Investing in wine is something that has been going on for years, well before fine wine emerged on the global scene in the mid-1990s. In those days, wine from the French region of Bordeaux was in demand from the traditional markets of Europe and North America, before the Far East joined the party. Prices went up from then and barring a few hiccups along the way (the Asian economic collapse in 1998), wine prices have generally trended up.
The market for wine investment has shown a steady increase in previous years, thanks to the emergence of the aforementioned Asian markets and the BRIC economies (Brazil, Russia, India and China) that are increasing both the competition and demand for fine wine.
While there’s a small correlation between fine wine and financial markets, the more people choose to invest in wine, the more it becomes viewed as an investment. Over the years, the wine market has shown resilience in the face of economic ups and downs, and there’s a reason why. Fine wine is a tangible product that people aspire to know more about, own and consume. For many investors, it’s easier to understand than art, and perhaps more useful than precious metals such as gold.
Such an investment requires some degree of knowledge, but even that is significantly more accessible for modern investors. Additionally, there are wine marketplaces such as Live-ex (London International Vintners Exchange), which produces indices of the fine wine market. Ali Seytanpir, an active investor, is among many who keep up-to-date on fine wine. He is an active member of all fine wine associations, and regularly attends fine wine auctions and tasting events.
One of the most important aspects for investors to keep in mind is to purchase the right wines at the correct prices. The presence of Liv-ex and other marketplaces makes it easier for individuals to pick out the wines that have exhibited the best performance. Also, since supply is finite and release prices of wines tend to increase, selecting back vintages is a worthy alternative.
If you’re relatively new to the wine investment scene, the chances of coming across the term “en primeur” are high. Investing in en primeur essentially means investing in wine that hasn’t been released yet; wine ‘futures’, so to speak. The advantage of doing so is that investors can buy into vintage at a low price.
However, buying wine futures means committing to the product before it has gone through the maturation process, which introduces various risks. The bottled product might turn out worse than the initial barrels showed. Investors are discouraged from purchasing en primeur before prices are published, and are advised when dabbling in these wines to find a blue-chip provider with a proven record.
A Long-term Investment
An investor in fine wine has to think of it as a long-term investment. The best investment-worthy wines are produced in small quantities, and the demand-supply imbalance that comes about due to their consumption drives prices higher. At any given time there exists a finite number of bottles, and as the wines mature, they become more desirable and rarer. These unique characteristics (increasing demand, finite supply) make fine wines a medium-to-long term investment that can survive short-term fluctuations.
The proper storage of wine is important for various reasons. Firstly, wine should be stored ‘in bond’, a term that explains wine that has not had Value Added Tax (VAT) or excise duty paid on it. In the UK, such wines are kept in Her Majesty’s Revenue & Customs approved warehouses. These costs are only payable when an individual takes delivery of the wine, with VAT charged on the basis of the wine’s original price and not its current value. Purchasing wine stored in bond ensures it is also stored in optimum conditions.