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For centuries, wine buyers have long bought more wine than they could drink, often with a view to funding their drinking by selling cases surplus to requirements. With wine investment making headlines, as well as profits in recent years, it’s a growing trend to consider wine as viable alternative asset.
Like any commodity, when demand is high and availability finite, prices rise. Over the last five years, prices on fine wines have risen by over 20% (Liv-Ex Fine Wine 100). Prices are still some way from the peak prices seen in 2011.
The 1990s saw global interest in wine investment increase significantly, as traditional markets in Europe and the US were joined by the extraordinary buying power of the far East. As a result, the fine wine market has seen price increases and decreases it had not previously known, creating both positive and negative press for the wine trade.
In 2009, stories of investors making 400% in 12 months on the 2008 vintage of Ch. Lafite Rothschild were completely true, though definitely not the norm, while those looking to invest now need to be wary of promises of the same happening again. In fact, the same 2008 Ch. Lafite Rothschild then saw decreases of 60% in the year 2011 to 2012, as the price slid from over £15,000 for 12 bottles to £6,000. It can be a volatile market; investing with a reputable and experienced merchant should be the number one consideration for all potential buyers. With 150 years of experience in helping our customers plan and build their cellars, Davy’s Wine Merchants are well placed to design a cellar for the future.
Knowledge of which wines and choosing the right moment to make those wines a part of your cellar is integral to building a successful collection. Though the sought-after region of Bordeaux will make up the foundation and probable bulk of a cellar, increasing demand in other regions means there is now more choice than ever before. As interest in luxury goods and a ‘quality not quantity’ mindset increases in younger generations, the number of people looking to build cellars for the future also increases. Whether for drinking or investing, when demand for a product with limited supply increases, prices move upwards and the scope of interest widens, meaning New World regions such as the USA and Australia enter the fold of investment grade wines. Increases in price on regions like Bordeaux and Burgundy also push interest into other old-world classics like Barolo, as collectors are priced out of their first choices. The more people involved in buying and selling of fine wines, the more it begins to behave like an asset class. Fine Wines are viewed as Veblen goods, and as such, the more prices rise, the more demand continues to increase. Although there has been some volatility, the wine market overall has been resilient; after all, it’s a tangible asset. As with any investment however, you should only invest what you can afford to lose.
With many wines only just entering their drinking window at 10 years of age, we would recommend an eight-to-10-year term for any investment – financial maturity will be linked with a wine’s drinking maturity amongst other criteria. As people begin to drink, the quantity of any given wine available on the market begins to diminish. Opportunities to purchase the best wines from a select few regions, such as Bordeaux and Burgundy, present themselves yearly in the form of En Primeur, where one can purchase the latest vintage while it is still in barrel, with a view to securing wines that may not be available at later dates, ideally at the cheapest price before the wines begin trading on the secondary market. There are plenty of opportunities to add wine with age that will hit that peak sooner, and this is an area that appears to represent immense value in the current market. Because of our history and enviable collection of older stock, Davy’s are well placed to source these wines for you. As provenance is now understandably one of the most crucial factors when buying fine wines, storing with a reputable merchant helps in keeping the condition and value of your wines. No duty & VAT is payable on wines you store under bond, until you decide to take delivery.
The UK’s impending departure from the EU and the financial implications of this, as well as a lull in world markets could lead to investors looking at alternative assets. With demand for the best wines in the world as high as we’ve ever known it, and while data from the industry’s leading index shows that prices are still some way off their previous highs, this certainly would appear to be an opportune time to begin building your wine cellar.
As more and more wine is collected and traded, the market continues to evolve. Ensuring that the information and data we base our decisions on is as up to date as possible is very important, and institutions such as Liv-Ex are invaluable in looking at and analysing this data.
“Declared the “fine wine industry’s leading benchmark” by Reuters, the Liv-ex Fine Wine 100 Index represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market. The index is calculated monthly.”
The Liv-Ex Fine Wine 100 over the last 15 years
The Influence of critics and correct wines for the cellar
Uber-influential wine-critic Robert Parker has now all but retired which leaves a handful of critics to influence consumer buying. These include but are not limited to: Neal Martin and Antonio Galloni of Vinous Media, Jane Anson of Decanter Magazine, Lisa Perrotti-Brown of the Wine Advocate, Jancis Robinson MW, Jeb Dunnuck, and James Suckling. There is also a new wave of point scoring systems which collate a variety of factors to score wines, such as Wine Lister.
The below graph demonstrates how the price of 2009 Smith Haut Lafitte surged over 115% overnight after Robert Parker awarded it a perfect 100 Points in his publication The Wine Advocate.
Using this sort of data is brilliantly useful in spotting potentially rewarding wines for investment minded cellars. With demand for Ch. Margaux, one of the five Bordeaux ‘1st Growths’, on the increase, the data on the 2005 vintage shows us that this is a long way off its previous high, and has also yet made little in the way of movement back towards that peak:
That is unlike another of the Bordeaux 1st Growths, Ch. Mouton Rothschild, for which the 2005 is also viewed as a good addition to an investment cellar, but recent trades have pushed prices back up, and moves to the highs of 2011 are somewhat closer here:
Knowing which vintages to look at is key in maximising your return, ensuring sustained demand and that the wines can last the term you intend to invest for. Although we may recommend looking at top wines in ‘less favourable’ vintages, these decisions should be carefully considered.
