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Highlight: The case for investing in fine wine

Wine has seemingly fared well compared with other options within the alternative investment sphere. While fine art has risen by 9 per cent, collectable stamps by 61 per cent and residential property by 118 per cent over the decade to December 2009, some premium cases of wine from Bordeaux have risen by almost 900 per cent, according to fine wine exchange Liv-ex.

However, it would be naïve to think that every wine investment is likely to generate anywhere near that level of return. In fact, it is difficult to assess the general trends across different types of wine to form an assessment of the marketplace as a whole.

"While it is hard to find totally accurate records and therefore data, it is fair to say that the prices for the very best wines have risen by an average 15 per cent a year over the past 25 years," suggests Joss Fowler, a fine wine manager at wine merchants Berry Bros & Rudd. "That includes quiet periods – for example, from 1998 to 2002 – being more than balanced out by the busy ones, like 2005-07."

Indeed, fine wine has not enjoyed a steady upward trajectory over recent years, suffering first at the hands of the Asian economic collapse in 1998 and then in the global recession brought on by the banking crisis.

In the latter downturn, the wine industry initially appeared to be immune to the financial woes engulfing other sectors.

"Ten cases of 2000 Lafite sold at Christie’s for a shade under £11,000 a case just days after Lehman Brothers filed for bankruptcy protection," recalls Mr Fowler.

Yet prices began to drop off significantly in October and November 2008, with lots left unsold at several major auctions and those that did sell failing to reach their bull market highs.

Mr Fowler gives the example of 2005 Lafite, which was worth just under £10,000 a case in the summer of 2008, falling to £6,000 a case in November of that year.

"This was clearly an opportunity for the brave," he says. "Lafite 2005 is now selling for £7,500 a case and more."

While a lot of investment wine has yet to return to its pre-recession value, as an asset class it has recovered quickly.

As Stephen Williams, managing director of the Antique Wine Company says: "In 2008-09, the very top end of the fine wine business suffered relatively little damage in contrast to other asset classes like property or even equities. Once again, wine has proven immune to collapse, held steady during times of economic adversity and risen in times of recovery."

A key factor in the stabilisation of prices has been the influx of new investors from Russia and Far Eastern markets since the 1990s. "Demand for the best wines from Bordeaux boomed," explains Mr Fowler. "Although the prices of some top Bordeaux chateaux dropped in 1998, the general trend in wine prices has been up."

As Mr Williams confirms: "Asia is currently having a massive influence on wine prices. The top wines, especially Chateau Lafite and its second wine Carrudes de Lafite, are increasing in value exponentially.

"This is certain to continue in 2010, hopefully with some broadening out into other Grand Cru brands as the Chinese appetite to learn about wine becomes satisfied."

This trend has been picked up by auction houses Christie’s and Sotheby’s, which have been holding fine wine auctions in Hong Kong since February 2008, when the government removed duties on wine.

Indeed, Sotheby's sold all but five lots in an auction in Hong Kong in October, raising HK$61.5m (£4.89m) from 1,010 lots. This far exceeded the presale estimate of HK$47.8m. The final lots were later sold privately.

Interestingly, only 1 per cent of lots went to buyers from outside Asia, according to Sotheby’s. Mainland Chinese made up the bulk of bidders, along with buyers from Hong Kong, Taiwan and Singapore.

So, what can we expect in 2010? According to Mr Williams, several stories look set to play out this year.

"With economic recovery underway, the 'consumption' effects on the market will return," he says. "Vintages such as 1982, 1990, 1995 and 2000, which are now at or approaching maturity, will also see increasing demand from consumers. They are certain to rise in value.

"We are also currently experiencing a big return in demand for very old vintages and collectibles."

He also predicts the 2009 en-primeur vintage in Bordeaux will generate a lot of interest because of its underlying quality. "We await the chateaux pricing with bated breath," he says.

Berry Bros & Rudd is also excited about the 2009 Bordeaux vintage. "Given the quality of the fruit harvested in September last year – our Bordeaux buyer, Max Lalondrelle, commented that 'even the pips taste ripe' – there is every chance that we have a vintage of remarkable quality on our hands," reports Mr Fowler.

In short, the basic principle of supply and demand seems likely to ensure wine will continue to appreciate in value. With more buyers entering the sector, a greater level of volatility is to be expected in the short term, but, overall, top-end wine should prove to be a good investment if held over the long term.

However, potential investors should undertake their own research before opting to include wine in their broader portfolio. Issues such as management fees for wine investment funds should be taken into consideration, as should the storage costs if wine is purchased privately.

Laura Hughes
ftadviser.com
25th Jan 2010
 

Disclosure

We believe that investing in wine should be both enjoyable and profitable, but like any traded commodity there are risks and wine can go down in value as well as up. Neither Albany Portfolio Management or the wine market in general is regulated by the Financial Services Authority.

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