Hit the bottle for an alternative investment
Although the fine wine sector was affected by the economic downturn, there are profits to be made if you're willing to risk it. Chiara Cavaglieri reports
Sunday 11 April 2010
Prices for the world's top wines are on the up, and leading critics have been in raptures over the Bordeaux region's 2009 vintage, sparking a surge in interest. With returns from cash savings leaving a sour taste, should you be looking to these alternative investments?
The fine wine sector was by no means immune to the global credit crisis. In the last quarter of 2008, the London International Vintners Exchange 100 Fine Wine Index (Liv-Ex 100), which tracks the price of the world's most sought-after wines, fell by 20 per cent. However, in the past year and a half, it has shown a remarkable recovery and the Liv-ex saw a rise of 5.5 per cent in March, representing a 12 per cent gain in the first quarter of the year.
"Prices have bounced back strongly from the lows seen at the end of 2008. Many of the top Bordeaux wines are now more expensive than they have ever been. These price increases are largely due to increased demand from Hong Kong and China," says Justin Gibbs, a director of Liv-Ex.
Investors who want to hold wine as a physical asset must go through a merchant, not the houses themselves. There will be several costs to factor in if you decide to take this route. Firstly, a merchant will charge either an upfront fee of about 5 per cent of the total value of the wine or an annual management charge. When it comes time to sell, they will take a commission of about 10 per cent.
Storage is yet another expense, albeit a vital one. Incorrectly stored wines can be rendered worthless so it's advisable to store wine in a bonded, temperature-controlled warehouse. Some merchants offer their own warehouses but a safer bet is to use a professional storage company such as London City Bond and Octavian Vaults. This will incur an annual fee of up to £15 per case but it does mean that there is no VAT or duty to pay if the wine is sold on.
Savvier investors can also cut out the middleman and buy wine at auction. Investing in a wine fund is another option, although there aren't many to choose from and the fees can be high at about 2 per cent of assets under management, plus 20 per cent of the profits. Many also have early redemption fees which can eat into potential returns.
"I've never been convinced by the notion of buying wine through a fund," says Ben Yearsley, from independent financial adviser (IFA) Hargreaves Lansdown. "It can be a problem because you can't sell underlying holdings immediately as you can with a stock market fund."
If you opt for an investment fund, pick one regulated by the Financial Services Authority (FSA) such as Vintage Wine Fund and Wine Asset Managers.
There are three different price stages to be aware of when investing in wine: en primeur (before it's bottled), on arrival into the country two years later, and on maturity. "The advantage of buying en primeur is that you're not paying for storage for two years – it's still in a barrel in France – but it's vital to buy from a reputable merchant who is likely to be in business two years later when the wine is shipped," says Joss Fowler from wine brokers Berry Bros & Rudd.
This is generally the cheapest option and has the greatest potential for returns. However, if it turns out to be a poor vintage, it could be a costly error. The opinions of experts such as the highly regarded American journalist Robert Parker can have an extraordinary influence on prices so they are well worth keeping an eye on.
Historically, the long-term success of fine wine as an asset class is difficult to argue with. In the past five years the Live-Ex index has increased by 166 per cent, beating all of the major share indices, including the FTSE 100 and the S&P 500. Recently, the market has been dominated by the wines of Chateau Lafite-Rothschild, which have been marching upward in price. A case of the 2004 Lafite cost £2,150 but will go for £5,250 per case today.
The success of wine as an investment is mainly down to scarcity – the market focuses its attention on the top 20 or so chateaux of Bordeaux and wines from this region have quantity limits in place each year. Moreover, supply is ever diminishing as they are being consumed. For consistent performers, the first growths of Bordeaux are the driving force behind the sector: Lafite-Rothschild, Mouton-Rothschild, Latour, Margaux and Haut-Brion. For first-time wine investors, Bordeaux wines are the equivalent of the FTSE blue chip companies and are a good place to start.
Mr Fowler says that when deciding whether a particular wine is worth buying as an investment, it should look cheaper than older vintages of a similar quality. Current prices for Chateau Lynch-Bages are £800 per case for the 2005 vintage, £1,300 per case for 2000 and £2,000 for 1990.
With rave reviews for the 2009 vintage, prices will be released in May and June and the wine world will wait to hear Robert Parker's scores at the end of this month. "If we assume that 2009 is as good, if not better than these vintages, then it would look attractive to me at £600 per case or so, maybe more," says Mr Fowler.
Another benefit to investing in wine is that for tax purposes, it is deemed a "wasting asset", so there is no capital gains tax to pay when it comes time to sell, unlike profits made from shares.
However, wine should be considered only for long-term investors. Wines can easily fall out of favour, but by far the biggest pitfall is that the fine wine market is unregulated. Merchants going bust is not uncommon and there are instances of bogus wine companies being set up. Play it safe by sticking with reputable traders.
Selling your wine can pose further problems. A wine broker is often the best bet for a quick sale, but offers poorer returns so many wine investors simply sell it back to the merchant, but they will take 10 per cent. Auction houses such as Bonham's are another option, but again, auctioneer's fees can account for up to 15 per cent.
Many advisers remain unconvinced that wine investment makes a useful part of a diversified portfolio. "In the past, demand for fine wine has been linked to good years in the City. Although things have changed with the rich Chinese buying up French wines in recent years, I'm still not convinced it should be anything other than a bit of fun," says Mr Yearsley.
He advises wine lovers to keep their passion separate from their investment portfolio and pick only the wines they actually like.
"If worst comes to worst you've still got a decent case of wine to drink," he says.
By Justin Gibbs
"When investing in any asset, the first step is knowledge. One can gain this by subscribing to independent information suppliers such as Liv-ex.com, Decanter.com and JancisRobinson.com, and by building a relationship with a wine merchant. UK residents are particularly spoilt in this regard with a host of wine merchants of great expertise who have been trading with Bordeaux for many years. You can find a list of such merchants at Winesearcher.com," says Justin Gibbs, a director of Liv-Ex.
- 1 Michelle Watt's father says TV presenter killed herself because she was in constant pain
- 2 Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
- 3 'Help me I'm trapped in a factory' messages keep being found on bottles of vitamin water
- 4 North Korean defector flees to Finland 'with evidence of chemical testing on humans'
- 5 Greek debt crisis: The photograph that conveys the despair of Greece's elderly
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
Day In a Page
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.