Alternative Investments: Wine is no more the experts' domain

Fine-wine investment houses have, in the past 6-9 months, offered investors the flexibility of choice and an opportunity to take cover in the tax-free asset class of Bordeaux wines during a period when traditional investment products have failed to perform.

While the economic crisis worsens, many investors are seeking out alternative methods of spreading their portfolio risk to ensure minimum exposure to the myriad macroeconomic problems.

Alternative investment management companies are capitalising on this period of uncertainty by differentiating their investment offering from traditional investment products such as equities.

Fine wine has clear advantages over the likes of other alternative investments such as art or property. It is easily stored, generally increases in quality the longer it is left and is not usually the subject of fashion. Decreasing availability increases rarity and can produce excellent investment opportunities.

It is vital to remember globally only roughly £200m is tied up in wine investment companies, compared with an annual £2bn turnover in fine wine as an overall market. Wine pricing is still driven by consumers. The number of consumers is growing globally, and some of these people will be buying some wine for consumption and some to keep.

Far Eastern investors have, of late, joined the bandwagon and now significant interest is coming from Japan and the Philippines.

Until recently, investing in the thriving fine-wine market has been considered a wine expert’s domain. Wine investment houses are here to fill the void by offering specialist advice to individuals with little or no knowledge of wine, enabling everyone to get involved.

Wine investment is by no means a new concept. It is largely uncorrelated to the stock markets and has a long history of steady growth. It has carried an average annual compound growth rate of 17.64 per cent over the past 18 years.

The asset class has shown greater and steadier growth than gold and less volatility than oil. Following the terrorist attacks of 9/11, when markets tumbled, fine wine continued to hold its value - and the same can be demonstrated of late. For example, a case of Chateau Margaux 2000 purchased in September 2005 cost £3,100. Today’s value is £7,000 - that is 125.81 per cent growth, equivalent to 35.95 per cent a year, and a price that has remained largely unaffected in the past few months of banking and insurance sector turmoil.

When the market is trading in difficult times, it is generally the younger wines that trade most often, making them more attractive and sought after. The prices of many wines have adjusted to a level that makes them look tempting to the discerning investor or drinker. The industry has not seen a better opportunity to invest in wine since the Japanese stock market fell sharply towards the end of 1997.