Fine wine investments and how you make the right choices based on our experiences in the global fine wine market.
Fine wine has been one of the best performing asset classes of the last 25 years. However, as with any investment that yields a return there is a risk.
Historically, buying high-end wines has been the way to succeed as wine investor. In fact, just 8 different wines count for 80% of all wine investments (cf. Liv-ex Industry Conference 2014).
This post is based on a number of fine wine investment articles in Telegraph, information from Liv-ex and our own experiences dealing with wine.
Some good advice.
Invest what you can justify to loose or drink.
Although returns are not guaranteed fine wine is a valuable commodity and global sales are increasingly impressive.
The interest from Asia, specifically China, plays an important role in the global demand for fine wine. The Chinese have developed a taste for red wine and in 2013 they bought 1.86bn bottles (136% increase over 5 years) and became global market leader, France went into second place. The availability of these wines is already limited but such an increase in demand is pushing prices upwards.
Invest in the best wine you can afford.
Bordeaux Grand Cru Classés account for the largest part of the investment market for fine wine at around 75% as these wines provide the most stabile profit.
It is key to invest in wines with a track record and those which have a global secondary demand.
First-growth Bordeaux wines (Château Lafite Rothschild, Mouton Rothschild, Margaux, Latour, Haut-Brion etc.) have provided sound returns for centuries.
The top Burgundies and Rhones have performed well over the past five years, as have top wines from Champagne.
In Fine Wine Invest we expect a lot from Burgundy and Champagne over the next 10 years where the diversified hippie area of private estates is in a position to rise much more.
The super Tuscans, such as Sassicaia, Tignanello, Ornellaia have performed steadily in recent years. Similarly, Californian cult cabernets such as Screaming Eagle. However, the market for these wines is less liquid, so they should only form a smaller portion of diversified wine investment strategy.
The advice is to buy the best that you can afford and it’s worth bearing in mind that smaller quantities are cheaper to store. Typically, you pay £15 per case, per annum in storage and insurance.
However, Fine Wine Invest offers free storage to its clients.
Keep a close eye on the prices.
The cost of investment wines can vary dramatically so follow the prices on wine-searcher.com. Liv-ex, the global market price for fine wine, is also an invaluable resource of information.
Fine Wine Invest is certificed to trade on Liv-ex and you can always ask us for advice.
Fine wine investment has almost always produced positive absolute returns in 5 holding periods, ever since the first recorded, back in 1999.
When compared with global equities, fine wine outperformed 98 per cent of the time over any given 5 year period.
When compared with assets such as silver, gold and art, fine wine has outperformed the all over the last 25 years both in terms of lower risk and higher return.
The best investment wines are produced in small, finite quantities and due to their gradual consumption prices increase over time. As the wines mature and improve they also become rarer and more desirable which drives prices ever higher.
Store your fine wines in licensed bonded warehouses.
When buying a precious asset such as fine wine – preferably in sealed cases using original wood (OWC in trade-speak) – your bottles must be stored professionally and correctly, in the right conditions as guarantees the future value of the wine.
The best way to prove the provenance is to store fine wine in wooden cases ‘in bond’ (IB), which means in a bonded, ‘duty-paid’ warehouse such as Octavian Vaults which Fine Wine Invest is using for most of its wines. The temperature, humidity and other microclimatic factors are carefully regulated according to best practises.
Wines stored IB are not liable for Value Added Tax or UK excise duty as they are considered ‘in transit’. A case of IB wine may change hands multiple times without ever leaving the bonded warehouse, removing the risk of damage and disruption. Only when the wine is removed from bond are these taxes paid.
Buy en primeur with caution
‘Wine futures’ en primeur means purchasing wine while still in the barrel, with bottling and physical delivery to occur after the vintage release.
Traditionally this was believed to be the best way for investors and collectors to buy classified growth Bordeaux as it typically offers the chance for collectors to acquire stock at the lowest market price. Such wines also offer the greatest security of provenance, as collectors can deal with the châteaux directly.
However, buying en primeur means committing to the wines are at their youngest – with all the maturing to do, before the final blend and oak-ageing is complete – and is fraught with risk. The actual bottled product may turn out better or worse than then initial barrel samples indicated. As a rule, do not buy en primeur in advance of the prices being published.
Be aware of the tax benefits.
Fine wine investment is often advertised as ‘tax-free’, due to it being exempt from capital gains tax – it is deemed a wasting asset ‘whose predictable life does not exceed more than 50 years’ (Section 44(1) Taxation of Chargeable Gains Act 1992).
Fine wine can be considered more tax-efficient than other forms of investment but it’s still recommendable to consult a tax adviser to see how to make the most out the asset.
Find more details in this and other similar articles written by Telegraph.