Welcome to decanter.com's comprehensive guide to wine investment. Following the superb 2005 vintages in Bordeaux and Burgundy, there has never been a better time to invest in wine - or has there?
If you're thinking of investing in wine these pages are an essential reference point: stop here for everything you need to know before you get out your cheque book
After cruising along in fifth gear for the last eighteen months, the fine wine market appears to have temporarily stalled following two consecutive months in which the Liv-ex 100 Index actually went into reverse. In August it was down by 1.1%. Then again in September it dropped again by 1.4%.
You don't need to be Mervyn King to work out why. The principle reason was of course the fall-out from the so-called credit crunch and some fairly worrying volatility in the financial markets. The net result was a number of nervous investors inevitably deciding to take their profits while the going was good. Suddenly, for the first time in over a year, there were more sellers than buyers which meant that prices suddenly softened.
By the end of September though, it looked like any fears of a major correction were unfounded with the resumption of strong demand kicking on from the Far East. According to Miles Davis at the Fine Wine Fund, 'the equity markets and notably the emerging markets have marched on as if the summer crunch never happened. The Hang Seng Index in Hong appears to be on steroids.'
Even so, there still remains a question market over where the market goes from here? Will it get back into gear or has it run out of gas – at least for the time being?
Most traders including Geraint Carter at Bordeaux Index and Steven Browett at Farrs are putting a positive spin on the situation. They believe that the Liv-ex falls were inevitable given the way in which the market had performed over the last twelve months. In fact, many have actually welcomed this pause for breath arguing that a period of pricing consolidation was and is beneficial.
As a result, the majority of brokers, traders and wine fund managers that I have spoken to remain relatively bullish about the outlook for the next few months largely based on stronger demand in October and the beginning of November. To borrow a (horse) racing analogy, Miles Davis suggests 'that the market has a bit of cut in the ground - a soft surface but firm underneath – and that is likely to improve.' Some have even argued that the problems in the mortgage markets might even benefit the wine market – given wine's value as a diversification tool.
Others though argue that on-going uncertainty in the financial markets could keep the fine wine sector stuck in the pits for longer than it would like. One of them is wine writer and former financial journalist Nick Faith. He argues that the market in fine wine cannot be considered separately from the world's economic situation, as reflected by the fact that the buyers of fine wine are today above all in the financial community. Worryingly, Faith thinks 'that we are at the beginning of a long bear market, to be measured in years not months.'
Of course, it's worth remembering that the Liv-ex is still up by more than 40% since January. But the big $64,000 question is where does it go from here? Time will tell who is going to be proved right and wrong. It is going to be an interesting few months.
In order to get Decanter.com's very own snapshot of the wine investment market, I have selected a cross section of fifteen leading Bordeaux chateaux and looked at their investment performance in six of the best investment vintages of the last twenty five years - 2005, 2003, 2000, 1996, 1990, 1986 and 1982.
Using the latest price information data from Liv-ex, I have been able to crunch some numbers and been able to compare their performances by vintage and brand over the last twelve months from September 06 to September 07.
My basket of wines includes the five First Growths (Latour, Lafite, Haut Brion, Mouton, Margaux) as well as Cheval Blanc, Las-Cases, Leoville-Barton, Cos and Pichon Lalande. In addition, I have also included the cultish blue chip names of Le Pin, Petrus and Ausone and two Fifth Growth chateaux Lynch-Bages and Pontet-Canet.
So what are the results from my first Survey which runs from September 2006 to September 2007? Obviously, this period coincided with some of the best returns ever seen by the fine wine market in which the Liv-ex 100 was up by 41%.
