Five years ago anyone seeking a decent alternative investment with healthy levels of return needed to look no further than fine wine.
Although needing to be held for at least five to 10 years, it boasted impressive past returns, could avoid capital gains tax (CGT) under the ‘wasting assets’ rules and offered the chance to enjoy limited volatility and a low correlation with the major asset classes.
Unfortunately, poor performance during 2008 and 2011/12 has called the latter two qualities into question. Although most investors are wine enthusiasts there has also been a significant increase in the numbers involved purely for investment purposes. As a result returns are enjoying less independence from the state of the economy.
The Liv-ex Fine Wine 100 index, the industry’s major benchmark made up of 100 of the most sought after wines with a strong secondary market, stood at 258.40 points in October 2012, having been based at 100 in January 2004. However, it had risen as high as 364.69 points in June 2011 and fallen as low as 206.81 points in December 2008.
Bordeaux, which makes up 92 per cent of the Liv-ex Fine Wine 100 index, forms the core of most investment portfolios and, because it produces around 150 top luxury brands, still enables those who buy carefully to buck adverse trends.
For example, Chris Rigby, retired marketing executive, has bought Bordeaux in tranches every three months since last November in conjunction with advice from investment consultants Cult Wines. His portfolio of 20 cases has appreciated by roughly 10 per cent, meaning that he has already broken even after charges.
Mr Rigby explains: “It’s all about careful selection and I have focused very much on Bordeaux 2009 and 2010, buying a cross section. Good ratings from wine critics have boosted performance of 2009 Latour and Clinet Pomerol, my three cases of the latter have gone up by as much as 80 per cent.”
Nevertheless, there has been a notable trend during recent months for portfolios to broaden out beyond Bordeaux to other areas such as Burgundy, Champagne, the Rhone and Italy.
Sara Guiducci, private account manager for wine merchants Berry Bros & Rudd, says: “Burgundy prices have held very stable and some have even increased over the past 18 months. Burgundy is typified by microscopic production and there is always pressure on stock for top wines by top producers but it can take longer to sell as there is a much smaller secondary market than for Bordeaux.”
However, Ms Guiducci also highlights opportunities to take advantage of the current climate by picking up well-priced Bordeaux, pointing out that those who were brave enough to buy at the bottom in 2008 have still seen a profit. Additionally, she explains the importance of looking at back vintages: “Back vintages look well-priced compared with many recent ones with high release prices, and something like a 1996 Latour is still a very young wine with decades to go.”
Wine merchants can construct bespoke portfolios for clients but their charges can also eat into any returns made. Their buying price will normally be at least 10 per cent less than their selling price, and charges at auction are typically even higher.