Bad year for finance, good year for wine
Investors are looking at liquid assets to make a profit in difficult times. Chiara Cavaglieri reports
Sunday 24 May 2009
We know the value of sitting back and enjoying a nice glass of vino. It's just as well, as wine investment appears to be standing up against the ravages of the economic downturn.
With interest rates so low, investors looking to diversify their portfolios are turning to wine as a more profitable option. And the potential for high returns can be impressive. The 2000 Chateau Lynch-Bages Pauillac, for example, was released in May 2001 at £450 per case and is now selling at £1,200 per case. Investors must be prepared to be in it for the long haul, though, as a good vintage takes between 20 and 30 years to mature.
But although the fine-wine market was slow to feel the effects of the credit crunch, there was an impact. "In the last quarter of 2008 we saw a 20 per cent fall in the value of the index," says Jack Hibberd from the London International Vintners Exchange (Liv-ex), which produces an index tracking the world's top wines. "Since then, we've seen an increase of about 4 per cent, and the market has stabilised, but whether that means the market is going to continue to go up, nobody knows."
It's clear that wines are just as capable of falling and rising in value as shares, and those considering making wine a part of their investment plans are advised to limit it to a small percentage of their portfolio. Mark Dampier from independent financial adviser Hargreaves Lansdown argues that people should steer clear if they don't have a genuine passion for it. "If it doesn't come to much at least you can drink the stuff," he says, adding that investors should avoid wine funds, which have high performance fees, and simply buy the wine instead.
Many interested investors prefer to go through a professional wine merchant. Some will charge an upfront fee, typically 5 per cent of the total value of the wine, others may set an annual management charge and all will take around 10 per cent commission when it comes to selling up.
Then you have decide how you prefer to take your booze. Investors can purchase wine en primeur, at the wine's opening price before being bottled. There is also the option to buy wine upon its arrival in the country, two years later, or upon maturity. Buying en primeur is generally the cheapest option but can be risky if it turns out to be a poor vintage. "These haven't been bottled and aren't in the country yet so you need to be careful who you buy from and feel confident that the company will still be around in two years' time," says Joss Fowler from wine brokers Berry Bros & Rudd. The wine market is unregulated and there can be disreputable traders so it is usually advisable to go with well-established wine brokers.
Fine wines can be ruined if they are stored incorrectly, so most merchants advise investors to store wine "in bond" in a warehouse for an annual fee (usually per case). Check that the wine is insured properly for replacement value, not purchase price.
When it comes to picking the right wine, the top 20 chateaux of Bordeaux, which regularly produce fine wines and have quantity limits in place, account for the most trading activity and could be a good starting point. Researching the industry is vital and it's a good idea to join a wine club. Try to keep an eye on the Liv-ex index for any shifts in the market.
"I would recommend the 2008 Chateau Lynch-Bages at £390 per case in bond, on the basis that it's an excellent Lynch-Bages. It had a positive review from commentator Robert Parker, and is less expensive than any other vintage of Lynch-Bages on the market," says Mr Fowler.
When it comes to selling your cases, several options are open to investors. You could go back to the merchant you originally bought from and see what price is offered. Wine can be sold at auction houses such as Christie's and Bonhams, although there will be auctioneers' fees. For a quick sale, investors can try a wine broker but this will usually give a poor return. On the plus side, though, unless the taxman believes your wines can be kept for longer than 50 years, they are deemed to be a "wasting asset" and are exempt from capital gains tax, unlike profits made from shares.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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