Love your premium tipple a little too much to consume it? We tell you everything you need to know about wine investment.
Throughout history, wine has been seen as the elixir of the gods and only the privileged get to taste it. Royalty and the rich would stockpile the very best by the barrel in their underground cellars, and these were meant purely for private indulgence. Its exclusivity prompted merchants in the 18th and 19th centuries to buy, trade, horde and sell it as a grand product.
Thankfully, wine is now easily available at supermarkets. But, sparked by the widespread advancements of the Internet since the 1980s, wine has become more than just a thirst quencher — a once high-end niche market and status symbol for discerning aficionados is now a global commodity, with the promise of a road paved with gold.
Akin to how its taste and profile get more refined with age, wines’ value tends to swell over time, making it a potentially lucrative commodity for trade and investment- if you know where to look.
The most expensive lot of wine sold on record was 114 bottles of Romanée-Conti Burgundy at a Sotheby’s auction in 2014, which went for US$1.6 million. That equates to US$14,035 per bottle, so spilling would be a cardinal sin! To whet the appetite of would-be wine investors further, investment-grade wine has had a stellar performance in the market, which has steadily gained momentum in recent years. Wine has even knocked collectible cars off the podium as the fastest-growing asset class, with a growth of 24%, compared to 9% from cars. “There has been a remarkable recovery in fine wine prices following the dip in 2013-15 caused by the deflation of the speculative Chinese demand bubble,” says Jeremy Howard, Chief Executive Officer of fine wine retailer Cru. “Since their cyclical low point at the end of 2015, fine wine prices have been risen over 30% to new all-time highs today.”
Not all wines are created equal
If you possess a keen interest in wines and find yourself unsure of how to spend that extra bit in your kitty, fine wines could be the next big thing to bet your money on, with the possibility of handsome returns without the volatility of some other collectibles, such as antiques.
It is important to note that not all wines are made equal, and a savvy wine investor is one who is armed with a sound knowledge of emerging markets and knows how to pick the right tipples. The golden rile for investing in collectibles is to buy what you love with a mid- to long-term view; in the case of luxury wines, invest in what you would enjoy drinking.
According to fine wine investment firm The Wine Investors, only 1% of the world’s supply of wine production falls under the investments-grade category, with the rest begin early-consumption wines made to be consumed within three years. Such odds increase the risk of investment, making your choice of high-end wines a top priority and careful decision. One investment strategy is to purchase the best you can comfortably afford and invest in wines with a good record that enjoy a sustained global demand.
Historically speaking, most investors head to the main chateaux Bordeaux, France, where an estimated 80% of the world’s investment grade wine is produced, according to Equity Wine Investments. Bordeaux Grand Cru Classés account for about 75% of the pie, making them the ideal bottles to bring in a steady profit margin.
Other wines that have shown investment value over the years are first-grown vintages from the likes of Lafite Rothschild, Mission Haut Brion and Château Mouton Rothschild, the last of which saw a 165% jump in value from 2012, making it the best performing investment wine in 2017.
However, the diversification of the fine wine market has seen demand for bottles from other regions spike in recent years. “Today, Bordeaux’s dominance has been replaced by a much broader market, where regions such as Burgundy, Champagne, Rhone and the New World have become much more sought after and actively traded by investor,” says Howard.
Furthermore, quality is always better than quantity – and don’t forget to check the vintage for the most impressive years.
At Cru, clients are advised to invest in A-rated or above wines. An ‘under’ or ‘over’ valued metric is also used to help clients analyse the value of their wines and to make informed decision. As fine wine prices tent to trend for long periods, Cru analyses the current trajectory of price movements to find wine with good price momentum.
Wine is not a typical investment with turnarounds – the average waiting time is five years before selling. If you have the time, funds, storage space and claret-red passion, there are two main ways to invest in this alternative asset class:
- Through fund investments
- By curating and selling your own portfolio of collectibles
In the former, the investment fund is managed by experts, who pool the money from members and handle the purchase, storage and resale of the wine for the investors. These investors in turn gain, depending on how much they invest in the fund. An investment fund is generally the path of lower risk, with a smaller start-up expense. As long as you pick the fund that’s right for you, you can sit back and let someone run the show while you collect your returns. That said, funds can also be expensive, illiquid and inflexible. Wine funds often lack the intimate market knowledge of a merchant and have limited resources to invest in sophisticated analytical tools,” says Howard.
If you are on oenophile with a hands-on approach, managing your own portfolio can be a satisfying experience: you pick your own wines from a trusted wine broker, decide when to sell and reap all the returns. One caveat is that you’re also the sole recipient of all ancillary costs. Fine wines require professional storage in the right conditions. This should ideally be a temperature-and humidity-controlled environment where the wine can age properly. “if they are intended for investment, they should never be stored at home and always in a government-regulated warehouse under bond, which means you don’t have to pay duty and sales tax on purchase or sale,” Howard advises.
Some also invest in en primeur wines, or wine futures, where wine is purchased while still in the barrel. While some investors prefer this mode of investment as it enables them to deal directly with the chateaux – thus acquiring stock at its lowest market price -there is a risk that the final product may differ from initial expectations upon maturity. Howard believes that credit risk is a major consideration, as buying en primeur would require you to pay for all your wine upfront. “There is no industry deposit or payment protection insurance. Hence, you are on your own,” he emphasises. Should you choose to buy en primeur, do so through a trusted blue-chip merchant with a good record.
Liquid luxury or investment gone sour?
Despite growing interest and the emergence of more sophisticated and diverse trading platforms, luxury wine investment remains a rich man’s game. “Understand that, while it is a physical product, fine wine is still a speculative investment. Liquidity is improving in the wine market, but it is still an illiquid investment and should be considered alongside art, property or private equity investments,” says Howard.
As with other investments, choosing whether or not to take the plunge in fine wines is all about taking a calculated risk, one that can be the difference between a vintage year for your rosy investment portfolio and a bottle gone sour.