Understanding Investment in Wine

Wine Investment

Wine as an Investment

Investment is wine is not a new concept. Like you invest in gold, rare coins, fine art this is also a commodity based investment. Traditionally people invested in such things and still do like investing in stocks, bonds, cash or real estate. Many years before fine wine became truly ‘global’ in the mid-1990s, wily buyers would often buy more than they intended to drink, selling the excess at a later date to fund subsequent purchases.

While there may be tens of thousands of wine producers across the globe, it is estimated that perhaps only 250 produce the sort of premier wines that are worth considering as a financial investment. It is also estimated that about 90 percent of the world’s investment grade wine is produced in the Bordeaux region of France, which explains why the region is the main target for investment wine fraudsters. Vintage ports historically have made up much of the rest of the market inventory, but now more and more varied and global selections of wines are finding their way into the investor market.

How is wine invested?

Though most of the wine is purchased with the intent of consuming it, some wines are purchased with the intention to resell them at a higher price in the future. Wine investment is usually conducted through one of two main methods:

  • The first involves purchasing and reselling individual bottles or cases of particular wines like wine for investment tends to be sold in sets of 3, 6, 9,12 or 13.
  • The other option is purchasing shares in an investment wine fund that pools the investors’ capital.

In the former instance directly buying specific cases of wine it is recommended that inexperienced investors work with a broker, merchant, or a consultant, to minimize risk.

Many authorities also publish independent guides for the investor to help navigate this investment class. Indeed, complex models and formulae have been applied to tracking investment wine’s historical returns. Outstanding vintages from the best vineyards may sell for thousands of dollars per bottle, though the broader term “fine wine” covers bottles typically retailing at over about US$30–50. Investment wines are considered by some to be Veblen goods; which means that demand for them increases instead of decreases as the price rises. The most common wines purchased for investment include those from Bordeaux, Burgundy, cult wines from Europe and elsewhere, and Vintage port.

Most expensive wines in the world

So how this investment in wine goes?

According to David Sokolin author of investing in liquid assets, “Wine investors are seeking bond like security with stock like returns, and people invest in wine because they think it’s interesting.”

  • Once you invest, expect to wait a minimum of 5 years before selling. If you want to build a short term portfolio, look into En premier wines from Bordeaux.
  • As said above most wine auction sites prefer to sell wine in sets of 3, 6, 12 and 13. By purchasing 3 or more bottles, you also give yourself the opportunity to start collecting verticals of single wines. Some wine exchanges require full cases.
  • Storing wine in an insured temperature controlled facility is the best way to guarantee that your wine has excellent provenance and will sell. Wine storage starts at about $18/mo for a locker that will hold 7-9 cases of wine. Brokers and merchants in the UK prefer a wine that is “In Bond” which means it’s purchased and stored in a bonded warehouse that avoids the costly 20% excise tax. Therefore advisers of wine investment funds keep the wines they’ve purchased in professional storage spaces at all times like one of the premier wine-storage facilities in the world, located in Wiltshire, England.
  • You can expect to spend $8,000 and above to get going. You need to add the cost of wine storage (at a minimum of $360/yr), insurance etc. It is better to start with a set size value of wine assets.

Most wine collectors become investors by accident and not by choice. When their cellars become too crowded, they sell a few bottles and, in the process, gain by this process of selling.

But as the price of fine wine has risen dramatically in recent years, a new group of wine buyers has begun acquiring cases of first-growth Bordeaux strictly as investments. The Wall Street investors are putting money into one of the growing number of so-called wine funds akin to mutual funds.

All these investors love top Bordeaux, Champagne and, to a lesser extent, Burgundy, because of the wines’ “noncorrelation to other asset classes” meaning prices do not rise and fall with stocks, bonds or even mortgage defaults.

Wine Cellars in London

Wine Cellars in London for storing wines

Do wine investors are mainly those who love to drink?

Obviously not necessary as many investors in wine funds have no desire to actually drink any of the great bottles in their portfolios, preferring that they remain in a professional, temperature-controlled storage facility that can keep them in pristine condition, and thus protect their value. Some of these investors may not even know the difference between Bordeaux and Burgundy. To them, wine isn’t something to be enjoyed but it’s an asset class.

Wine as a financial commodity

According to Miles Davis manager of the London based Fine Wine Investment Fund one of a dozen or so funds that were created in the past few years to capitalize on the growing interest in wine as a financial commodity. These new wine funds offer would-be investors a way to buy into a collection of hundreds or even thousands of cases of wine. As the initial investment is relatively small; it can be as little as $20,000, though $50,000 with few exceptions like the Elevation Wine Fund, the first U.S.–based wine fund, which launched in August 2008, requires a lofty $250,000 initial investment.

Investors in the Wine Investment Fund receive their payment in cash but also other funds offer investors a choice between cash and wine. Like the Elevation Wine Fund will pay dividends in either cash or wine. Investors can pick and choose wines from the collection that they’d like as part of their return. Investors will receive regular updates on the contents of the fund and can withdraw the wines that they like as dividends.

Wine Auction

Auctioning Wine

Where to invest in Wine in UK and US

The Wine Stock Market is in UK only and there are three wine exchanges: Berry Bros. & Rudd, London International Vintners Exchange  and Cavex. The three programs focus mainly on top Bordeaux and also handle logistics. Here the  wine investments are stored in ‘bonded’ temperature controlled warehouses. Such bonded wines avoid the 20% excise tax but also remain in a warehouse until the tax is paid. These wines are very desirable to international buyers, restaurants and brokers.

In US such you can sell your wine investment through wine auctions. In a wine auction your wine is sent to the auction warehouse and then auctioned to the highest bidder. Online wines auctions act a little more like ebay than a traditional auction. There are many different auctions houses around the United States like Vinofolio, Acker, Merral & Condit , K & L Wine Merchants ,Christie’s ,WineBid , Spectrum Wine Auctions and few more. When you consign your wine the auction house will take a cut of the sale. The commission ranges from about 0% if you accept store credit to 20% of the sale. There is also usually a minimum consignment amount anywhere from $1,000 – $10,000 of wine. At online bidding, many a times you have the freedom to accept or decline a bid that is your choice.

Wine Investment- Advantages and Disadvantages

Wine Investment- Advantages and Disadvantages

Drawback in wine investment is the fee and the size of the fund

The only a drawback to investing in wine funds, it is their fees: usually 2 percent of assets under management, plus 20 percent of the profits. These kinds of fees are closer to what hedge funds charge, and while this may be fine when the returns are hedge-fund size as much as 80 percent in good years, when the returns are only 12 percent, it becomes a rather sizable bite. The Fine Wine Fund also has a 10 percent early redemption fee in the first year and a 5 percent fee in the second intended to discourage investors from making a short-term investment. Fine wine, after all, requires patience and, most of all, time to mature.
Another issue may be the small size of these funds. The largest is the Vintage Wine Fund, with $153 million. By contrast, the Vanguard 500 Index Fund has around $100 billion in assets.

Wine as an investment has traditionally been associated with low levels of risk and stable returns because to its unique characteristics as an asset. The finite quantities produced, ever decreasing through consumption generally ensures predictable growth in the long-term with a perfectly inverse supply curve. Also the market for investment wine has shown a steady increase over the last five years, with the emergence of China as leading economic superpower further creating its expansion. Thus this investment offers greater degree of stability than traditional markets, diversifying and securing your investment portfolio. So any choice for such cheer investment.. explore it.

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