Fine wine sees growth for 14th month in a row

Written by Ray Clancy

Tuesday, 22 June 2010 12:00

In contrast to jittery equity investors who wished that they had followed the old adage to ‘sell in May and go away’, fine wine investors have seen a fourteenth straight month of price rises.

In May the main fine wine index, the Liv-ex 100 rose by 4.4% and demand from Asia is increasing as two successful auctions in Hong Kong show.

‘These steady increases in values across the market as a whole are reassuring for investors during turbulent times. With regards to specific wines, while the 2000 Lafite may have fallen back slightly, this is after a very strong performance in recent months which may have led well-informed investors to avoid it, looking for greater growth in other wines,’ said Andrew della Casa, director of The Wine Investment Fund.

He points out that auctions show a healthy appetite among buyers. A sale conducted by Acker, Merrall and Condit totalled £13.3 million or HK$152 million, the second largest wine auction ever held. One lot of 96 bottles of Vosne-Romanée Cros Parantoux, a rare Burgundy, sold for £170,000.

A Christie’s sale on the same day totalled HK$40 million. A lot of 128 bottles and 40 magnums of Château d’Yquem fetched HK$8 million. The Sauternes, which had bottles from three centuries, with vintages ranging from 1825 to 2005, was sold to a European private buyer. It was the only one of the ten top lots not to remain in Asia.

The fine wine market is beginning to see the release of the 2009 en primeur wines from the major chateâux. In many cases the prices being asked are setting new records.

‘The consensus was that the 2009 en primeur wines would show prices about 6% higher than the 2005 release prices. We forecast much higher increases of around 20% but judging by the wines released so far, even this 20% may prove to be an underestimate,’ said della Casa.

While The Wine Investment Fund does not invest in wines en primeur before they are bottled or drinkable, it expects the 2009 vintage to continue to exercise a pull-up effect on the prices of earlier vintages which will look cheap in comparison.

‘The market will have to work out the implications of the 2009 en primeur pricing and will be concentrating on selling these wines into the market. I would therefore expect a period of relative inactivity in the trading of maturer wines over the next few weeks. June might see slower price growth than in the year so far,’ explained della Casa.

The investment market is also waiting for today’s UK emergency budget to find out the details of the coalition government’s expected increase in capital gains tax. Any changes could be significant for the fine wine market because fine wine is generally exempt from CGT as it is viewed as a wasting asset by Her Majesty’s Revenue and Customs because it has a useful life of less than 50 years since most is drunk well before it reaches that age. If CGT is increased for profits on other asset classes, wine could become an even more attractive investment market.

The Fund aims to generate double digit returns. Since launch in 2003, it has produced an average annualised return over all its portfolios of over 15%, after all fees and expenses. The current tranche is open until July 31. It requires a minimum investment of £10,000 and is for five years.

All wine bought for the Fund is held in UK government bonded warehouses in ideal conditions for maturing fine wine and subject to the highest security. As bonded goods, the wines do not attract VAT or duty under UK tax rules.