Investing in wine
Investing in fine wines is a traditional and popular practice, with many experts suggesting that some bottles can guarantee a return of up to 30% per year.
Wines with a life expectancy of less than 50 years are also classed as having a Chattel status, meaning that they are not subject to capital gains tax when re-sold.
Due to the 1855 classification of Bordeaux wineries, wine production in many areas of France is strictly limited and many producers have been working at full capacity for years. Some have even reduced their production, and this limited supply combined with a booming demand from emerging economies such as China and Russia have seen prices soar.
Increase in markets
A recent Money Observer report stated that during 2010 the wine market saw price increases in 11 of 12 months, and that the majority of Château Lafite vintages (the most popular fine wine on the Chinese market) saw increases between 60% and 100%.
During times of economic downturn or crisis, some speculative capital can often shift from traditional investment markets into tangible alternative assets such as wine. This usually compensates for the inevitable drop in demand for consumption, resulting in a levelling of prices, rather than a crash.
Investing in a fine wine cellar has long been considered a mark of wealth and status since the days of Ancient Rome. But far from being the preserve of the ultra-wealthy, wine is now attracting entry-level investors as well as those at the top end of the market.
The Liv-ex 100 Fine Wine Index© is the industry's leading benchmark, tracking the monthly price movement of 100 of the most sought-after fine wines for which there is a strong secondary market.
The majority of the index consists of Bordeaux wines - a reflection of the overall market - although wines from Burgundy, the Rhone, Champagne and Italy are also included.
The index is calculated using Liv-ex Mid Prices and is then weighted to account for original production levels and increasing scarcity as the wine ages. As such, the index is designed to give each wine a weighting that corresponds with its impact on the overall market.
Size of markets
The wine market, traditionally dominated by the United States and Europe, has seen the biggest growth in the emerging economies of China and Russia. Hong Kong has become the centre of the wine auction business, with Sotheby's reporting that in 2010 60% of all their wine sales were made in the far East. The rise of the Chinese noveau-riche, with 800,000 millionaires and counting, has led to an enormous growth in both demand and prices.
The rate at which these emerging economic superpowers are growing suggests that the demand for rare and fine wines is set to continue growing for some time. A Vinexpo study in 2010 found that by 2013 the annual Chinese wine consumption was set to rise by 32% to 1.26 billion bottles; the consumption in India looks set to double from its figure in 2009 and the annual consumption in Hong Kong is set to rise by 72% over three years between 2009 and 2012.
Most valuable investments
When buying wine as an investment, the most profitable strategy is to buy the best wines from the best vintages and the best producers. The most reliable wine for a purely capital return is investment-grade red Bordeaux from the best-scoring vintages. These make up 90% of the wine investment market, and due to a combination of limited supplies, high scores and an enduring reputation they are the most likely to present a profit.
Researching the markets
When investing in the wine market, there is a huge amount of information available when researching which wines to buy. If speculating by buying wine ‘en primeur’, investors can look at factors such as growing conditions and weather reports to make judgements on the prospects of the wine scoring highly. By looking at current market trends around the world many investors also speculate on which wines are likely to rise in both popularity and price over the coming years.
There are a large number of organisations and clubs worldwide dedicated to wine appreciation and education on the subject; these groups can offer advice and information to new collectors and those looking to invest in wine for the first time.
There are also a number of companies who specialise in fine wine investment; it is important, if dealing with these companies, to research their track record and see how their funds and portfolios have performed historically before investing with them.
Where to buy investments
There are a number of different sources from which to buy investment-grade wines such as wine merchants, specialist wine brokers, auctions and wine investment funds.
It is also important to consider where your wine will be stored. The majority of merchants and investment funds provide storage in a specially-controlled bonded warehouse which will ensure the wine remains in good condition (which is vitally important for its re-sale value). This will also ensure that you avoid paying VAT and Duty when you decide to sell.
Wine can also be purchased ‘en primeur’; this means the wine is pre-ordered whilst still in the barrel after an initial tasting, before it has been bottled. Investing this way can sometimes be a risk, as it involves speculating on the future quality of a wine when it has matured, but it can mean obtaining the wine at a lower price.
Often certain vintages are produced in such small quantities that the entire supply is purchased ‘en primeur’ before it ever hits the market; if the wine is highly rated, this can mean it becomes highly sought-after and its price can increase rapidly.