All good investment managers espouse the virtues of a well-diversified portfolio and, while investors typically achieve this through a mix of stocks, bonds and property, there are an array of alternative asset classes available to more adventurous investors. One which provides a low correlation to other investments and has gained in popularity is wine. As with fine art or stamps, wine investment involves the acquisition of a tangible asset whose value is expected to rise over time and, although some may view wine as sophisticated, it is actually an asset anyone with the right knowledge and spare cash can invest in.
A valuable asset
Fine wines are an expensive commodity. In October 2018, a single bottle of 1945 Romanée-Conti sold at Sotheby’s for a staggering $558,000 – the most expensive bottle of wine ever sold at auction. And, in March 2019, three 12-bottle cases of 1990 Romanée-Conti fetched $347,520 each, helping boost Sotheby’s worldwide wine sales to a record-breaking $65 million during the first half of 2019.
Over the long term, investing in wine has tended to generate relatively attractive returns in comparison to other asset classes. For instance, in the five years to the end of September 2019, the FTSE All-Share Index rose by 15%, compared to a 31% gain in the Liv-ex Fine Wine 100 Index, which tracks price movements of 100 of the most sought-after wines. The fine wine index has actually trebled since its launch in 2003, although it is currently below its peak achieved in 2011.
Research, research, research
Prior to investing in any asset class, it is obviously important to develop a thorough understanding of the subject area and investing in wine is no different. The London International Vintners Exchange, or Liv-ex, is the wine trade’s global marketplace and reviewing trading trends here is a good way to gain historical insight and gauge how the wine market works and moves.
It’s also imperative to thoroughly research those aspects that influence a wine’s value. For instance, rarer vintage wines are understandably the most collectible, while wine from renowned regions, such as Bordeaux, Burgundy, Tuscany or Napa Valley, typically command the highest prices. When constructing a wine portfolio, it’s worth purchasing a range of vintages from different regions in order to ensure you build a well-rounded, diversified portfolio.
Storage matters
Fine wine investors rarely take physical ownership of the bottles, but instead keep wines stored professionally in secure, climate-controlled bonded warehouses. This is partly because improper storage can dramatically alter the flavour of the wine and therefore seriously devalue an investment. In addition, wines stored ‘in bond’ are not liable for VAT or excise duty and storing wines this way also helps provide unquestionable provenance.
It’s also usually preferable to purchase wine in unmixed, sealed original wooden cases. While some single bottles can demand high prices if there’s a very limited quantity of the wine in circulation, full cases in original packaging are generally more likely to reap higher rates of return. Insurance is another important consideration as wine assets can, and sometimes do, get damaged or stolen.
Ready to invest?
Private investors typically purchase their wines via a wholesaler, distributor or retailer, or through fine-wine merchants and vetted wine auctions, with experts suggesting serious investors need upwards of £10,000 to make a decent fist of fine-wine investment. In addition, it is advisable to invest for a minimum of five to ten years and, due to the risks involved, to only invest what you can justify losing, or drinking.
In recent times, however, wine merchants have tried to attract a new generation of customers, investing relatively small sums on a regular basis. As a result, people can now start investing in wine from as little as £100 per month through respected wine merchants’ cellar plans. So, if you do have a passion for wine and are looking for a place to invest spare cash, then it might just be time to uncork a profit from fine wines.