Wine investments historically
People have invested in wine for almost as long as they have been making it. For centuries collectors have been laying down bottles in cellars with an eye to the future. Connoisseurs, who understood wine and recognised good chateaux and domains would identify a good wine and buy twice as much as they needed, selling off the matured surplus a few years later and using the (often considerable) profits to replenish their cellars with newer vintages.
More recently wine has become much more popular and many aspire to a good wine cellar. To own a cellar of fine vintages is no longer just an indicator of a sophisticated palette, it is an indicator of status. Fine wine is no longer the domain of the aristocracy; it has become rock and roll.
Even more recently, with the idea of investments spreading from the elite to the man in the street, wine is often seen as a financial investment, pure and simple, and is increasingly bought by people who don’t even like wine and have no intention of ever drinking it.
Wine investments have become known as a safe haven for investors in difficult times. Growth in wine futures has always been good and today, in the midst of a global recession, they seem more inviting than ever. With recent poor performance from pensions, stocks, shares, PEPs and other traditional investment vehicles, investors are looking around for better places to invest their hard earned cash. Even property is no longer seen as the safe bet it always was.
Many of the big wine investment companies suggest a 15% – 20% growth in their portfolios over the past 30 years and, of great interest to the investor, these profits are tax free. As an item with a life expectancy of less than 50 years wine merits the archaic sounding tax status of chattels. For the investor what this means is that when wine is resold it avoids capital gains tax.
What are the factors that affect the price of wine?
Wine is no longer only the domain of the connoisseur. The modern wine market involves an amount of speculation and the investor who is not a connoisseur is in need of good quality information. Enter the multitudes of wine journalists who fill the Sunday magazines, books, and of course the internet with their opinion and know-how. Foremost of these is Robert Parker who has single-handedly transformed the market place with his 50-100 point scoring system which he devised in the 1970s. Before the Parker system, wine’s value was often a result of the reputation of the chateau and the vintage rather than a reflection of the wine’s true, intrinsic value. With the system now commonplace throughout the world, prices are set accordingly. One of the main beneficiaries of this is the Bordeaux chateaux which have become outstandingly popular and now lead, and some might say overshadow, the investment market.
Demand for Bordeaux wines has risen dramatically across the globe and it is envisaged that they will continue to do for some time to come. Another factor to support this is the opening up of new markets that were not previously associated with fine wines. Asia, above all, has developed a huge market for fine wines and there is massive demand there for all of the top wines. Russia has also become a player in the wine market and, with massive economic growth and expanding middle classes, India and Brazil are not far behind.
Growing demand, what about supply?
Due to the way that Bordeaux wineries are classified, supply is limited to the geographic area of the chateaux. These chateaux have long been at full capacity; in fact with the introduction of the Parker scoring system the chateaux are striving to achieve the higher Parker scores which will increase the value of their wines. As a consequence production has actually reduced at several of the chateau.
Ultimately the increase in wine speculation has affected the prices at which Bordeaux is offered to the market with some en-primeur Bordeaux being offered at higher prices than older 100 point rated wines. Parker scores generally decrease rather than increase with age and although in general the price of Bordeaux is expected to increase, those who have been caught by the hyper inflated price of some of the en-primeurs may not realise the profits they were expecting.
What wines are a good investment?
There are more wines available on the market than Bordeaux, and while Bordeaux are the main driver for investment wines and still expected to increase in value in the long term, a good wine portfolio should contain a balanced portfolio that covers a cross section of different regions and countries. This will enable the investor to spread the potential risks as well as the potential rewards. Some of the best Burgundy (DRC and Lalou Bize Leroy) has performed well, but watch out for opening prices which can be outrageous due to high demand. Rhone wine is generally a sound performer, although you will need to search for the very best. Rhone wines are considered to offer good long term potential.
Champagne is generally considered a safe bet, but again you will need to buy from the best producers. Cristal is the top selling name with Krug being a good bet and Dom Perignon always doing well. The 1996 Dom Perignon which was released in 2005 at £650 a case was selling for £1,800 a case by 2008.
Spanish wines are beginning to make their mark on the market and there are many quality wines coming out of Spain at very reasonable prices. Some of the traditional Italian wines also do well, in particular the top end Tuscan wines.
In the New World it is Australia that is leading the field with many fantastic premium wines at very realistic prices. Having been initially received with derision by the Old World elite, Australia’s world class wines are beginning to receive the acclaim they deserve and the best Australian wines are now tipped as good long term investment opportunities.
How do I go about investing in wine?
First and foremost, what you need is good quality advice. You need to identify the best vintages from the best chateaux at the best prices. You will need to know what, where and when to buy, and you will need someone with expertise in the field to help you make these decisions.
One of the easiest and safest ways to invest in wine if you are new to the field is to invest in one of the wine funds. Check out our page on wine funds for more information. If you are put off by the sometimes prohibitive management charges that these funds apply, find somebody whose opinion you trust. A wine merchant or broker will have your best interests at heart. Your success is their success and a good vintner, who makes you a profit on your investment, will be able to rely on your return business in the future.
Wine investment can offer a fantastic return and makes an ideal hedge against more conventional investments in these troubled times. Seek good advice. Spread your investment by building a broad portfolio. Do your research. Cheers.