Financial Poise
  • Home »
  • Investors »
wine grapes ripe for harvest and for wine investment

Assets in the Red (and White): Can Investing in Wine and Wine Funds Add Stability to Your Portfolio?

Wine Investment Grows in Popularity Among Collectors

There is a rising interest in wine as an asset class – as an investment of the same type as stocks, bonds, or works of art. In fact, returns for one of the world’s most diverse wine indexes, the Live-Ex 1,000, were up 10% in 2018.

But the additional appeal of investing in wine is that you can do it in the form of elegant collecting, not vulgar trading. And you can take your money out of the volatile stock or bond markets (not all of it, of course), take your eye off the precipitous indexes and calmly sip great vintages, secure in the knowledge that the value of your assets will rise over time.

Liv-ex Global Wines Statistics for investing in red and white wines

*Price Index of the 1000 Best Performing Global Wines according to Liv-ex statistics

Alternative investments of this type – art, jewelry, wine – are not meant for getting rich quick. They are investments meant to be kept for a fairly long time, and they appreciate gradually. The wine collector has, for centuries, amassed a cellar full of valuable bottles, and those that did not appear on the table at dinner sometimes made their way to the auction house where they helped to finance future purchases.

“While it is possible to invest in wine for a relatively short term,” explains T.K.E. Jainu-Deen, C.E.O. of Canary Wharf Vintners, which manages portfolios for investors as well as purchases wine for cellars, “this is a relatively risky strategy. Generally, wine prices don’t go up in a linear fashion but tend to experience fairly short periods of upward activity. Timing is therefore everything when it comes to buying and selling fine wine in the short term. But such speculation will always be a much more risky and volatile endeavor compared to a longer term investment strategy which has a relatively low level of risk compared with investing, say, stocks and bonds.”

Wine vs Equity Index

According to statistics from Live-Ex, the online trading platform for fine wine, in the last 15 years fine wine has done better than most equity and fixed income indexes, including the FTSE 100. For long term investors, a well-chosen and balanced wine portfolio should provide annualized returns of around 10-12% per annum. But it is not unusual for investors to do much better than that amount.

Fine wine is what wine investment is all about, because such investment is concentrated on a small group of the very best wines for which the market is largest or, to use the financial term, the most liquid. This means assets that can most easily be converted into cash.

“It is the very top group of about 1000 wines that are considered for professional investment,” comments Steven Langley-Goodman, head broker at the Liverpool-based wine investing firm FCF investments. “Wines in that group are likely to find another buyer, and they are quoted on the online trading platforms like Live-Ex, BBX and Cavex.”

The Bordeaux First Growth vintages are foremost among these, and they have seen a bubble in recent years. Asian investors drove their prices through the roof until 2011, and then the bubble burst and prices have fallen back since then. With that said, those who bought early have enjoyed healthy gains. For example, a bottle of Chateau Latour 2000 could have been had in that year for about $1,300. In 2013, it was worth about $10,000.

Since the bubble burst for First-Growth Bordeaux prices, the wine investment market has become a bit more diversified than it has been traditionally. Of the Live-Ex 1000, Burgundies now account for 150. The rest are comprised of the Bordeaux 500, the Bordeaux Legends 50, the Champagne 50, the Rhone 100, the Italy 100 and the Rest of the World 50.

One of the best performers and surest investments are Burgundies Domaine de la Romanée Conti. In fact, the Burgundies made records in 2018 after two bottles of 1945 Romanée-Conti sold for $558,000 and $496,000 at a New York auction.

Conservative Wine Investments Through Funds

One more conservative way of investing in wines is through wine funds. For a collector who is still working up the steep part of the learning curve, funds permit investments managed by experts.

Three such funds offer prospective collectors access with American companies: The Elevation Wine Fund, The Wine Trust and Bottled Asset Fund. These funds function in the same way that an American mutual fund works. Investors pool their money (with typical initial investments running between $20,000 and $50,000) into a portfolio of investment-grade wine. Managers then buy, hold and sell the finest bottles (most often the highest grades of red Bordeaux) and maximize consistent gains into the closed-end fund.

DIY Wine Investment

For the investor who likes a DIY approach, Jainu-Deen advises starting with Wine-Searcher, a web database open to the public where you can find current prices and then trade.

When investing in wine without using a wine fund, consider the following:

  • Is the wine in demand? Are other collectors talking about the wine in collectors’ circles or on forums? Some wines will gain value more slowly than others, even if they are all of the same quality. Do research on each wine’s value over time.
  • Remember that many auctions prefer to sell wines in sets, so investing in at least three of the same wine at one time can help you sell down the road. A fine wine can start in the thousands of dollars, so make sure that you have enough cash to enter the market.
  • Wine investments are long-term, because wines appreciate based on their ability to age well. Understand what makes a wine age well, such as high acidity, higher levels of tannins, residual sugar and lower alcohol levels. Dry weather vintages are also known to age well.
  • Make sure that you purchase your wine from someone who is able to trade in the marketplace, so that you have someone to help sell your wine when it is time.
  • Ensure that your home has the proper climate-controlled storage space, or find a service that can store your wines for you.

So there is a wide choice for the collector who can work at any level of wine investment. The greatest challenge remains: To save, or to drink?

[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Basic Investment Principles 101 – From Asset Allocations to Zero Coupon Bonds 2019 and Options for the Accredited Investor. This is an updated version of an article originally published on September 16, 2014.]

Article Comments