This recent Wall Street journal article outlines in a very simple manner the positives for wine invesment and how best to invest. I do agree with some of its tone, but not all. The article only really mentions ths First Growths for investment. This is fine, but there are many more wines worth investing in besides the First Growths of Bordeaux especially since they have become extremely expensive in the recent heralded vintages, 2000, 2005, 2009. I feel that other less acclaimed vintages are worth looking at as they haven’t appreciated as much. 2003, 2006 and especially 2008 trade much cheaper. You will have to have more patience with the less popular vintages, but they will increase. Also the second wines of the First Growths are starting to trade up in value, as well as some of the “Super Seconds” of Bordeaux, with names like Chateau Cos D’Estournel, Montrose, Palmer, and one could argue Pontet Canet even though it is only a Fifth Growth. They also fail to mention the Super Tuscan wines from Italy which also are worth buying for the long term, with names like Sassicaia, Ornellaia, Tignanello, and Massetto.
Nonetheless, many people including myself are finally starting to realize that wine is a wise alternative investment vehicle, especially with bond yields so low, and waning equity markets.
A Bull Market for Wine
Top vintages have outperformed almost every other asset class over the past decade. How much longer can it last?
The flowering of the vines in Bordeaux took place in unsettled conditions this year. The chances are that the region’s grapes will not all ripen at the same time. This in turn will make for a tricky harvest and – in all probability – a small, weather-affected crop for the 2010 vintage. There have also been a number of storms, which can lead to high humidity and the possibility of rot. This is not good.
Read the complete Wealth Adviser report from The Wall Street Journal Europe.
Traditionally Bordeaux’s early vintage forecasts were only of interest to a handful of oenologists and wine merchants. But given the returns being made on wine investment, far more people are now interested in the weather before harvest time in the world’s largest fine wine region.
In the cellars of the most famous Châteaux that line the gravel mounds of the Gironde estuary in Bordeaux, the 2009 vintage has been maturing in barrel. This is undoubtedly the most hyped vintage since records began – eclipsing the famed vintages of 1961, 1982 and 2005. Even before the wine has been bottled, its value has already soared. Interest in wine investments is keeping pace.
Those that bought the 2009 vintage early, through the futures based en primeur system are, in certain cases, already sitting on a paper profit. Figures from Fine + Rare wine brokers show that Château Lafite Rothschild 2009 has already risen 36% from £10,000 a case when it was released on the market in June to £13,657 today. Similarly Château Latour 2009, also produced in the commune of Pauillac, has risen 20% from £10,000 a case when it was released in June to £12,000 today.
Château Lafite Rothschild 2000 has climbed 611% since December 2004 – when Fine + Rare first started compiling figures on wine investments. A case that would have cost £2,560 in 2004 is now worth £18,400.
Château Petrus 2000 has climbed 255% from £12,000 in December 2004 to £36,627 today giving the buyer a return of £24,627 a case. It is not difficult to see why those with a spare £100,000 in the bank are increasingly being tempted to take a punt on some of the world’s finest wines.
Live-ex’s Fine Wine 100 Index, the London International Vintners Exchange, which tracks the price movement of the world’s 100 most sought after wines, has climbed by more than 200% since it was launched in 2001. That’s a remarkably resilient performance during a period of such economic uncertainty.
Wine brokers put this down to the fact that fine wine is a luxury product that people aspire to own. Crucially it is limited in supply: Château Lafite Rothschild produces around 480,000 bottles a year; Château Latour, only around 350,000 bottles. And unlike other luxury items, production cannot be increased because the vineyard areas are more or less fixed. As demand increases supply diminishes because as many, if not more, people want to drink the best vintages as invest in them.
Mark Bedini, chief executive and founder of wine brokerage Fine + Rare Wines Ltd, says: “The plus side of wine investment is that as time goes by it gets scarcer as people drink it. The likelihood is that over time – as the wines get older, rarer and in greater demand – prices will inexorably increase.”
In recent years, these increases have been turbocharged by interest from the Far East most notably mainland China and since 2008, Hong Kong. In that year the Hong Kong authorities abolished all import duty and taxes on wine. This fuelled a huge boom in the Asian market. Wine merchants Berry Brothers & Rudd, who also run a brokerage department, are just one of a number of European merchants and auction houses that have set up offices in Hong Kong.
