Wine investment growing in popularity

Written by Ray Clancy

Wednesday, 13 January 2010 09:22

Collecting wine is no longer a privilege of the super wealthy now that special investment funds have sprouted amid a search for alternative assets to traditional stocks and bonds.

Wine based investments have become more accessible in recent years with the creation of the London International Vintners Exchange (Liv-ex) in 1999 which runs an internet and phone based information and trading platform for fine wine merchants. There are now 270 wholesalers from 22 countries connected to Liv-ex and they trade anonymously.

The mid-price between the members' bid and ask prices is used for calculating the Liv-ex 100 index, which has increased to 237.17 in December 2009 from 93.12 in July 2001. But like all investment there can be bad times such as a steep fall experienced in the second half of 2008.

Those who invest in wine are mostly private individuals and investment funds, according to Justin Gibbs of Liv-ex. Private collectors in the UK alone hold more than £1.2 billion worth of fine wine in bonded warehouses and overall the fine wine market is worth $3 billion a year and growing fast.

The index is almost entirely based on Bordeaux wines, partly because the Burgundy growers have greater control over the distribution of their wines. Red Bordeaux wines make up 91.33% of the index, with Burgundy red at 3.49%, Champagne at 3.32%, Italian wines at 0.63% and Rhone wines 0.19%.

It reads like a wine hall of fame with Lafite Rothschild, Cheval Blanc, Haut Brion, Cos d'Estournel, Ausone and Petrus in vintages from 1986 to 2006.

Newcomers in the trade include the Fine Wine Fund launched by Wine Asset Managers in 2006 for private investors, which posted a 7.65% gain for 2009. Their Fine Wine Investment fund for professional investors gained 7.11% in 2009 and 15.39% over a three year period.

WAM believes there will be strong long term demand from both old and new markets such as China and the Far East. Its experts claim that a downward price correction is rare, happening only one year out of every 10.

The Vintage Wine Fund in the Cayman Islands is run by OWC Asset Managers and takes subscriptions for at least €100,000. It posted a 12.8% performance over the past five years, but shed 18.14% in the last three years and 0.9% in 2009.

There are changes afoot. In Bordeaux a bigger share of the collected wines are expected to go into bonded warehouses in the French town instead of in Britain following a change in the law that allows wines to remain untaxed for longer than the previous limit of two years.

The Bordeaux City Bond opened in June last year.

But at the same time some of the wine growers are grumbling that their wines are getting too expensive and that good wines are now left undrunk. But Live-ex's Gibbs said wine trading could allow some people to make sufficient gains to finance their hobby and enjoy a good bottle from time to time.