Is it still the "best kept" secret, or simply an accident waiting to happen?
There are without doubt so many companies around the world, selling wine as an investment, all too often quoting superb performance ratios of mainly big Bordeaux Chateaux over the past 5-40 years. It has to be said that the wines quoted have performed extremely well and indeed wine investments have generally easily outperformed most other traditional types of investment, but the market is narrow, mostly red Bordeaux wines, top marc Champagne, Rhone and Italian and in particular a few top Tuscan wines. The city has recently been suffering very badly from poor performance ratios in all areas, including PEPs, ISAs, Pensions, Stocks, Shares et al, and now property is falling also certainly confidence in these more traditional areas seems to be at an all time low.
Wine as an alternative investment.
Fine Wines can be a safe haven for investors in difficult times, anticipated growth in wine futures look good, even today with a worldwide recession, over the past 30 years most companies suggest 15-20% growth, tax free! With annualised growth of 1000-2500% and more over the period of 15-25 years equating to 14-18% compound interest. But these figures are mostly based on the top 10 Bordeaux Chateaux and a few top Champagnes on opening prices of the great vintages only. Buyer beware holds true of buying investment wines as with any other investment.
True, there are no capital gains when a wine has a life expectancy of less than 50 years, as it attains a Chattel Status, taking it outside of the capital gains ruling when re-sold. There is great kudos in owning great wines or a decent cellar and if your finances make a dramatic upturn over the next decade, then you can enjoy the wines, safe in the knowledge that they were purchased for a much lower figure than then current market values.
What makes Fine Wine increase in value?
Investing in fine wines has been around for centuries, often hoarded by collectors and connoisseurs alike. Those with good knowledge, as I used to do, would purchase twice as much of a particular wine than they required for themselves, selling off highly profitable mature stocks down the line to replenish their cellars with newer vintages, more often with the side benefit of having all of their own drinking wines paid for out of these profits following 5-10 years of investing. Over the past couple of decades, fine wine has garnered a much wider audience, becoming part of a lifestyle along the lines of fine art, for any of the rich and famous, and maintaining a cellar of fine wines has increasingly been regarded as a necessary accoutrement of success. The massive increase in home underground cellars being installed throughout the country is testament to the increased demand of fine wines.
The world has recently found a new phenomenon, wine speculation; which is fuelled by so much consumer information from the plethora of wine journalists, led by Robert Parker and his team. This American gentleman has had a seriously profound effect in the marketplace with the simplified 100 point system he devised back in the late 1970s. Previously all wine was sold on the Chateaux's reputation and vintage alone, not on the intrinsic value of the wine, this simplified system has had dramatic effect on firstly the American markets and is now commonplace throughout the world. Prices are set according to his ratings, with the main Bordeaux Chateaux benefiting financially. Demand for these highly rated wines has risen dramatically and will continue to do so over the long term now with the Asian markets demanding all of the top wines. It seems the Far East has recently become known as the WILD WEST of fine wine, and a strong possibility exists that the fine wine market which has been slowly moving from London to the US over the past decade will suddenly head south to Hong Kong now that they have abolished the 40% import duties. Russia has been strong recently and Brazil is getting in on the action as is India with so many mega rich individuals in these countries being created. So demand for the top wines will continue to increase over the long term.
Due to the 1855 classification of Bordeaux wineries, supply is limited by the geographic area of the chateaux. They have been at full capacity for more than a century already; in fact over the past couple of decades production is actually reducing as each individual Chateau strives to increase and improve quality by reducing yields, seeking the higher Parker scores and the accompanying high status, following demand and of course higher selling prices.
Ultimately prices will continue to escalate over the long term, however during the past six or seven years the main Bordeaux Chateaux have looked to ascertain what the market will bear based on the Parker scores and set their prices accordingly. Over the past few years we have seen prices of en-primeur Bordeaux wines being offered out at levels higher than older 100 point rated wines currently selling for in bottle. The en-primeur wine still isn't finished, and so much can go wrong, not to mention the fact that in the main, Parker Scores generally decrease rather than increase and subsequent re-sale values follow accordingly.
