Wine had a better performance than the FTSE 100 and gold.

Wine had a better performance than the FTSE 100 and gold.
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Wine: a savvy investment?

Wine industry
Wine Inspiration

Ever been tempted to invest in wine? Then read the first part of Falstaff’s guide on where to start, and key pitfalls to avoid.

What does wine mean to you? A reviving pick-me-up after a long day at work? The essential ingredient to a convivial dinner with friends? That precious bottle preserved for a special milestone celebration? But wine needn’t be a drain on your funds. In fact, there’s plenty of evidence that it can in fact prove a lucrative investment.

The Sotheby’s International Realty 2023 Luxury Outlook report points out that, while the S&P 500 was down 24% in mid-October 2022, the Liv-ex 1000 – a global index covering the most traded wines on the secondary market – was up 14%. In fact, fine wine put in a record performance in the year to November 2022, with both the Liv-ex 100 and Liv-ex 1000 outperforming the FTSE 100, S&P 100, DAX and gold.

That performance is not just a one-off. The Knight Frank Luxury Investment Index’s Q4 2021 not only showed a 16% uplift for wine over the preceding 12-month period but a pretty healthy 137% rise over the decade. That’s a stronger performance than watches, art or jewellery. You might not want to base your entire retirement fund on it, but wine is now firmly established as an attractive alternative investment alongside more mainstream equity and commodity portfolios.

Some wine lovers will instinctively recoil from this idea. For them, wine is an emotional, sentimental pleasure. The idea of delicious, story-telling bottles condemned to life in storage, their ownership and value shifting sporadically on a computer screen, can feel too soulless an existence for such a life affirming product. But even they might consider the traditional cellar building approach of buying two cases with the vague hope of eventually selling one to finance future purchases.

If you are tempted – and all those market reports paint a very alluring picture – then it pays to give careful thought to how deep you dive, and finding a reliable place to jump in. As with any investment opportunity, there are plenty of cowboys out there, or simply options that won’t suit your budget, time frame and priorities.

Keen to jump in seriously? Then consider an established, specialist firm such as The Wine Investment Fund. Expect to put up a minimum investment of £10,000 and pay an annual fee of 1.5%, plus 20% of any profits.

For an option that requires lower buy-in and aims to attract drinkers as much as investors, it’s worth browsing the cellar plans offered by many fine wine merchants. Berry Brothers & Rudd recommends a starting point of £250 per month and offers the chance to combine investment prospects with cheaper favourites to drink. If you do decide to trade, then you’ll have access to the merchant’s BBX platform, but there are other perks such as reduced storage rates and tasting invitations.

Investors can use cellar plans offered by fine wine merchants.
Investors can use cellar plans offered by fine wine merchants.
Investors can use cellar plans offered by fine wine merchants.

As for what to buy, Bordeaux has always been the mainstay of the wine investment scene. It’s a region full of big names with reassuring track records and, compared to many wine regions, sufficient volumes to ensure – in this case quite literally – market liquidity. Indeed, The Wine Investment Fund focuses exclusively on Bordeaux, explaining: “We consider these to be the only true low risk investment grade wines.”

Investing in Bordeaux does not necessarily mean succumbing to the buzz surrounding this region’s annual en primeur campaign. In theory, buying en primeur, ie before the wine has been bottled, should offer the best possible price. However in recent years many buyers have realised that for a similar price – sometimes even cheaper – it’s now possible to buy more mature vintages whose quality has been more rigorously assessed and whose price is likely to prove less volatile.

Burgundy: soaring demand

Then there’s Burgundy. While many Bordeaux châteaux produce close to 20,000 cases of their grand vin, a Côte d’Or domaine may well have just 500 cases – perhaps even fewer – of its top wines. There may not be much to trade, but soaring demand in recent years, especially from the Far East, has seen prices rocket as availability shrinks.

Last year’s Liv-ex Power 100, an annual snapshot of the best performing wines on the global secondary market, illustrated this shifting balance between France’s two great fine wine regions. For the first time ever, 2022 saw a complete absence of any Bordeaux names in the top 10 rankings. That’s quite a shift from even just one year previously, when three Bordeaux first growths – Lafite, Mouton and Margaux – made the cut.

By contrast, Burgundy occupied all top five spots and accounted for no fewer than 39 places in the top 100. Leroy has held the number one spot for three years now, but still achieved a staggering 59.5% average price rise on its 2021 performance. While Domaine de la Romanée-Conti and Armand Rousseau also held onto their top 10 places, 2022 saw them joined by Leflaive, Jacques-Frédéric Mugnier, Prieuré Roch and Arnoux-Lachaux.

Savigny-les-Beaune, Côte de Beaune, France.
Savigny-les-Beaune, Côte de Beaune, France.

Investors and disgruntled Burgundy lovers alike are now asking if these eye-watering price hikes are sustainable. As Liv-ex commented, “Burgundy’s latest surge may be dizzying but could be swiftly stymied by a lack of supply and an increasing reluctance to pay such steep prices for handfuls of bottles. The higher it flies, the thinner the air, and the fewer buyers there are.”

Conversely, Bordeaux may not have the fashionable buzz right now, but for serious, long-term investors, it remains arguably the safer bet. As Liv-ex observed: “few regions offer the concentration of brand power, prestige, availability, longevity and, increasingly, good value that Bordeaux does.”

Of course, for both drinkers and investors, there is life beyond Bordeaux and Burgundy. Now, more than ever before, there are plenty of other regions and producers to consider. But that’s a topic for a whole new column.

Gabriel Stone
Gabriel Stone
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