Top of the Crops
Surprisingly, the most successful investment vintage since September 2006 was the 2005 vintage. However, these results were clearly skewed by a number of the more boutique, hard to acquire en primeur wines such as Le Pin and Ausone. Other wines from this vintage have not performed anything like as well or generated such massive price increases. (The 2005 Leoville-Las-Cases being a case in point, having fallen by 8%)
The next best vintage was clearly 1986 with an increase of 49.6%. Next up is 1990 (41.2%) followed by 2003 (139.3%). What is also surprising is that 1996 has not performed so well, coming in bottom of the pile. It is up 34.9% which perhaps suggests that the vintage as a whole remains undervalued.
Battle of the Brands
There's no doubt whatsoever about which well-known name heads this illustrious group of chateaux in terms of its investment performance. Brand Lafite is head and shoulders above the rest with a massive return of 76% across all the vintages. Many ascribe Lafite's success to the volumes which are currently available in the global market and to its popularity in Far Eastern markets which have driven up prices above and beyond those of its competitors. The pick of the bunch would have to be the 2003 Lafite which was up 80% from £3,500 a case to £6,500 earlier this year.
Yet has Lafite peaked? A number of investors decided to indulge in a bit of profit taking over September and October which has seen some vintages falling in value including the 82, 86 and 2003. It will be interesting to see how these vintages continue to perform in the months ahead.
After Lafite came the increasingly fashionable Ausone run by Alain Vauthier with an across the board increase of 58%. Few would doubt that Ausone has joined the 'G8' (Great Eight) in Bordeaux, but its tiny output means it offers little in the way of liquidity or availability. As a result, its sheer rarity, allied to quality invariably drives up prices in leaps and bounds – particularly in sought after vintages.
More surprising are the contrasting performances of Haut Brion and Le Pin. For example, one would expect Le Pin to outperform Haut-Brion given its Ausone-like volumes and astonishing reputation. But in fact, the great Graves First Growth has delivered much better returns than the parvenu Pomerol. Impressively, Haut-Brion is up by 53% compared to Le Pin's return of 35%. Similarly, who would have expected Pichon Lalande and Petrus to have put in exactly the same ROI?
Top of the Pops
The top performing wines over the period September 06 to September 07 include the 86 Mouton, which is widely regarded as the wine of the vintage. It was up from £4,200 to a cool £7,900 (+71%). The 1990 Le Pin also posted an impressive increase in value up by 68% from £12,000 to a shade over £20,000 over the same twelve month period. Clearly, anyone who had bought into both these wines has seen some very handsome returns. However, the biggest mover of all was the 2005 Ausone which rocketed up in value from £8,850 to £17,148, registering a remarkable 93% increase.
Top of the Flops
Bottom of this premier league of Chateaux are the two Pauillac properties of Pontet-Canet (14%) and Lynch-Bages (+17%) with Cos d'Estournel posting a return of +15%.
In terms of individual runners and riders, the least successful wines included the 1982 Lynch-Bages which actually fell 1.8% down to £1900 a case. However, the biggest faller was the 1982 Leoville-Barton which dropped from £1,200 a case to £1081 -11%). So even in a rising market, there are some wines which will slip back in value.
Top Performing brands are for the last twelve months Sept 07 to Sept 06 are:
(taken from the following vintages: 2005, 2003, 2000, 1996, 1990, 1986, 1982)
1. Lafite at 176
2. Ausone at 158
3. Haut Brion at 153
4. Margaux at 147
5. Latour at 146
6. Mouton at 140
7. Cheval Blanc at 136
8. Le Pin at 135
9. Petrus and Pichon Lalande at 130
10. Leoville-Las-Cases at 120
11. Leoville-Barton at 119
12. Lynch-Bages at 117
13. Cos d'Estournel 115
14. Pontet-Canet at 114
NB The 2005 vintage performance is skewed by some heavy price increases from the likes of Le Pin, Petrus and Ausone. Whilst these tightly allocated wines have performed extremely well, other more available on release have been much more of a mixed bag.
