Wine Investing: Will You End Up With Profits Or Plonk?
Could you buy wine for profit, as well as pleasure? In the past, gentleman wine collectors followed a basic rule: buy five cases of claret and put them in the cellar. Wait 10 years then drink two of the cases and sell three – and by doing so realise enough profit to buy five cases of younger wine and start again.
But the wine market has changed. It is less the pursuit of leisured gentlemen with their own cellars and more an investment market similar to those where other commodities are traded for profit.
Several factors have driven the change, market watchers say. Prices of the most widely collected and traded wines – mainly bordeaux – rose sharply in the first decade of this century, attracting buyers who were less interested in the substance than in the profits they seemed able to generate. Another factor is growing demand from Asian buyers.
“The main driving force of the rapid growth has been the huge demand from Asia,” said Pete Goss of Richard Dawes Fine Wine, a specialist merchant. “Asian markets tend not to be driven by speculators, but by drinkers. As more of the top wines are consumed earlier and earlier, stocks are declining at a faster pace. We are seeing more interest from China, where there are an almost unlimited number of wealthy buyers, especially for premium bordeaux. Auctions in Hong Kong fetch prices well above the UK market.”
Between 2003 and 2011 prices of the most sought-after wines rose by more than 250pc. But in the past two years they fell back by almost a third. This was due to the global downturn in all assets, Mr Goss said. “There was a delay with wine, which continued to rise in price as we went into the financial crisis. But eventually the downturn did have an effect.”
Even so, the price of fine wines – as measured by Liv-ex , a benchmark index based on sales prices of the most sought-after 100 wines – is up by more than 150pc over 10 years. And prices appear to be rising again. Liv-ex , which is based in Britain but draws its data from global sales, points out that while its primary bordeaux index fell between 2011 and 2013, prices of other wines remained stable or grew throughout the period.
Rising prices were good for wine merchants and their customers but also attracted fraudsters into the market, with implausible promises of quick profit and bogus schemes often involving the sale of wildly overpriced wines. Sometimes investors parted with money and ended up with no wine whatsoever.
This led to a string of high-profile court cases and warnings from various authorities, including the Metropolitan Police, which says: “As with all types of business, there are rogue wine traders who are intent on conning people out of their money.” It warns against “aggressive sales” and promises of “guaranteed returns”.
By 2012 it was estimated that private investors had lost a total £100m in wine scams operating in just the four previous years.
The financial watchdog, the Financial Conduct Authority, also has concerns. In June this year it banned the promotion of collective funds – structured as unit trusts, for instance – where the underlying assets were risky commodities which are frequently difficult to trade. The assets it listed included wine. As with all alternative investments the general advice is to avoid any hurried decisions.
If you are buying through a merchant, check how long it has been in business and use the internet to find out more about its reputation and history. The Metropolitan Police even recommend using Google’s Streetview application, which lets browsers see whether the premises are as stated on a company’s literature, as a further check.
Would-be investors starting from scratch need to do their own research and choose their supplier with care. A number of long-established merchants, such as Berry Bros & Rudd and Corney & Barrow, help investors build portfolios from scratch.
Less well-known merchants can sometimes offer better prices, as they don’t maintain expensive central London premises. Most useful of all are new websites, such as Wineowners.com, that allow prospective buyers to check the competitiveness of prices (see below). This enables investors to gather information about possible purchases and then research current and historic prices.
In most cases you pay the merchant the price quoted plus an annual storage fee of between £8 and £10 per case, which will include insurance. Your wine is then stored in a secure, temperature-controlled warehouse until you sell or drink it. On its sale your merchant will take commission, typically 10pc.
How much do you need to invest? Nick Martin of Wineowners.com said users of the site owned wine worth between £1,000 and £2m. At Richard Dawes, Pete Goss said he typically recommended investors to start with a budget of £2,000 as a minimum. The wines that he recommends are not necessarily hugely expensive, however.
He said: “Over the past two years customers have chosen to diversify the wine in their portfolio. While many used to be 100pc invested in bordeaux, now there is also a strong focus on burgundy, prestige cuvée champagne and top ‘super Tuscans’, such as sassicaia and ornellaia.”
A case of Sassicaia 2010, Tenuta San Guido, currently costs £535.
Another way to begin the learning process is to join a regular investment plan offered by an established merchant. Berry Bros’ “Cellar Plan”, for instance, allows customers to contribute from £100 a month towards building a collection of wines recommended by the firm.
Matthew Rhys-Evans made the switch from being an appreciative wine drinker to an investor over the past few years. Mr Rhys-Evans, who works in banking and lives in Buckinghamshire, said: “I’ve a good friend in the wine business and I’d always enjoyed a glass of wine, but for many years I was someone who bought wine by the bottle at supermarkets and off-licences. I didn’t really delve into fine wine or old world wine.
“Then my wife and I bought and renovated a property in Italy and started a more serious and appreciative way of looking at wine, surrounded by vineyards and getting to grips with Italian wines. I began buying cases from producers and storing them, possibly to drink at some point in the future, but also thinking of wine as an asset.”
In the past three years he has become more serious about wine as an investment, opening accounts with four merchants in London and buying cases of about 10 different vintages which are stored for him through his merchants.
Mr Rhys-Evans uses the Wine Owners website (Wineowners.com) to view his holdings and track their value, logging on about once a month to access wine information and prices. Apart from showing current values the site provides information on when the wine is likely to be good for drinking. Notable critics’ comments on the wines are also posted.
“I take a DIY approach,” he says. “The adage was that you buy and store a few cases, drink one or two and sell the rest to pay for more. I don’t know if that still holds true. I buy certain wines to drink and others as investments. For drinking, I will buy wine from anywhere. But as an investment I only buy bordeaux and Italian wines. It is daunting to start, as there is so much expertise out there, but fundamentally it’s about enjoyment. It’s impossible not to enjoy a glass of good wine.”
Buying wine as an investment? First, arm yourself with information
A range of websites have made it easier for small-time wine buyers to check they are paying reasonable prices for their wine. It is also possible to accurately track the value of what you own, based on sales prices being achieved elsewhere.
Liv-ex , an online trading platform, is a service primarily aimed at professional wine merchants. But private investors can also use it to check the prices of virtually all fine wines. The site offers a limited number of free price checks per month, while unlimited price checks can be undertaken for a fee of £5.99 a month.
Wineowners.com is a new service aimed squarely at the private investor, although it does much the same as Liv-ex . Buyers can enter the details of what they own and then track the changes in value, again based on real prices achieved at auction.
The site allows them to view the performance of their holdings in the form of graphs and charts – much as investors in shares are able to do via an online stockbroker. Investors and drinkers can also use the site as a trading platform. If you wish to sell wine you indicate the price you are prepared to accept. Buyers indicate the price they are prepared to pay.
A system of checks enables both parties to verify that the wine being traded is as described. In most transactions the actual wine will remain unmoved in the same warehouse despite the change of ownership.