Although many of the world’s wine regions have classifications in place to help distinguish quality levels within an area, there is arguably no classification more widely known than the 1855 Classification for the wines of the Médoc. With 58 Chateaux sorted amongst five levels of classed ‘growths’, the ‘First Growths’ have become some of the most sought-after wines in the world. Although this classification is still broadly accurate, it must be noted that the classicisation has changed very little since 1855 and that there are other factors which can heavily influence the price and demand for a wine. For example, ‘Fifth Growth’ Chateaux such as Pontet Canet; Lynch Bages and Grand Puy Lacoste regularly produce wines of quality to match Chateaux higher up the classification, while also often receiving scores from the critics to reflect this. The classification of St Emilion however has been updated as recently as 2012, and though any update is often closely followed by controversy, the classification of 2012 has for the most part stuck. Potential and actual promotions, and relegations, will impact the price of the wine from any given Chateaux. For example, after Ch. Pavie and Ch. Angelus were promoted in 2012, prices for older vintages increased significantly.
Many other regions have classifications in place, and it’s worth familiarising yourself with these if considering investing in that region.
- How much should I invest?
While there is no set amount to begin an investment and with cases beginning at £250 per 6 bottles, the returns need to be worthwhile in offsetting storage charges and exit fees, while also competing with other options. We therefore recommend looking at between £5,000 and £10,000 as a minimum to allow a variety of options when selecting wines for your portfolio. Our Cellar Plan offers customers a great way in to wine investment without the prohibitive upfront costs.
- For how long?
Although there will probably be opportunities to sell parts of your collection early on, looking at a whole collection we recommend a minimum outlook of eight to 10 years. This allows the wines to reach drinking maturity; often closely aligned to consumption, therefore rarity and value on the market.
- In which wines? Why?
The current market makes it difficult to look past the traditional ‘blue chip’ wines of Bordeaux. Prices are as low as they have been for years and we are beginning to see an upturn in the market. While other regions show promise, it’s likely the prices of top Chateaux in Bordeaux will move closer to their historic highs more quickly than emerging regions create new highs. We would recommend a higher allocation to Bordeaux with emerging regions making the remainder. Top wines from mediocre vintages, and mediocre wines from top vintages.
- Why should I invest with Davy’s?
We are one of Britain’s oldest wine and spirit merchants, established in 1870. Today, members of the Davy family continue to own and manage this family-run wine merchant. We believe that the wealth of experience and knowledge we have in wine puts us in a prime position to be able to advise on the correct wines to add to your cellar.
- How will it perform?
As with any investment, prices can move down as well as up. Some wines will perform better than others and there may be opportunities to realise returns earlier than expected. On average, we would expect a return of 15% over the life of your cellar.
- What are the risks?
The biggest risk to investing in wine is that for whatever reason, be it a revised critic score, or market conditions turning, wines in your cellar may see a drop off in demand, which could lead to market value falling. Wine Investment can become riskier when purchasing wines through merchants without an established reputation for a variety of reasons. Buying En Primeur often means that you won’t receive any physical stock for at least a year after purchase – in the past, buyers have been victims of fraud when stock never materialises long after being paid for.
- Is it a better investment than other options?
Wine has shown time and again that it can compete as an investment with more well-known options, such as the FTSE 100 and Gold. Over the last five years the ‘Liv-Ex Fine Wine Investables’ index, which tracks 200 top Bordeaux Chateaux, has seen a 21% increase. Over the same time, Gold has lost 19% and the FTSE 100 has seen a 19% increase.
- How long does wine last?
Some wines can last for centuries, while others need drinking within the first six months of their lives. When looking at an investment in wine, it is vital that the right wines with a long enough lifespan are chosen.
- Is it exempt from capital gains tax?
As wine is legally classified as a wasting asset, in some circumstances, your investment can be exempt from capital gains tax – we are unable to advise further on this and recommend speaking to a financial adviser.
- Do I buy my wines excluding duty & VAT?
Most of the wines we offer for an investment cellar will be offered ‘under bond’. This means you will be purchasing without paying the duty & VAT. You are also able to sell your wines under bond, meaning you never pay duty & VAT if the wines are kept in bonded storage. Only once the wines are taken out of bond, for delivery for example, will they incur duty & VAT charges. We would highly recommend keeping all wine bought for investment under bond, as the value can decrease significantly once the duty & VAT are paid.
- Where and how is my wine stored?
We store our bonded wines with specialist wine storage facility, London City Bond. Charges are competitive at £10.95 per case of 12 bottles, or 9 litres ex VAT. These charges are reduced for our Cellar Plan members.
- Is it easy to sell, and are there charges to do so?
Davy’s can list your wine for sale on our Fine Wine list as well as on the trading platform Liv-Ex. Upon a complete sale, you will receive the listing price less 10% commission. Where wines are listed at ‘market price’, they tend to sell quickly, however, no guarantees can be made. You are welcome to sell to any other buyer but will need to pay delivery and handling charges to their warehouse or other address.
- We do advise on the quality of wine, on wine’s potential longevity and consequently its suitability for inclusion in a cellar.
- We can offer informed advice on current valuations of particular wines or vintages and trends within the market, since our opinion can be backed by concrete evidence of recent transactions of these wines, providing a definitive point of reference.
- We can offer our opinion, based purely on our extensive experience and on demonstrable market history, on whether a particular wine will appreciate in value over a period of time, stressing that many factors can influence the price in that time, for good or bad.
- We do not give financial advice or advice on investments.
- We do not offer any guarantees on a particular wine’s monetary appreciation potential.
- For customers seeking financial advice on the above two issues we recommend you contact an IFA. (Independent Financial Advisor)
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