Real estate, alternative real assets and other diversions

An Insider’s Guide to Wine Investment Last year, wine was the best-performing of all passion asset classes

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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. 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.






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About Jonathan Reeve

Jonathan Reeve

Jonathan Reeve is our guest contributor from Wine Owners (www.wineowners.com), the fine wine collection management and investment platform based here in London. Jonathan came to Wine Owners in January, after eight years at the world's largest wine website and search engine, Wine-Searcher.com, where he wrote a 5000-page wine encyclopedia and went on to manage the company's market data channel. His academic background is in Linguistics (BA, Durham) and the Scrabble-worthy "Lexicography & Lexical Computing" (MSc, Information Technology Research Institute). When not poring over wine investment charts, or writing wine-related content, Jonathan can be found working on the website at WineOwners.com.

Articles by Jonathan Reeve

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