages/static_page.jsp?pageId=100 this is also a must see website for wine, It tracks the top 100 wine prices.

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