Investing in a sip: An insider’s guide to wine investment
To the uninitiated, wine might seem a relatively high-risk investment, but the data tells a different story. Long-term returns from wine investment can be very good, in fact. By Christian Leeming
Last year, wine was the best-performing of all passion asset classes. Below, we find out why, and offer some tips for investing in wine.
Compelling data; a quick look at historical market values for fine wine says a lot. Over the ten years 2008 to 2018, benchmark investment indices (such as the Wine Owners 150) show portfolios of top wines making consistent gains of 12%.
This performance compares favourably against the FTSE, S&P 500 and gold, in spite of that 10-year period being disrupted by the worst-ever performance period for red Bordeaux.
Scarcity-led wine markets have performed even better; the KFFWI index, which includes some of the world’s rarest and most sought-after wines, demonstrates this perfectly. This index boasts impressive 10-year growth of 192%.
A sign of the times; since 2008, high net worth individuals have been investing ever-increasing proportions of their discretionary wealth in tangible assets. This move towards diversification was stimulated by the banking crisis, and rapidly gained momentum. It shows no sign of slowing down.
This quote from the FT (October 2014) neatly captures this. “On the final day of the FTSE 100 index of leading UK shares set a record, closing at 6,950.6. Almost fifteen years later, it has still not retaken that level. It’s against this background that interest in passion investments — tangible assets such as art, cars, stamps, wine and coins — has increased so strongly.”
Supply and demand; scarcity and demand drive collectible investment markets, and fine wine fits the bill due to its relative liquidity.
A market for passion assets or collectible alternative investment classes becomes especially attractive when supply is limited, demand is globalising, and authoritative information sources bring transparency to a market. Wine meets all three of those preconditions.
Examples of low-production wine regions whose wines most obviously reflect this imbalance are Burgundy and Piedmont. Even in Bordeaux, the largest source by far of investment-grade fine wine, supply is more limited than historically, due to ever-increasing focus on quality over quantity.
Higher global demand pushed up prices, which in turn made if financially feasible for Bordeaux chateaux to declassify greater proportions of their top wines, and create better-quality second- and third-tier wines.
Wine investment tips
Ensure emotional investment; passion (or at least developed interest) is a key part of the equation when collecting fine wine. If you have no enthusiasm for wine, you’re unlikely to want to learn about it, and consequently your own performance as a collector is diminished.
Most significant wine collections are built on a foundation of passion or interest.
Diversify within your portfolio; it pays to thoughtfully spread your bets in such a non-homogenous market. The core of a standard portfolio must include top-end Bordeaux reds (due to their relatively higher liquidity than wines from other regions) but it is important to include wines from other key regions, particularly Burgundy, Champagne, and Piedmont, but also Tuscany and California.
The best returns tend to be concentrated in: a. liquid markets: Bordeaux and Champagne b. scarcity-led markets: Burgundy, Piedmont and cult Californian.
Hunt expensive bargains; storage costs (c.£10/case over years or even decades), although relatively inexpensive, can eat disproportionately into the profits of lower-value investment cases.
Thus a smaller number of more-expensive cases offers better returns. To find the bargains, first check the market price, and then hunt out the cheapest price among reputable sources. Websites like WineOwners.com and Wine-Searcher.com are very useful for this.
Storage is a worthwhile and necessary cost of investment. Storing your wines in bond, removes the need to pay VAT and duty and is a sign to prospective buyers that your wine has been stored professionally.
Buy wine you like; you will curate and tend your portfolio more carefully and skillfully if it reflects your personal tastes. And, should some of the wines perform less well than others as investments, simply switch them from ‘investment’ mode to ‘consumption’ mode.
Plan for the long-term; wine investments generally perform best over a minimum period of around 5 years. Just like any other investment class, wine has periods of both high and low performance.
Although it may be tempting to cash out at the first sign of a profit, medium- and long-term holds tend to perform better. Longer-term planning also means that — should you be fortunate enough to no longer require your wines as financial assets — you have at your disposal a neatly tended collection of matured wines tailored to your personal preferences.
Beware cold-callers; never buy wine from anyone calling out of the blue, trying to sell you expensive wine. Pushy cold callers typically operate by presenting spurious statistics, and giving assurances of high investment returns, and then making the victim feel stupid if they don’t agree to invest. The amount of pressure applied by a cold-caller tends to correlate with the amount of money at stake.
Self-direct; wine investors are very often wine enthusiasts. For them, part of the excitement comes from doing their own research, and reaching their own conclusions about which wines to buy. Self-directed investment has many benefits:
- you set your own selling price
- your only ongoing costs are storage fees
- no question of your ownership of specific cases of wine
- no problem accessing the wine when you decide to sell
- no annual management fees or performance-based compensation
Manage your portfolio; effective wine investment requires the investor to keep track of his or her collection. You need an efficient way of recording what you bought, from whom, when, and what it is worth today. Direct access to the secondary market, cataloguing tools and reliable market data (historical and current).