Top performing wines (Sept to Sept) include:
2005 Ausone up from £8,850 to £17,148 @ 93%
2003 Lafite up from £3,600 to £6,500 @ 80%
86 Mouton up from £4,200 to £7,900 @ 71%
1990 Le Pin up from £12,000 to £20,100 @ 68%
2005 Le Pin up from £12,000 £20,400 @ 65%
1986 Le Pin up from £4,800 to £7,800 @ 62.5%
2000 Margaux up from £4,800 to £7,800 @ 57%
1986 Leoville-Las Cases up from £2100 to £3,100 @ 47%
82 Petrus up from £22,400 to £32,000 @ 42%
Least performing wines September 2006 to September 2007 include:
1982 Lynch-Bages down from £1935 to £1900 @ -1.8%
1982 Leoville Barton down from £1,200 to £1081 –11%
2005 Leoville-Las-Cases down from £1672 to £1535 – 8%
2005 Pichon Lalande down from £725 to £719 -0.1%
The 2006 vintage
After a string of vintage successes in both the north and the south – apart from the washout of 2002, one has to go back to 1997 to have much to complain about – the news of another fine vintage in 2006 risks being perceived as over-gilding the lily. The season was not without its hazards, notably early drought, mid summer heat and finally September showers, but growers up and down the valley completed their harvests with much to smile about.
In the south September's Mistral played a key role, not only blowing away any lingering moisture from the grapes but also slowing down the pace of ripening. The unrushed harvest played into the hands of properties with significant plots of Mourvèdre such as Château de Beaucastel, which picked right up until 13th October, taking full advantage of the cool, fine conditions.
In the north, the picture was similar, though Syrah is harvested later on the steep slopes of Côte Rôtie and Hermitage than in the south where it is the first variety to be picked. After the cool August the crop ripened steadily to give a classic vintage characterised by well-defined red and black fruits. Condrieu is particularly fine this year, with clear flavours and clean acidity.
Given the abundance of good vintages, where does 2006 sit? Chapoutier is already on record as a champion of 2006s, comparing the côte rôties with the splendid 1991s. In the south comparisons have been made with 1999, another year of beautifully crisp wines. And many experts have noted the elegance of the tannins this year, in contrast to those 2005s marked by drought-stress. Daniel Brunier's summation is of a blend of 2005 and 2001, the latter a magical year for a number of châteauneuf-du-papes.
Apart from the ultra rare super-cuvées, the Rhône is not a blue chip investment prospect though keen buyers will usually benefit from favourable prices, and from early-bird pickings of scarce wines. There is always a scramble for the top en primeurs such as Beaucastel and Télégraphe. That said many of the rarest single vineyard bottlings are released only once in bottle (see below).
En Primeur releases
Unlike Bordeaux there is no formal en primeur timetable for Rhône wines. The majority are offered for sale around the time of bottling, in the case of the 2006s, in Spring 2008. That said, some of the top Hermitage and Côte Rôtie remain in barrique or cask for much longer: Guigal, for example, has yet to send its top 2004s to the market. But for over a decade a band of Châteauneuf-du-Pape estates, and some northern growers, have released a proportion of their crop (around 25%) as primeurs twelve months after the vintage. This allows for the assemblage of the component varieties to take place: press and merchants chasing too early are often required to visualise the final blend from components tasted in cask.
Decanter's pick of the early releases
The south Château de Beaucastel, Châteauneuf-du-Pape
An estate celebrated for employing each of the 13 permitted varieties across its châteauneuf range, notable for its relatively high use of the Mourvèdre grape. Le Coudelet is a product from a contiguous côtes-du-rhône vineyard. Almost as good! Two special editions are made, Hommage " Jacques Perrin and the white Roussanne Vieilles Vignes.
Domaine du Vieux Télégraphe, Châteauneuf-du-Pape
Daniel and Frederic Brunier's wine sits midway between traditional and modern, with elegance and underlying strength. The product of organic winemaking and a wine which acquires a leather and spice elegance with age. A crisply-refined, oak-matured white châteauneuf is also released.
