Premier wines outperform US stocks as fine bottles emerge as an interesting addition to investment portfolios

Written by Ray Clancy

Tuesday, 20 April 2010 12:00

Fine wines outperformed the top 3,000 US stocks for 13 years and have withstood two recessions, according to a report that compares the two asset classes.

Wine’s performance has declined less than other assets and has low volatility, making it an investment worth considering in a mixed portfolio, Swiss based economists Philippe Masset and Jean-Philippe Weisskopf say in their report Raise Your Glass: Wine Investment and the Financial Crisis.

They compared Premier Cru vintage wines with the Russell 3000 index, the benchmark US stock index, over 13 years to the end of 2009. Prices on 400,000 regularly traded wines fell 17% since the middle of 2008 while stocks of 3,000 of the largest companies in the US fell 47%, they found.

‘Wine’s performance has declined less than other assets and has low volatility. Fine wines may therefore be regarded as an interesting addition to an investor’s portfolio,’ the report says.

‘Our findings show that the inclusion of wine in a portfolio and, especially, more prestigious wines, increases the portfolio’s returns while reducing its risk, particularly during the financial crisis,’ said Masset, a professor at the Lausanne Hotel School, and Weisskopf, a researcher at the University of Fribourg, in their study.

In 2003 a bottle of 1982 Lafite-Rothschild sold for an average amount of $490. Last year, the same bottle sold for $2,586, yielding the seller an annual return of around 70%.

Demand for alternative investments such as wine and artwork has grown in recent decades as investors seek refuge from inflation and look for asset classes in which to store wealth beyond traditional methods such as stocks, bonds and gold, according to Peter Boockvar, an equity strategist at Miller Tabak in New York. ‘It’s the demand for hard assets, and it’s the same reason why gold and oil are rallying,’ he explained.

The increase in prices coincided with an increase in consumption of wine. Americans drank a record 304 million cases in 2009 following a 3.2% average annual rise since 1996. Global consumption has grown 0.6% a year on average to 2.65 billion cases during the same period.

The monthly Liv-ex 100 Fine Wine Index tracks the price movements of 100 of the most sought after wines offered in the resale market. The index rose 11.7% during the first three months of 2010 and jumped 27.6% from a year earlier as of March 31, according to data compiled by Liv-ex.com.

But wine isn’t an investment for the unprepared, according to Peter Meltzer, auction correspondent for Wine Spectator magazine. The market is thinly traded compared with stocks. Bottles need to be handled carefully and stored properly to avoid breakage or spoiling. Collectors who aren’t familiar with vintages, varietals and appellations could find themselves saddled with a product that’s much less desirable than they’d expected.

Because wine doesn’t generate dividends or interest like stocks or bonds often do, the only way to calculate its value is to guess how much people will be willing to pay for it in the future, making it a speculative investment.

Top wine vintages have been the best performers since 1996 with wines costing more than $200 a bottle, and particularly collectible bottles above $400, as much as quadrupling their value. That compares with a 170% increase in the price of wines selling below $100 and a 120% return for those between $100 and $199.

Not all wines appreciate equally and while lesser quality wines may increase in value, they will rarely show the same performance as choice Bordeaux like Châteaux Pétrus, Ausone, and Cheval Blanc, or Burgundies from Domaine de la Romanée-Conti and Henri Jayer, said Meltzer.