Investing in a fruitful future

The wine market has been extremely volatile over the past three years, but that does not mean it has become a bad investment

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Traditionally, investors have turned to wine as an alternative investment, hoping that it will net them better returns than what the stock and bond markets can offer. Wine brokers often point out that the correlation between the financial and wine markets is relatively low, so wine has been considered a profitable, albeit long term, commodity. However low though, there is still some correlation and the wines have suffered with the downturn. Stacey Golding of Premier Cru Fine Wine Investments called the bottom of the market. “Historically, fine wine has been the last investment to fall and the first to recover.” Prices have certainly been on a rollercoaster ride recently, but have still managed to yield returns of over 10 percent after five years, putting the FTSE 100 yield of 0.3 percent to shame, according to UK-based wines brokers The Wine Investment Fund.

But it is a moody and temperamental market, and that is one of the reasons why it is so exciting. Investment grade wines are often restricted to the top 50 traded wines from each good vintage, and definitely not every year produces adequate grapes. In fact, only three or four vintages out of a decade produce investment-grade wines. Some experts go even further and suggest that only wines from traditional chateaux in the Bordeaux region of France qualify.

Adding up the numbers
Following a particularly good vintage of Bordeaux in 2008, wine prices rocketed in 2009 and 2010 before peaking and then slumping in 2011, according to Liv-Ex 100, an industry benchmark. “Fine wine prices fell by 15 percent in 2011 as the market corrected from the sharp rise of 76 percent since the end of 2008. We predicted in January that the Liv-Ex 100, would finish 2012 10 percent above its 2011 year-end level,” says Andrew della Casa, director at The Wine Investment Fund. “So far this year it has risen three percent. Pointing to wine having been oversold, we believe that now may be the most advantageous time to buy into the market since January 2009.”

Because each individual wine and vintage varies wildly in taste and quality, the business of investing is immensely complicated. Wines that would be great to consume don’t often make the grade, and the most delicious and sophisticated bottles will sometimes never be tasted, or even opened.

One man will try them all though. Robert Parker has been the point of reference for the industry since the 1970s when he started rating wines out of 100, instead of 20, which was traditional. His scale, published in The Wine Advocate, is used globally today and his specific reviews are widely regarded as the best indicator of the quality of a wine, and whether it is an investment-grade product. It might be hard to believe that worldwide investments in the commodity hang on one man’s nose, but this is just one of the peculiarities of the wine trade. The 2007 Bordeaux vintage for instance, was disappointing by anybody’s standard. Growers had been hoping for a repeat of 2005, a superb bouquet, but it had fallen flat. As a result, a lot hung on 2008, growers and brokers needed another great vintage to make up for the previous year’s fiasco, but the shadow of 2007 still lingered and nobody was expecting much. Early reviews were lukewarm, but when Parker announced his 98-point rating, one of the highest in recent years, prices in cases of the vintage from the top chateaux soared once more.

Speculate to accumulate
Most speculation revolves around Bordeaux vintages, which dominate around 90 percent of the wine investment market, but over the past few years Burgundy wines, such as the legendary Domaine du Romanée-Conti (DRC), have become increasingly popular. While the Bordeaux was losing value at the end of last year, the Burgundy was gaining it, mostly driven by a seemingly unquenchable demand from China. The Liv-Ex DRC index closed last year on an unprecedented high and in May this year the rates were already 19 percent higher then this time a year ago. Some experts think this growth is unsustainable as the Burgundy region is too small to keep up with the current global market demands. But the rise of the Burgundy has certainly helped diversify the portfolio of many wine investors.
Brokers are suggesting that as Bordeaux prices have recently gone down again, now is a good time to invest in the fine wine industry. Another boom in the market might be imminent, comparable to that of the late 90s when fine wine investment was popularised.

“It’s a good time to buy. It’s a long term investment, governed by worldwide demand and worldwide economies,” says Peter Shakeshaft, founder of wine investment firm Vin-X. “Falls such as those in 2011 have generally been followed by strong returns for those investing at the right time,” adds della Casa, “we believe this could be the ‘right’ time and predict double-digit growth this year.”

Benefits in the long-haul
Most agree that wine investment is a long labour of love. Many wine investment funds, which act as asset managers and buy and store the cases, requite minimum investments which in Europe range from £10,000 to €100,000. Many lock clients in the investment for five years. Experts suggest that investors approach wine with the same caution they would gold or precious metals, though wine is definitely a more complicated trade. The recommendation is that wine should not make up more than five or 10 percent of an entire portfolio. Experts also suggest that the minimum investment should be of three cases, or roughly $30,000, so wine is still not considered an investment for everyone.

However most will agree that wine investing is a tremendously rewarding experience, and a wonderful hobby. Profitable too, despite the ups and downs in the market, and average returns over the past 20 years have been around 15 percent per annum. With profits like this it becomes easy to resist the temptation, and to hopefully keep the best bottles duly corked for the future.