Albany Portfolio Management
The smart way to invest in wine
The underlying principles of wine investment boil down to the laws of supply and demand. The top dozen or so Bordeaux Chateaux in which we specialise are produced 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 performance of recent years may be largely attributed to the influx of new buyers in China & Russia, and to a lesser extent India, Brazil & South America. 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 has seen some astonishing returns, particularly from the end of 2005 to the summer of 2008 when the Liv-ex 100 Index rose from 120 points to a high of 264 points. Many investors have been enjoying annualised returns of over 25% per annum. Indeed, it is no secret that wine has significantly out performed many traditional indices – including the FTSE 100 – for as long as three decades.
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 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, investing 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!)