Where then and how do I invest in wine?
As with any investment, the quality of the advice you are given is paramount. What, where and when to buy, these together with careful and cost effective management of your portfolio will make the difference between a reasonable or very satisfying return on your money.
Work with people who have expertise in the field, there are some traditional UK wine merchants with a wealth of experience, however most of these buy from the same wineries every year, regardless of vintage variation, so be aware, that they all have wines to sell every year in order to maintain their allocations. It is also worth noting, the better wines with higher ratings do not need to be sold, buyers and brokers clamber for their allocations early on, so you need to be quite aware of the market movements. There are a plethora of brokers, some extremely successful, these are specialist people or companies who will buy as much of a top rated wine from other merchants and mark them up, sometimes by a huge margins. For the most part, when dealing with brokers, you have already missed the boat, or at least the first big uplift.
Another possibility for many would be one of the fairly new Wine Funds which have sprung up over the past five years or so, these have good bond facilities and auditors, but there are some searching questions which need to be asked about these funds, one is, there are management charges to the funds and these range from 2.5% to 20% per annum! Next is where are the wines held, often they are in multiple countries and it is difficult to verify these holdings. Finally whilst wine remains a wasting asset, and therefore capital gains free, the fund is a financial vehicle and as such subject to normal taxes. Quite how these vehicles will perform over the long term is an unknown, but given the above, it is not a vehicle I would tend to invest my money into.
Alternatively find somebody in whom you can trust, a merchant who has your interest at heart as well as their own future. Reliable and trustworthy people are out there working to retain your ongoing business for the future, and these are the people you should seek out. Purchase from these and hold the wines in your own name, in your own bond account, if selling these companies fail; you may well lose your investment in full.
What should I buy? How much should I invest? How long will it take?
We recommend a minimum investment of £5000 per annum is a realistic sum to achieve a balanced portfolio; this would be over and above your normal drinking wines. Wine investment is not generally a short-term venture, five to ten years is the average period that we normally recommend you hold onto your investment wines. What to buy for investment is fairly straightforward, the best wines from the best vintages and the best producers at the lowest prices, preferably first offer prices.
A balanced portfolio covers a cross section of different wine regions and countries, spreading the potential risk and rewards. As mentioned earlier, Bordeaux has been the main driver for investment wines historically, and some older top flight wines still look reasonable when compared to more recent vintages and in particular 2005 Bordeaux price levels, but providence is paramount. In particular first growth wines from 1982 and 1996 are still priced below newer vintages, particularly the 2000 and 2005 vintages. Burgundy, has not proved to be a great investment overall, save for a tiny handful of the very best, e.g. DRC and Lalou Bize Leroy, but opening prices of these wines are often astronomical due to high demand. Rhone is generally sound, again when finding the best of the best. We see Rhone wines as offering good long term uplift potential.
Where else, to look? Champagne is a good safe bet when buying the from the best producers, Cristal is the top name, but I personally cannot understand why, perhaps it's the clear bottle that sets it apart, Krug is in our opinion a far better range, and Dom Perignon virtually always does well, the 1996 released in 2005 @ £650 a case was selling for £1,800 by 2008, and the 1996 Drappier Carte d'Or is potentially a blinding bet for the future, we released this in late 2006 at £330, price now £450, but older vintages also with 96 points are selling for £3,000 a case! Italian prices are sometimes very high to begin and see smaller uplifts in selling prices, with a few exciting exceptions, but Spain is beginning to flourish with a host of producers totally committed to quality making great wines for reasonable prices. Another Country, Australia is leading the field with a host of super premium wines at very realistic prices. Robert Parker has now come to fully appreciate the range of World Class wines being produced there; some extraordinary buys are becoming available. Most of these top end wines are made in miniscule quantities, driving investment values ever higher. On the downside, there are many European collectors who mock these wines as being too rich, thick, alcoholic and flamboyant and yet when they are matched blind against the best of Bordeaux, they are equal too and often surpass these much more expensive European wines. Uplifts of some of these incredibly powerful and intense Australian wines have been what can only be described as astonishing, sometimes by 200-500% in a matter of months, rather than years.
