Recent times have seen worldwide investors adopting a cautious approach to investment. This isn’t surprising given the global economic situation, and although we’re starting to see signs of recovery it’s still not clear where to get the best investment return. Or is it?
While the property and stock markets have been highly volatile, the value of fine wine has been much less susceptible to changes in the economy. So why is this? Put simply, fine wine is an investment subject to an extreme example of supply and demand. Each vintage is subject to strict limits of production, and as the wine is drunk it becomes increasingly rare. Increased demand for fine wine from the emerging markets is the final golden factor in this equation.
If all this isn’t enough to entice you then here are a couple of other interesting facts to convince the cautious investor. The 100 Fine Wine Index has soared by 27 per cent this year. The index, which represents the 100 most sought-after fine wines, is also up a whopping 47 per cent since the end of 2008.
So which wines should you invest in? For the novice investor, there is only Bordeaux. While other regions produce superb wines, it is the established international market of Bordeaux that is important – all other wine categories combined only make-up around 10 per cent of the investment market, and are best left to the sophisticated investor. Travellers will tell you of the marvellous wines available from around the world; yes good wine is produced everywhere, and they are all lovely to drink – but this is about investment. So Bordeaux it is, but which ones?
The best examples are known as the ‘first growths’. They are Lafite Rothschild, Mouton Rothschild, Latour, Margaux, and Haut Brion. These chateaux form the backbone of all good wine portfolios, along with a good representation of other great wines.
In the world of fine wines, points, or, ‘Parker points’ to be exact, (named after Robert Parker, a celebrated American wine critic) are the main way of assessing whether a wine is of investment grade. Parker’s point system (which he popularised with his friend Victor Morgenroth) was designed to counter confusing or inflated ratings. The scale, now widely adopted, ranks wine on a scale from 50 to 100 points based upon colour, appearance, aroma, bouquet, flavour, finish, and overall quality level or potential. As you would expect, the 98-100 point wines are regarded as the very best and it’s not just the top chateaux that produce these, it is perfectly possible to get superb marks from second growth vintages, and prices to match.
As well as bottled wine, another purchasing option is en primeur. Think of this as buying the wine at an earlier stage, i.e. while it is still in the barrel. En primeur is usually delivered in the spring/summer of the third year after harvesting, thus the 2006 vintage was delivered in the early part of 2009. Historically en primeur wines provide some of the best value, as the price reflects the fact that the product is not yet available. Some markets, notably Asia and Russia, have resisted the idea of buying wine that does not yet exist in bottled form, creating the opportunity to buy a product before it becomes highly sought after.
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It’s a basic rule of investment that diversification is the most important factor in achieving long-term growth, so a balanced collection of wine should have a range of vintages, with variety in both the chateaux and the years of production. Look to include examples of ‘trophy wines’ from the best years, plus some excellent second growths together with an element of en primeur.
The next step
So you’ve decided that fine wine investment is for you, what to do next?
New entrants to this market should build a relationship with an established wine merchant. European Fine Wines care passionately about wine and would be delighted to introduce you to this exciting market.
Whether you are a new or experienced wine buyer, here is a list of some of the basics you should look for:
To start with, use a bonded warehouse. There is a level of reassurance that a bonded warehouse is regulated and must satisfy stringent criteria.
Open a private account. Your wine must be kept in an account that is exclusively in your name; there is the risk that wine kept in a merchant account could be considered their property and not yours.
Obtain a condition report, it will confirm that the wine is in an Original Wooden Case (known as OWC), which is an important part of the provenance; look for transit stickers, you don’t want wine that has travelled around the world; the report will also cover whether the labels and caps are in good condition and that the evaporation rate is consistent with the vintage.
Investment grade wine must be stored in the right environment. The warehouse should provide facilities appropriate for the long-term storage of fine wine. Check that they use climate control to ensure the optimum temperature and humidity levels.
Make sure you are insured. The storage charge will often include insurance cover for the replacement value of your wine – review this each year to ensure that you have the appropriate level of cover.
Stock reporting. The major warehouses offer the ability to view your stock online, but will otherwise send you an annual stock report showing your holding.
Be prepared to invest over the medium to long-term – 3-5 years and upwards. Be suspicious of any investment that claims to offer substantial short-term returns.
Pay with a credit card. As with all major purchases, there is significant protection afforded to credit card transactions.
This is a market that can be both rewarding and interesting. Do your research, and above all have fun.