Domaine Paul Avril, Châteauneuf-du-Pape Clos des Papes
One for connoisseurs. The epitome of châteauneuf in terms of depth and richness, and a wine for the long term. A long-lived white is also made.
Domaine La Roquète, Châteauneuf-du-Pape
Elegant, spicy châteauneuf from the sister estate to Domaine du Vieux Télégraphe
Domaine Font de Michelle, Châteauneuf-du-Pape
Harmonious and light on its feet. Cuvée Etienne Gonnet is the limited edition from this organic estate.
The north Chapoutier, Côte Rôtie La Mordorée
An almost bewildering raft of wines is made by this famous northern Rhône house, and the top wines are available en primeur. In addition to the well-established labels like Monier de la Sizeranne (Hermitage) Chapoutier has in recent years been celebrated for its rare 'selection parcellaires', single vineyard wines grown according to biodynamic precepts. Quality across all appellations is high. Check the lot sizes as both 6 and 12 bottle cases are offered.
Etienne Guigal, Condrieu la Doriane
Guigal's top condrieu, made from Viognier vines grown on steep terraces. Fermenting and aging in new oak barrels gives a toasty sheen. We will have to sit it out for the remainder of the gems from Guigal's 2006 stable.
Marc Sorrel, Hermitage Le Gréal
A grower of rising stature. Le Gréal is assembled from the Gréffieux and Méal vineyards. Look out for the white Hermitage Les Rocoules, a wine of silky depth.
Michel Ogier, Côte Rôtie
A blend of different parcels from the Côte Rôtie slopes. Since Stéphane Ogier took over in 1997 there is a new-found purity to the wines, a pleasing grip and typically a discreet savoury finish. A wine to watch.
André Perret, Condrieu Coteaux du Chéry
A barrique-aged Condrieu from this dedicated grower offering spice and floral charm. Also produces a deep-scented saint-joseph.
René Rostaing, Côte Rôtie, La Côte Brune
A thoughtful winemaker regarded as one of the top in the appellation. Three variants of côte rôtie are bottled, Cote Brune, Cote Blonde and a generic wine. His exotic Condrieu La Bonnette is worth seeking out.
The underlying principles of wine investment boil down to the laws of supply and demand. On the supply side, there are relatively few (perhaps only about 75 in total) investment grade labels, whose production levels remain more or less fixed. On the demand side, there are a growing number of high net worth individuals around the world seeking to own and/or drink these wines. Ergo, the only way to ease the pressure is for prices to go up.
Investment grade wine is also an improving asset. As fine wines mature they become more desirable and therefore more valuable. At the same time, as the wine ages and comes into its drinking window, it begins to be consumed making it even more rare, which in turn adds yet more upward pressure on prices.
Fine wine has seen some astonishing returns, particularly in the last two years - after a period of several years in which prices generally didn't move very much. Since the start of 2006, The Liv-ex 100 index rose +43.2% to November outperforming other asset classes such as oil, copper and gold, the FTSE and Dow Jones.
In the last 20 years fine wine has also outperformed a number of equity and fixed income indices including the FTSE 100. For long term investors (as opposed to shorter term speculators) a well chosen and balanced wine portfolio should provide annualised returns of 10-12% per annum.
Wine is less volatile than stocks and shares, making it a less risky investment. Moreover it is not highly correlated with the stock market, which makes it attractive to investors looking to diversify a portfolio.
Generally, wine is also regarded as a wasting asset so doesn't attract Capital Gains Tax. (However, as this area of tax law is complex it is best to take advice from a tax lawyer or tax accountant.) Moreover, if you keep the wine in bond, you also avoid paying VAT and Duty.
It's also more fun than investing in pork bellies. And if the market does crash, you can at least take solace in drinking up your position.
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What are the potential disadvantages of investing in wine?