When to invest?
When to start investing in wine, anytime is generally a good time to start, however now we have run into potentially the world's worse recession, surely this is not the time to start? Actually this is a great time to start, the top wines of 2005 Bordeaux saw massive uplifts over one year, often more than 100% on the opening price, and in certain instances like Ausone 150%, Carruades de Lafite 170% (the second wine of Chateau Lafite) and the most impressive of all, La Mission Haut Brion a massive 220% uplift in less than one year. These prices have to soften given the economic climate as people try to unload some of these stocks raising desperately needed capital, we believe the bottom of the market will come in early 2010 and these wines will hopefully come off by 20% or more by then. This will be a good time to grab hold of these wines, in the interim, opening prices of great wines from other regions produced in 2007 will be coming to the markets during 2009. For example, great wines have been made in 2007 from the Rhone, both Tuscany and Spain had superb conditions and with lower demand for these this year, opportunities will present themselves for individuals to snap up what potentially could become the finest wines made on the planet during this vintage. The recession will not last, sometime we will come out of it and prices will rise again, and if you're lucky enough to have bagged some of these greatest wines made, then returns will again be stellar over the medium/long term.
There are also the stars of the future, many new wines are being made today and new wineries are being set up at what can only be described as an alarming rate, but a small few will become the major players of the next decade and beyond. Finding these early on can prove to be most lucrative to potential investors, an example of this would be the Super Tuscan, Tua Rita winery and their top label Redigaffi, released in 1997, their 1994 vintage sold at £340.00 per dozen opening price, rated 93 points for the first time by Robert Parker (now Tua Rita is regarded as one of the best wineries of the World) in 2008 a single Double Magnum of this wine sold at auction for £9,000, this gave an uplift over 11 years of approximately 6,600%. In 1997 the Tua Rita winery was virtually unknown. This is unusual but not unheard of, another example could be the 1982 Chateau Lafleur, again in 1983 Pomerol was regarded as the poor neighbour of Bordeaux, the opening price of the 1982 Lafleur in 1983 was £99.00 per case, however in 2008 it was selling for a staggering £28,000 per case! Finding the future stars is the most profitable of all wine investments.
Examples of a balanced Portfolio would include, the usual suspects;
Bellevue Mondotte, Cheval Blanc, Haut Brion, Lafite Rothschild, Latour, Margaux, Mouton Rothschild, Pavie, Petrus,
2nd tier investment wines. L'Angelus, Ausone, Clinet, Ducru Beaucaillou, Lafleur, Leoville Barton, Leoville las Cases, La Mission Haut Brion, La Mondotte, Montrose, Palmer, Pichon Longueville, Le Tertre Roteboeuf, Troplong Mondot, Trotonoy
DRC, Leroy, Dugat Py, Comtes Lafon, Comte de Vogue
Paul Jaboulet Aine, Beaucastle, Henri Bonneau, Chapoutier, J.L. Chave, Yves Cuilleron, Guigal, de la Mordoree, Clos des Papes, Pegau, Rayas, Rene Rostaing, Roger Sabon, Pierre Usseglio.
Bussola, Aldo Conterno, Dal Forno, Gaja, Giacosa, Tua Rita, Le Macchiole, Sassicaia.
Artadi, Clos Erasmus, Clos Mogador,El Nido, Alvaro Palacios, Pingus, Benjamin Romeo, Vega Sicilia
Amon Ra, Jim Barry, Clarendon Hills, Greenock Creek, Henschke, Noon, Three Rivers, Torbreck, Yalumba.
