While wine is considered relatively high risk – owing to lack of regulation and pockets of volatility – long-term returns can be very good. Indeed, it’s difficult to make an argument against wine in favour of equities based on volatility alone. Comparing the performance of the FTSE100 to the Wine Owners benchmark index (WO 150) shows top wines performing well over the past seven years, assuming a diverse range of holdings. Think of wine as a minimum four- or five-year investment – just like anything else, it’ll have periods where it outperforms and those when it doesn’t.
Wine Owners provides a complete solution for managing, analysing and valuing a fine wine portfolio. For more info, see wineowners.com
Here's ten rules to every would-be wine investor should follow:
1) Diversify
Wine should not generally exceed 5-10% of your total net assets.
2) Take a portfolio approach
Build a diversified portfolio of fine wine – spread your bets since fine wine is not one homogenous market. A portfolio’s core should include Bordeaux, Burgundy, and might include some top Italians.
3) Consider storage
Wines are stored in bonded warehouses, where they can be kept for years or even decades without requiring tax and duty to be paid. It’s worth considering this when buying wine for investment, since storage charges of £10-£12 a case can disproportionately eat into your profit.
4) Think of future liquidity
With the advent of self-serve exchanges and greater market transparency, top wines are reasonably liquid. If priced to market level, an investor can typically expect to cash out within one-to-four weeks. The further down the pecking order the investor goes, the propensity to liquidate decreases.
5) Buy in bond
London is the centre for fine wine trading. It’s a market that is truly global, and buyers span Asia, the Americas, Europe and Africa. Storing fine wine in bond means paying neither VAT nor duty, which makes it more attractive to a global audience. It also tells the buyer the wine has been professionally stored its whole life, which helps establish good provenance and makes your wine more desirable on the secondary market.
6) Buy wine you might like to drink
Your own preferences or interests should quite rightly influence your portfolio. So for example if you are familiar with top Californians, you might choose to buy Harlan, Phelps, Opus One, etc.
7) Beware of cold callers
Don’t buy wine from cold callers, or at least not unless you know them or have satisfied yourself that they are reputable and that prices of their ‘picks’ are competitive. Typically these calls come from ‘wine investment companies’, a great many of whom would not qualify for sophisticated investor status. Were these businesses operating in a regulated market, many might be open to accusations of mis-selling.
8) Collective fund options
The wine investment market for ‘collectives’ is small as a percentage of the whole – £120m goes into funds in the UK of a total fine-wine market of about £1bn. Few are FCA-regulated (eg Wine Source) and some operate EIS funds that provide tax breaks (eg Vindemnia, WIF). Ensure the fund’s projected returns are realistic, be aware of the fund management charges, and understand the differences in the way EIS funds are managed versus non-qualifying ones; there are pros and cons to each model.
9) Check reputations
Some funds have run into trouble and left investors out of pocket. If in doubt visit investdrinks.org to see which firms are causing concerns among their clients.
10) Build up your own portfolio
Sophisticated investors who use wine as a store of value are attracted to diversifying part of their total net worth into hard assets, which also means they want to own the cases of wine directly. Buying wines directly from established merchants or platforms that enable you to buy from other collectors with assurances are two of the safest ways of doing that.
Collectors who follow certain wines and buy consistently each year upon first release from trusted merchants build up precious allocations that can be invaluable, especially for scarce wines such as top Burgundy.