When the market isn't in the middle of strong bull run, as it currently is, wine becomes a real stock picker's market, which generally requires a great deal of expertise, understanding and knowledge. In other words it's very easy to make some expensive mistakes unless you know what you are doing. For instance, the value of wines like Valandraud, once the darling of the market in the 90,s has plummeted in the last few years.
It's well worth remembering that wine prices can go down as well as up. Even as the market is generally moving up, particular wines will certainly move down.
There are no dividend payments that accrue from wine investment. Moreover, there are the costs of storage and selling which have to be factored in. Both eat into profitability. Typically, a broker will work on a 10% margin when you come to sell your wine. If you are selling at auction, there are also consignor fees to consider. These generally begin at a maximum of 10% depending on the quantity and quality of wine on offer. The higher the value of the wine, the lower the fee. The storage costs of keeping your wine under bond with a professional storage company or merchant also vary but usually cost around £7-10/case per annum.
Some wines may not turn out to as good as initially predicted . Once in bottle, wines are frequently re-rated. A negative re-assessment by Parker whereby a wine drops from 98 points to 94 may well result in a fall in value.
Your merchant may go bankrupt, in which case you may end up losing your entire investment. A number of fine wine merchants, investment funds and wine investment companies have recently failed because of incompetence or fraud, taking investors cash with them. Only last year, Mayfair Cellars and Uvine went under owing millions of pounds to customers.
You should also bear in mind that the wine investment market is largely unregulated, so there is very little protection if things do go wrong. Moreover, anyone can set up a drinks investment business in the UK without having to satisfy the financial authorities that they are running a legitimate business and that they are competent to give drinks investment advice. Therefore only deal with reputable, long established merchants or companies offering wine investment advice or services. For extra security, you should also consider storing your wine within your own account at an independent bonded warehouse.
Beware of a growing incidence of fake wines circulating in the global market. For obvious reasons, collectors should take the utmost care when buying trophy wines for investment. Provenance is all.
Over the last fifteen years, there have also been no shortage of 'mis-selling' scandals in which a number of dodgy wine investment companies have fleeced naïve investors of millions of pounds. Some of these investment companies have been closed down by the DTI, but others are still operating. This is another reason why you should only buy investment grade wine from reputable merchants or proven investment specialists.
To be regarded as a good investment, a wine requires all or most of the following attributes:
It must be an instantly recognised label or brand with a long track record of quality and high to very high prices
It must come from a good or great vintage and be highly rated by leading wine critics on both sides of the Atlantic
It must have strong, consistent global demand for previous vintages of similar quality. It must show consistent upward price movement beyond a minimum set return
It must have the ability to age and improve over a long period of time.
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Which properties and regions to consider
Bordeaux
Bordeaux represents 90% of the wine investment market and should take the lion's share in any portfolio. Here, the top Left Bank Classified Growths represent some of the bluest of Blue Chip wines. So look for First Growth clarets like Latour, Lafite, Margaux and Haut Brion. The Super Seconds (a select number of Second Growths) are also a good source of investment potential. So too are some (but by no means all) 3rd, 4th and 5th growth chateaux such as Lynch-Bages. On the Right Bank, the most sought after names include Cheval Blanc, Petrus, Le Pin and Ausone. Chateau d'Yquem can also provide solid returns from certain vintages.
Burgundy
Beyond Bordeaux, a select number of Burgundies qualify as investments. Here the names to look out for include Domaine de la Romanee-Conti, Coche-Dury, Comtes Lafon and De Vogue. However, the secondary market for Burgundy is much less developed and therefore much smaller.
Rhone
The same is true of the Rhone Valley, where wines like Guigal's single vineyard Cote Roties can sometimes (though not always) provide handsome returns. Generally though, the Rhone remains undervalued as a region and has yet to really establish its investment credentials.
Champagne
A number of prestige cuvee Champagnes are also worth considering for investment purposes including Krug, Crystal and Dom Perignon.