There are a few wineries coming into public attention and others with as yet nothing is known, the finest we are aware of currently are Duemani the new Super Tuscan owned by Luca DAttoma one of the best Italian winemakers, and yet another with incredible wines in the making, Zyme from the Veneto. This winery is doing some wonderful things and the release of their top wines will not come until 2010, we plan to be there for that. Another winery which I think might be the equal of Lafleur is the tiny Pomerol estate La Violette, again nothing is known of this yet, but look out for this in the future.
Having agreed on what amount to invest you will be issued with an invoice and on payment, a selection of wines or advance notice of wines allocated to your bond account. We are able to offer various payment options including deferred payment and monthly direct debits, please contact George Ledger for further details.
We recommend that all investment wines are purchased by you In Bond and stored in a bonded tax warehouse. This is a storage facility which effectively allows the wines to be stored on entering the country from other countries outside the tax system. Wines lying in bond can be sold in bond and transferred from one account to another within the warehouse where they are lying or to an account at another bonded warehouse in the UK or exported, without having to pay the duty and VAT. The duty and VAT will only be due when and if the wines are removed from bond into free circulation (duty paid) at which point they are ready for delivery to your home for drinking.
Only when the wine is removed into what is called free circulation, will the excise duty, which is approximately £21.50 for a dozen bottle case, and the VAT @ 20% on the purchase price become due for payment. For investment purposes it makes sense to leave the wine In Bond and avoid paying these charges for the present. This has two benefits, firstly there is unequivocal providence with the wine, all serious buyers want this, and secondly, the wine can be sold on in bond to a dealer, broker, merchant or private individual. It is worth noting, when selling at auction; it may be wise to pre-pay the duty and VAT as the auction price will include/exclude VAT at hammer which can have a dramatic effect on your returns, seek advice on each disposal as and when.
It is wise to have your own bond account to maintain control of your investments. Most have temperature control, and full replacement value insurance. The wines are stored under each client's individual "Protection Plus" account number, fully labelled and can only be released or moved with his or her written instructions. No right of lien can be exercised over wines held on each client's behalf. Client's stock can be inspected, by arrangement, at almost at any time excluding November & December.
Annual storage costs are detailed below
R. H. & D. COSTS £3.50 PER CASE (1 OFF CHARGE)
1-3 Cases £8.00-£16.00 Per Case of 12 per annum
4+ CASES £7.00-£12.00 C/S PER YEAR
25+ CASES £6.00-£8.00 C/S PER YEAR
All storage charges are subject to VAT @ 20%
Tracking your investment
Having decided to invest you will no doubt be keen to keep an eye on the progress of your portfolio. We will be happy to value your wines at regular intervals simply call us or send us an e-mail.
How do I liquidate part or all of the investment?
In the future possibly during 2010 we are setting up a client reserves brokerage arm which will specialise in offering out for sale client wines through the web site from which we will charge a 10% handling fee of the sales price. Alternatively wine swaps may be offered, to supplement each individual clients ongoing drinking requirements should this be of interest. There is always more than one valuation of any wine, like any investment, what the buyer wants to pay, and what the seller wants in return. Generally auction prices are a reasonable guide, but certain auctions do far better than others and we can advise fully in this matter. Furthermore, advertised prices of wines stocks are freely available through information web sites e.g. www.wine-searcher.com an internet based platform used by wine merchants and private buyers alike. These prices would reflect a truer value of the portfolio than possibly distressed auction prices.
There are other ways to dispose of your fine wines, today there is also consumer to consumer marketplace, these are independent services for individuals offering wines for sale. The storage history (providence) of all wines and in particular older fine wines is of extreme importance. Buyers using this method of purchasing wines should exercise caution and make every effort to check the authenticity, condition and providence of the wines offered for sale. Other services will no doubt be created in the near future.
Premier Vintners will strive to attain the highest prices and returns for their clients by advising the best course of action with each and every individual wine held within the portfolio on a case by case basis. Our goal is simple, provide a service which enables the end client to invest for a period of five years and then to reap the rewards by having the consumption wines paid for out of profits whilst still maintaining the value of the portfolio.
For more information, please contact George Ledger.