The Fine Wine Market

Estimated to have been first produced sometime between 6,000 and 9,000 years ago and deemed as 'nectar of the gods' in Ancient Greek mythology, wine is one of the oldest produced alcoholic beverages in the world. Drunk and enjoyed by millions across the planet, wine has religious and culinary significance, remaining as one of the most popular choices of alcohol. What is less known however, is that fine wine can be a great investment as part of a portfolio.

Fine wine is considered as an alternative asset, which, by definition, cannot be categorized as a stock, bond or certificate. Enjoying a low correlation with stocks and with lower volatility, coupled with the increasing transparency and liquidity of the market, fine wine is gaining credibility among investors. Furthermore, fine wine is not subject to Capital Gains Tax as it is termed a wasting asset.

Over the last five years, fine wine has outperformed the FTSE 100 index, with Burgundy and Californian wines leading the outperformance.

Source: London International Vintners Exchange (Liv-Ex)

Introduction to Wine

Like with any other investment, stick to what you know. Brush up on your wine knowledge first by reading books and articles, watching documentaries and even enrolling in wine courses. The Wine and Spirits Education Trust (WSET) is a great place for beginners to start, with qualifications covering the basics of wine, from grape varieties to food pairing and storing wine.

Wine is produced all around the world, with Italy, France, Spain and the U.S. leading as the main producers. Wine can be broadly separated into two types of geographies: old world and new world. The former comprises the first wine-producing countries, including Italy, France, Spain and other European countries. The latter, also referred to as the emerging wine market, includes the U.S., Chile, Argentina, South Africa, Australia and New Zealand, among others. It is also worth finding out the difference in the bottle labelling, as old-world wine tend to be labelled with the producer name and vintage, while new-world wine tends to specify the grape variety and area.

Global wine production (hectares)

Source: International Organisation of Vine and Wine Intergovernmental Organisation

Fine Wine Valuation

How can we value a bottle of fermented grape juice? Some factors that can contribute to the value of wine over time include:

> The vintage

> Producer

> Region

> Grape variety

> 'Ageability'

> Critic score

Historically, the Bordeaux region in France emerged as the first fine wine market. This has since grown exponentially and has expanded to other regions in France, such as Burgundy and Champagne, as well as other countries throughout the world such as big Californian reds in the U.S., Tuscan wines in Italy, Southern Australian wines and so on. The principle of diversification still very much applies to fine wine investing, it is always worth investing in different wines in terms of geography, producer and vintage, in order to reduce cross-correlation so as to reduce portfolio volatility and risk.

Different Ways to Invest in Wine

There are many ways to gain an exposure to fine wine investments, varying from directly owning the bottles themselves, to investing wine stocks, ETFs and fine wine investment funds. When starting out, the advantage lies with wine investment funds, whereby you pay a fee for these funds to store your wines in a bonded warehouse in optimal storage conditions, before they sell this at the best available price on the wine market. While you are likely to incur management and commission fees, it takes most of the pressure off of your shoulders so that it becomes a passive, rather than active, investment. If you are set on buying and storing the bottles yourself, make sure to invest in either a wine fridge or a cellar to ensure that your bottles are stored in the proper conditions. Profit tends to be realised from then selling these bottles after many years of storage at auction houses, where prices can often far surpass market values.

DISCLAIMER: The above references an opinion and is for information purposes only.  It is not intended to be investment advice and I am by no means a trained nor professional investment advisor, I therefore accept no responsibility for any losses incurred by investors. Remember, the value of investments can fall as well as rise, and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change and their effects on you will depend on your individual circumstances.