Italy, Port, the New World - and the Bordeaux cults
Outside of France, investors need to be much more wary. Port is no longer regarded as a good investment bet. Some Super Tuscan wines like Sassicaia can on occasion perform well, as can a handful of Spanish wines. Some Californian and Australian wines have also appeared on investors' radars, particularly in local markets. However, these generally more modern and less well established wines are more prone to the vagaries of fashion. New and Old World 'Cult' wines from California, Australia and Bordeaux 'garagistes' are not the darlings of the market that they once were and are best avoided in the current climate.
Generally, the received wisdom when it comes to wine investment is to stick to the very great 'trophy wines' from Bordeaux (ie First Growths and top Pomerols and St Emilions) from the best vintages. The best Bordeaux investment vintages include:
However, there are always exceptions. As mentioned before, 'small cap' stocks like Chateau Lynch Bages can perform surprisingly well for investors, but only from great vintages. Similarly, great trophy wines can offer excellent value in good or under-rated vintages. Poor vintages should be given a wide berth by investors.
You can invest as little as £500 in a case of wine. But a minimum investment of £10,000 will enable you to create a more balanced portfolio so that you can at least spread your risk across a few Chateaux and vintages. Wine should only be a small part of your total investment portfolio. Moreover, you should not invest more than you can afford to lose.
DO Develop a good relationship with your merchant or specialist wine investment company. Not only will you get better advice, you are more likely to get preferential treatment regarding highly sought after wines - particularly if you have bought good quantities of wine from them in the past. Most serious collectors/investors will also develop relationships with several merchants.
DO compare prices. The spread between merchants' prices for the same wine can still vary enormously despite greater transparency because of the internet. To quickly compare prices visit, www.winesearcher.com. Another good place for competitive, real-time prices is the Vintage Wine Fund's www.vwftrading.com. In addition, serious investors and collectors who require more current, historical and analytical price and market information would be well advised to subscribe to one of liv-ex.com's products at www.liv-ex.com For historical auction prices, log onto the Decanter Fine Wine Tracker at www.decanter.com.
DO check the provenance and condition of the wine before you buy it.
DO make sure that your wine is stored in perfect conditions so that it will mature properly and predictably. For longer term maturation, wine requires the correct temperature and humidity together with a lack of light and vibration.
DO try to buy amounts of three to five cases per chateaux. Larger quantities are always more interesting to Trade Buyers.
DO keep the wine in bond with a reputable professional storage company or wine merchant. Make sure that your wine is kept separate from merchants stock and is clearly identified as your own. Make sure that your wine is insured to its full market value.
If you are investing for the medium to long term, DON'T bank on quick returns. You may be lucky (or clever) in that some wines will go up rapidly in value. Generally, wine prices don't go up in a linear fashion but tend to experience fairly short periods of upward activity. Timing is therefore everything when it comes to buying and selling fine wine. If you are speculating in wine over the short term, you may see some exceptional returns on your investment in the current bull run. But such speculation will always be a much more risky and volatile endeavour compared to a longer term investment strategy.
DON'T believe all the hype surrounding wine investment. Sections of the press have had a field day describing meteoric price rises of wines like 82 Le Pin which rose from £350 a case to £18,000 at one point. Such wines are not only very difficult to acquire, they are also extremely unrepresentative of the market as a whole.
DON'T buy wine which you happen to like, hoping it will go up in value. Stick to the tried and tested investment wines. Personal taste is irrelevant and has no place in investment decisions.
DON'T buy wine en primeur from a new merchant. If the merchant goes bankrupt you could be left high and dry with no wine to show for it.
DON'T try to sell split or opened cases. The desirability and value will plummet unless it has the full dozen in perfect condition in its original wooden case.
In the past, en primeur prices for First Growths were astonishingly good value as wines often rose quickly in value on the secondary market. The 1982 Latour, for example, came out at around £250 a case, and is now trading at around £9,000.
