Why invest in wine

The underlying principles of wine investment boil down to the iron law of supply and demand. The handful of Bordeaux and Burgundy estates in which we specialise produce wine in preciously small quantities, so there is painfully limited (and ultimately diminishing) supply. Demand nearly always outstrips supply through the ‘traditional’ markets of Europe and North America, but the extraordinary investment performance of recent years may be largely attributed to three factors; China, China and - you guessed it - China.  In such a finely balanced supply vs demand dynamic, the influx of new wealthy buyers in the quantities coming out of China has changed the market beyond recognition.  In short, there simply isn’t enough of the red stuff to go round. 

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You can also add into the fold that Fine Wines, by definition, improve with age. As they reach maturity and approach optimum drinking, they become more desirable and therefore more valuable. As the wines begin to be consumed they become even rarer, which in turn adds yet more upward pressure on prices. As an asset class, fine wine is a finite resource - the top Chateaux cannot readily increase supply. It is a recognised symbol of status and class, occupying unique position of cultural significance and accessible in comparison with other luxury goods of world class. Fine wine is easy to enjoy and interest continues to grow around the world. 

Fine wine investment has seen some astonishing returns, such as the two years June 2009 - 2011 when the APM Fine Wine Index catapulted from 103 points to 176.  Indeed, it is no secret that wine has significantly out performed many traditional investment indices – including the FTSE 100 – for as long as three decades. And even in times of decline such as the credit crunch driven dip of 2008 and the fall in the latter half of 2011, the bear runs are brief with a tendency to recover suddenly and dramatically.

Wine is generally rather less volatile than stock-market linked indices, and investors enjoy the security of owning a tangible asset. There is a strong argument to suggest that investment in wine has a low correlation to equity or fixed income indices, and therefore affords sensible diversification. Wine is certainly a very liquid market (if you’ll excuse the pun), and realising one’s investment is much more straightforward than, say, property. Consequently, one might very reasonably take the view that investing in wine is less risky than other ‘alternative investments’.

Generally, investment in wine is tax free as it regarded as a wasting asset so doesn’t attract Capital Gains Tax (However, as this area of tax law is complex it is best to take advice from a tax lawyer or tax accountant) and if you keep the wine in bond, you also avoid paying VAT and Duty (which we would highly recommend – there’s no surer way to ruin your investment than cracking open the investment wine after a few too many bottles of the normal stuff at a dinner party!)

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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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