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Bottoms up: Wine can produce returns of 15% a year or more
With the credit crunch biting and investors worldwide tightening their belts, spending up to £25,000 on a case of wine could be seen as being more than a little extravagant.
But for many, ploughing that kind of money into carefully selected fine wines is proving to be a remarkably reliable way to guarantee impressive returns.
The fine wine equivalent of the FTSE, the Live-Ex index, has proved particularly resilient over the past year with the best vintages seeing consistent – if slower – growth as the property and stock markets have slumped.
However, investing in any old plonk isn’t enough to secure a serious profit. Almost 90% of fine wine investment centres on the very best wines from Bordeaux because of its global appeal.
Since 1855, Bordeaux wines have been classified into five distinct ranks and it is the much sought-after ‘first-growth’ wines that are the most likely to secure a profit.
Personal taste and connoisseurship count for very little when it comes to wine investment. Practically the only man’s opinion that matters is that of the legendary wine expert Robert Parker.
His criticism can move the market to such a degree that none of the major chateaux release their prices for the forthcoming vintage until Parker has given his verdict.
Each year he tastes the major wines and attributes each a score out of 100. Any wines that receive a score in the high 90s are immediately the most sought-after and therefore the most attractive for a potential investor.
What makes fine wine such a good investment is that production of the world’s top vintages is strictly controlled. As supply of the very best wines dries up, the prices of the very best vintages invariably rocket.
Buying wines direct from the chateaux is impossible and so investors make their purchases through third-party merchants like Berry Bros and Rudd in London.
Specialist investment firms advise on what to buy and monitor market fluctuations to alert clients as to when to sell their stock to get the best price.
John Armit was one of the very first to realise the potential of fine wine investment and started his own wine consultancy in 1982. He has seen impressive returns on wine over the past 20 years and estimates that most fine wines have brought in around a 15% return over a ten-year period.
According to Armit, it is the growing number of Chinese millionaires with newly-acquired money to spend and a taste for luxury that is the key to the sector’s growth.
‘There are a lot of wealthy people in the world, particularly in the far-east and Russia, who are willing to buy these sorts of wines to have in a collection and to drink.’
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His views chime with those of Paulo Martin, the director of Vino Invest, a UK-based wine investment firm that is opening offices in Sao Paulo, Spain and elsewhere in Eastern Europe.
‘This is still a new market, in global terms, with a huge potential for growth, particularly as you are dealing with a commodity-that is both finite and consumable,’ he said.
Investors have the option of buying wines en primeur, a term which means buying the wine when it is still in the barrel, and it is the cheapest – but riskiest – means of purchasing fine wines.
After buying their wines it is best to pay a small fee and to keep them in a government-bonded warehouse to avoid VAT and to make sure they are properly looked after.
One of the many attractions of investing in wine is the tax benefits it brings.
Inland Revenue classifies wines as a ‘wasting chattel’ – a tax term used to describe something which will ultimately deteriorate in value. This means investors do not have to pay capital gains tax on the profits made when their wines are sold.
However, unless you’re a free-spending Chinese billionaire, Armit voices caution and advises that fine wine should only make up around 5% to 10% of any investment portfolio.
Top tipples for vintage hunters
• Look for wines at the highest price per case that you can afford, since the very best wines often rise more in percentage terms.
• Buy wines with truly global secondary demand. Bordeaux is the best example of this.
˜ Open an account with a bonded warehouse.
• Choose an exit strategy that will not cost too much commission.
• Never confuse investment with drinking. The old adage ‘at least we can drink it’ is not a professional approach even if true.
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