But in the last 10 years windfall profits for investors buying en primeur have all but disappeared as chateaux have priced their wines at full market value - and pocketed the proceeds themselves.
What that means is that while en primeur may still be the cheapest way to buy particular, highly sought-after wines, those wines don't necessarily make the best investment, especially as prices for vintages like 2005 are likely to plateau in the short to medium term.
As a result, wine investment professionals are increasingly looking at older wines for more profitable investment opportunities. Many regard the back vintages such as some 1986s, 1900s and 1996s as better value than more recent ones. This is simply because the wines are relatively (and sometimes actually) cheaper than their sibling counterparts. Moreover, with greater bottle age, they are going to be drunk earlier. This in turn will reduce supply and simultaneously fuel higher prices. Any such price anomalies as these present good investment opportunities.
CONSIDER buying a few large format wines en primeur as these big bottles are relatively rare and often command a significant early re-sale premium over standard bottle sizes. However, you should only buy trophy wines from great vintages. If you are buying Yquem as an investment only buy halves. Do not buy large format Yquem. Half bottles of Yquem trade at a premium because they are more popular, because and are consumed more often. Conversely, large format bottles are consumed much less frequently so tend to hang around in people's cellars. Generally though, Sauternes is not regarded as a blue chip investment in comparison to the demand for top class claret.
READ around the subject as much as you can. Apart from reading decanter.com and Decanter, key critics to follow include Jancis Robinson, Steven Spurrier and, of course, Robert Parker in his Wine Advocate. For a more academic approach to wine investment buy Mahesh Kumar's book called 'Wine Investment for Portfolio Diversification', published by The Wine Appreciation Guild. For statistical information on how the wine market is moving check out livex.com's various wine investment indices and market updates. For auction prices, check out Decanter's Bordeaux and Port Indices.
PAY ATTENTION TO PARKER! The importance of Parker points cannot be stressed enough. According to recent research there is still a strong correlation between a highly rated Parker wine and its subsequent return on investment. In the last year, 99-100 point wines have generated twice the performance of 92-93 pointers. On average wines with less than 94 points have underperformed in comparison.
GO FOR A SMALL NUMBER OF HIGH VALUE ITEMS - rather than having lots of cases of more modest wines amounting to the same value. Not only do the top 100 point trophy wines tend to generate more profits, the storage costs of having a large number of cases will eat into your profitability.
At Auction You will get very good wine advice from the leading Auction houses specialist wine departments - but they are not investment specialists. However, the Auction market is very strong at the beginning of 2007 particularly for the top trophy wines. At present it is more of a seller's market and therefore not necessarily a good place to buy the very top wines right now for investment as they are fetching extremely high prices. Remember to factor in the buyer's premium which can be as much as 15% in the UK. (Currently, the auction market is an excellent place to buy more modest good quality wines for drinking.)
From a Merchant or Broker Remember that brokers and merchants tend to know more about wine than they do about personal wealth management: they are not qualified financial advisors. Nevertheless, some do offer a range of investment services including portfolio management services, cellar plans and advice on investment. Naturally some are better at this than others. So do shop around. Generally though merchants are in business to sell wines from a list and so have a vested interest in whatever wines and advice they are supplying.
Specialist Wine investment Companies Be very careful when dealing with specialist wine investment organisations. There are a few reputable companies who have been operating for over a decade and have a proven track record. But many others should be treated with caution. Do not agree to paying any up front commission fee. Some companies charge as much as much as 25% and are best avoided.
Do not deal with anyone who uses cold calling or strong arm sales tactics. Do not deal with anyone who operates via a PO Box. Be wary of anyone whose prices are too low or too high. Do check that the company is not one of the dodgy investment companies named and shamed on www.investdrinks.org website. Ask around to make sure that the company you are thinking about dealing with is well-known and above board.