He says: “There has been a huge increase in interest, which started with Hong Kong but has now spread to mainland China. It is driven by the über-wealthy looking for luxury brands.” Many are buying wine to drink or give as gifts, according to Mr. Bilbey.
So given that there are significant returns to be made, how does one go about creating a wine portfolio? Firstly, it is important to choose your Châteaux carefully. Only a very small number of wines have investment potential.
Experts say the highest returns can be found among the very top wines in Bordeaux’s Medoc region, classified as First Growths: Châteaux Lafite Rothschild, Latour, Margaux and Mouton Rothschild and Haut Brion, although the latter hasn’t performed as well as the others. A handful of wines from the other side of the river in Bordeaux – most notably Château Petrus, Le Pin, Cheval Blanc and Ausone – can be added to this list.
Outside of Bordeaux, a few of the very best wines in Burgundy such as Domaine de la Romanée-Conti and Lalou Bize Leroy can offer significant returns. There are also a handful of Rhone wines and Champagne houses.
Mr. Bedini says: “If you are looking at it purely for investment then my recommendation would always be to look very exclusively at a small number of Bordeaux wines from 2009, 2005, 2000 and 1996 vintages.
“The great thing about Bordeaux is that they are very liquid so if anyone wants to sell their wines they are going to trade out pretty quickly. The four I would recommend are: Châteaux Margaux, Mouton, Lafite, Latour. Châteaux Petrus is more valuable but harder to sell quickly.”
By far the best way for private investors to purchase Bordeaux is through the summer en primeur campaign when the wines are offered a year ahead of bottling and shipment, having been tasted from the barrel. The upside to this is that you can secure allocation and favorable opening prices. The down side is that the prices can fall if the wines fail to live up to the initial hype.
The price of a wine is largely determined by its quality. The key marker of this is the view of American wine critic, Robert Parker, who scores all wines on a 100-point scale. Mr Parker’s scores are published on his website, erobertparker.com. The Wine Spectator, which also scores wines out of 100, and the opinions of British wine critic Jancis Robinson are also worth checking. There are a number of brokerages and merchants who sell wine en primeur and store it, for a fee, under bond so that you don’t have to pay duty or VAT.
Wine Investment Funds
The other investment route is through a wine investment fund. These tend to charge a 5% subscription fee, annual management fees of 1.5% or 2.5% and an average exit fee of around 20% of the upside. The Vintage Wine Fund, Wine Asset Managers and The Wine Investment Fund have all been authorized by the U.K. Financial Services Authority.
It is important to note that in the past fraudulent companies have preyed on wine investors and it is still a largely unregulated market.
And, although wine has fared better than most investments, there is always a risk that the price will fall. A recent example would be Château Figeac 2009 and the sweet wine Château d’Yquem 2009, neither of which have appreciated in value. The 2005 vintage of Château Figeac has fallen 2% since it was released on the market in 2006.
Jack Hibberd, director of Liv-ex, said: “The market rose 38.3% over the past year to the end of July. It has been through a strong bull market on the back of the 2009 Bordeaux campaign. But the value of some wines bought at the end of the en primeur campaign has actually gone down. It hasn’t been proven whether buying large quantities of 2009 has been the best strategy. It is certainly not clear cut.”
It is a view echoed by drinks analyst John Wakely, of specialist corporate finance firm The Angel’s Share. He said: “As long as demand is there it keeps increasing. But there are some telltale signs that as an investor would lead me to be selling high-end wines right now. When you get into a London taxi and the cab driver starts talking about wine investment, that’s the time you short the hell out of it.”
Despite this Simon Staples, sales director at Berry Bros & Rudd, says he has never been as bullish as he is now. “Fine wine has a minimum of 10 years more to go in terms of value. Asia is already exciting but we haven’t even begun to see the start of it yet.”
Mr. Lyons is the wine correspondent for The Wall Street Journal Europe and is shortlisted for the 2010 Louis Roederer International Wine Columnist of the year. He can be reached at firstname.lastname@example.org.