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Fine wine was the best investment of the decade

Fine wine was the best investment of the decade, with the top French vintages earning returns that far oustripped equities, gold and property. The average price of a fine bordeaux red jumped 138% in the noughties, equal to a gain of 11% a year, with the most sought-after labels, such as Lafite Rothschild, up almost 10-fold.

The Liv-ex Fine Wine Investables Index, which tracks the price of notable bordeaux reds from 24 leading chateaux found that between 31 December 1999 and 31 October 2009 there was a 138% return on investments across this range. The best performer was Lafite Rothschild 1982, which cost £2,613 for a case of 12 bottles at the beginning of 2000 and sold at the end of last month for £25,500, a return of 876%.

Behind the price surge is a limited supply and an influx of new-money buyers from China and the rest of Asia. Specialists reckon that, as China continues to industrialise, prices for fine wine will continue to soar 

Liv-ex director James Miles says: "The economic case for investing in wine is compelling: supply is static; quality conscious producers have even cut production in recent years. More-over, fine wine cannot be replenished. Every time a bottle of Lafite Rothschild 1982 is opened, there is one less for the world to enjoy. Add to this rising demand from new markets, such as Asia, and the case for rising prices is a powerful one. Wine has also been a useful tool for portfolio diversification with a history of high returns, low volatility and negligible correlation to mainstream assets."

But would-be investors should not simply buy the first gluggable case that takes their fancy: not all well-known wines are suitable for investment.

To be regarded as a fine wine, it must have the potential to improve in bottle and appreciate in value, and be actively sought after by merchants. To satisfy this requirement, a wine must have a long track record, often centuries rather than decades, and have received strong critical acclaim. Investors use the Parker score on a fine wine before buying, a classification scale of up to 100 credited to US journalist Robert Parker Jnr, probably the most influential person in the fine wine market.

Miles says: "In practice, this is a narrow group of wines and includes the very top wines of Bordeaux and a smattering of wines from Burgundy, the Rhone, Italy, Champagne and the New World. Most professionally managed investment portfolios have between 80% and 90% by value invested in just eight brands – the five first growths, plus Cheval Blanc, Pétrus and Ausone. These brands have so far accounted for 64% of Liv-ex's turnover in 2009."

But beware, this is a market in which naive investors can easily lose out to scam operators. Only buy from an established, reputable merchant. See The Bunch website for a list of Britain's top independent fine wine merchants. Jill Papworth

Which wine will be the best investment for the next 10 years? I strongly believe it will be Asia-focused and entirely red wine. The increased demand we have seen, particularly from Hong Kong, over the past 18 months is likely to spread to China's major cities, putting enormous supply pressure on certain Bordeaux chateaux. Bordeaux has an almost infinite market for a very small, finite product. To give you a feeling of size, the great Chateau Mouton Rothschild 20 years ago was producing twice as much as it does now as it, and all its peers strive for perfection by making a more concentrated, and therefore smaller, grand vin. In 2008 it made approximately 13,000 cases. Even at £2,760 a case this doesn't go anywhere – apart from more expensive – in such a potentially enormous market as China. I see the first growths Lafite Rothschild, Mouton Rothschild and Latour leading the pack over the next year or so with Haut Brion and Margaux following close behind.

My tips are: 2008 Ch. Mouton Rothschild at £3,000 per case; 2008 Ch. Lafite Rothschild at £4,960 per case; 2008 Ch. Latour at £3,600 per case; 2006 Ch. Lafite Rothschild at £4,000 per case; 2005 Ch Lafite Rothschild at £8,000 per case. Simon Staples, Berry Bros & Rudd

By Jill Papworth & Patrick Collinson
The Guardian
21st Nov 09
http://www.guardian.co.uk/money/2009/nov/21/alternative-investments-performance-2000