Wine Investment Funds There are now several extremely successful and reputable wine investment funds around the world. The advantage of these professionally managed funds is that they tend to be run by ex City investment professionals who are literate in fine wine as well as high finance. Given the complexity of wine investment, it may make sense for some people to hand over the buying and selling decisions to these professional fund managers. Investors can also take advantage of these 'unit trust' funds to spread their risk more effectively. Successful funds have also been set up in such a way that investors avoid paying CGT on any gains accrued from selling the fund's units. Finally, a number of these funds have some FSA regulation.
Of course, investors do pay a variety of fees for the privilege of having their liquid assets managed on their behalf. Do check out what these are and what is the minimum subscription. Moreover, not every wine investment fund has provided gold-plated returns for its investors. In 2005, the AWM fund, an off-shore mutual wine fund run out of Geneva went into liquidation. In the same year, an Australian fund, Heritage Fine Wines also collapsed. Most recently, following the collapes of Uvine, the Amphora Fine Wine Fund has also been closed and its stocks liquidated. In which case, do as much research as you can before putting your money into a wine investment fund.
At Auction If you have a large collection of great wines, a good auction house will negotiate down from its standard seller's fee of 10% commission. Given the current market conditions, the saleroom is almost certainly the best place to sell a stellar collection of trophy wines right now.
To a Merchant or Broker Generally, a merchant or broker will charge a commission of 10%. Some companies also offer an 'Auction Hammer Price.'
Online Private Collectors and investors can also sell (and buy) wines through the Vintage Wine Fund's new online Trading screens at www.vwftrading.com. This service provides live quotes of both buying and selling prices on top end fine wines.
You could ask your merchant to value it. If the wines are in good condition and stored under bond, you should be able to get a figure quickly over the phone. For more substantial and complicated collections cellared at home, a private valuation may be required. Another way would simply be to take the lowest prices on winesearcher.com and deduct 10% as the broker's margin to leave you with a net value. A third way would be to subscribe to an on-line subscription-based product from liv-ex.com called 'Cellar Watch'. This allows investors to value their cellar using the most up-to-date prices.
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10 great investment wines (and 10 not-so-good)
Investment grade wine: A true blue chip wine which is widely regarded as possessing sound investment credentials.
Improving asset: Fine wine is an asset that improves over time - until of course it becomes undrinkable loses its value.
Wasting asset: For the revenue, wine is regarded as a wasting asset where it has a predictable life not exceeding 50 years. If, so it is generally exempt from Tax.
Liv-Ex. On-line international stock exchange for the trading of fine wines by member merchants.
Bond, in bond: Wine held 'offshore' in a bonded or tax warehouse so that duty and any local taxes are not applicable.
Fake wines, wine frauds: Counterfeit wines created with the express intention of defrauding buyers.
Mis-selling: Criminal or negligent selling of goods or services.
Trophy wines: The rarest, most expensive and bluest of blue chip wines. Usually First Growths or equivalent.
Garage wines: Modern micro-chateaux such as Valandraud and La Mondotte.
Small cap stocks: In wine, these are less expensive labels which can occasionally provide good returns.
Auction hammer price: Some merchants and brokers will offer 'an auction hammer price' to vendors. This is roughly what the wine would fetch at auction.
Provenance: Proof of authenticity and ownership history. Not to be confused with a wine's condition.
First growth: Translation from the French term 'Premier Cru' officially designated in the Medoc classification of 1855 - including Latour, Lafite, Haut-Brion and Margaux. Mouton Rothschild was elevated to First Growth Status in 1973 by official decree. It also encompasses other great classified Chateaux in St Emilion and unclassified properties such as Pomerol's Chateau Petrus.
Second growths: Translation of the French term Deuxieme Cru, officially designated in the Medoc Classification of 1855. Second Growths include Leoville-Barton and Cos d'Estournel.
Super seconds: The top performing Second Growths.
En primeur: French term for wine which is sold as futures before it is bottled. .
