FINE WINE INVESTMENT - As a Alternative Growth Investment Vehicle
By Rudy de Boer – R&B Wines Ltd.
(This short article is intended to give the reader a brief overview of the potential of wine investment, its benefits and related critical success factors).Are you:
- Looking to diversify your investment portfolio?
- Wanting to escape the volatility of the international stock market?
- Looking to spread your investment risk?
- Or just wanting to invest in something more tangible with an inbuilt profit and ‘feel-good' factor? (you can always drink it!).
With its consistency for realising tax-free returns of between 10 - 20% per year, fine and rare wines are quickly becoming the target for discerning investors who have between £10,000 and £250,000 to invest.
Why Should You be Interested in Wine Investment?
Under present conditions, a good wine from a top vintage should experience a price increase of 50-200% by the time it reaches full financial and physical maturity.
This is actually a very conservative estimate, as in many cases this is considerably more as the below examples indicate (IB = In Bond, i.e. no duty or VAT has been paid).
| Wine |
Vintage |
Initial IB Price |
Current IB Value |
Increase |
| 1.Latour |
1990 |
£450.00 |
£3700.00 |
822% |
| 2.Lafite |
1990 |
£376.00 |
£2100.00 |
559% |
| 3.Leoville Las Cases |
1990 |
£160.00 |
£1550.00 |
968% |
| 4.Haut Brion |
1990 |
£324.00 |
£3175.00 |
980% |
| 5.Le Pin |
1990 |
£780.00 |
£18000.00 |
2307% |
| 6.Petrus |
1990 |
£1695.00 |
£17500.00 |
1032% |
| 7.Ch. Rayas CDP |
1990 |
£380.00 |
£4770.00 |
1255% |
| 8.Ch. Margaux |
1995 |
£897.00 |
£1950.00 |
217% |
| 9.Lafite |
1996 |
£925.00 |
£2750.00 |
297% |
| 10.Cheval Blanc |
2000 |
£1850.00 |
£4300.00 |
232% |
| 11.Latour |
2000 |
£1750.00 |
£3960.00 |
226% |
The above is a general illustration of the potential for ‘blue-chip' wines from top vintages.
Although a strong ‘futures' market has grown-up around Bordeaux wines since 1990, resulting in increased prices, it needs to be realised that the quantities produced are definitely finite. Other hand demand is constantly increasing as evidenced recently by serious investors coming into this market from Russia, China and Asia in general.
This can only mean that in future demand will outstrip supply, resulting in further price increases; so by investing now before this happens, real profits can be achieved.
Although 1st Growth Bordeaux wines should be your investment focus , there are also excellent domaine's in Burgundy and the Rhone that should be considered.
The reason for the above is that these wines have pedigree and a solid performance track record going back over several generations, which generally cannot be matched by wines from the New World.
Also not to be overlooked is the influence of the American wine critic Robert Parker Jnr., who uses a 100 point scoring system.
Whether people accept his scoring system or not, his scores set the prices for Bordeaux and Rhone wines, and also to some extent Italian and Spanish wines. Therefore, invest in highly scored wines (96-100points) form top names from the best vintages.
Further to the above, fine wine investment has out-performed the FTSE as clearly shown on the below listed chart which has been kindly provided by Liv-ex Ltd ( The London International Vintners Exchange is an electronic exchange for fine wine)
| Liv-ex Indices vs Other Asset Classes in 2005 |
| Commodity/ Index |
Return % |
| Brent Crude |
48.3 |
| Nikkei 225 |
40.2 |
| Liv-ex Claret Chip Index |
22.7 |
| Liv-ex 100 Fine Wine Index |
18.7 |
| Gold |
17.7 |
| FTSE 100 |
16.7 |
| Liv-ex 500 Index |
12.6 |
| UK Gilts |
6.4 |
| Stanley Gibbons 100 (Rare Stamps) |
6.4 |
| FT House Price Index (Eng & Wales) |
3.0 |
| S&P 500 |
3.0 |
Source: Liv-ex Ltd.
Benefits of Investing in Wine
Fine wines are free of both capital gains and income taxes. Classed as a wasting asset, wine is not charged for capital gains; also wine is not an income-bearing investment and is therefore free from income tax.
Consider the following wine investment benefits against those normally associated with unit trusts, investment bonds and equities:
- Tax free
- Stable investment base with no hidden costs; original purchase price + consulting/management fee + annual storage charges (R&B Wines portfolio management model only, as other merchants may have different cost structures).
- Low risk; easily realisable
- No penalties for short-term disposal when disposed at going market rate
- International portability
- Finite availability; on-going consumption = scarcity = rarity = desirability = increased demand = guaranteed growth!
- Consumable!
Critical Success Factors
As with any investment, prices can go up as well as down! Therefore selecting the right wine from the best names and in the best vintages is critical to realising a maximum growth potential.
We recommend you keep the following in mind when planning your wine investment strategy:
- Take advice from knowledgeable wine enthusiasts, wine critics and find a wine merchant that has your confidence in respect to fine wine investment.
- Read-up on wine; there is lots of information available in the form of books (especially from Robert Parker for Bordeaux and Rhone) also magazines like Decanter, Wine, etc.
- Only buy Bordeaux/Rhone wines with 96points or more from Robert Parker, as this will have direct impact on price; the equation is Top Name + Top Vintage + Top Score. For Burgundy this is more complicated, ask for specialist advice.
- Buy your wines In Bond so that Duty and VAT are not payable, as this will maximise your return, and wines will be easier to sell-on when IB.
- Buy unmixed sealed cases, in original wooded cases/cartons as this will optimise resale value.
- Store wines in a top professional cellar, which provides online facilities for managing your stock. Quality of storage will have a direct impact on wine provenance which will impact resale potential.
- Buy as close to the initial opening price as possible.
- If possible buy parcels of five cases or more.
- Don't buy blindly; check that price has growth potential by comparing to past top vintages. Especially important if opening prices are high due to marketing hype (not every vintage can be the vintage of the century!).
- Make sure you know the provenance and storage history, as this will affect re-sale price potential.
- Make sure insurance is at current market price and not original purchase price.
- Beware of wine fraud; this is an important subject that cannot be covered in this article due to lack of space, so please contact me for further information.
Owing to limited space, this article has only covered some of the most pertinent points of wine investment, but there is bound to be more that you would like to know about.
So, if you would like further information on wine investment or our wine investment services, please call Rudy at R&B Wines Ltd. on 0771-880 6337 or email
randbwines@aol.com
RdeBoer
07.03.2006
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