Alternative assets such as fine wine investment offer investor benefits, which can de-risk and enhance the performance of investment portfolios. With a track record of strong growth over the long term and beneficial tax treatment, more investors are looking to invest in fine wine.
Reasons to Invest in Fine Wine
Performance of Wine Investments
With a track record of delivering double-digit growth over the long-term, fine wine investment has outperformed financial markets and commodities such as gold which is shown through market reports.
Hedge against inflation and currency devaluation
A tangible, ‘alternative‘ asset, fine wine has proven to be less volatile than financial markets and less susceptible to market downturns and adverse economic conditions. Fine wine as an asset is established as being an effective hedge against recession, inflation, currency devaluation and movement in financial markets. For example, the price of fine wine tends to increase with inflation, establishing it as a good way to preserve wealth.
Finite supply and growing demand
The supply of investment grade wine is extremely limited, with approximately 50 producers worldwide of wine considered to be investment grade wine. In most cases, vintage quality improves over time as these wines are made to age. This supply is tightly controlled and reduces as vintage is consumed. These factors all support stable price growth over time and blue-chip investment grade wine is under increasing global demand as new consumers enter the market. This supply/demand dynamic supports a strong, stable price performance.
Wine as a ‘real asset’ has an inherent physical value, unlike shares or bonds.
The classification of fine wine by H.M. Revenue & Customs as either a ‘wasting asset’ or ‘chattel’ generally means that Capital Gains Tax does not apply. Accordingly, any profits from investments in wine with a total value not exceeding £250,000 should be exempt. Furthermore, should the investor’s wine remain stored In Bond then VAT and Duty would also not apply. Advice should always be sought from a professional tax or financial advisor.
Liquidity and flexibility
The fine wine market benefits from the industry trade exchange, Liv-ex.com, which can be compared to a Stock Exchange for equities, providing transparency and liquidity to the market. Whilst we encourage investors to view fine wine as a medium to long-term investment with a typical term of more than five years to optimise performance, the asset can be liquidated at a time to suit personal requirements.
Fine Wine Investment Regions
The fine wine market today is global in terms of demand, but the supply of investment grade wine is concentrated to a few key areas. Bordeaux investment grade wine region is still the most prolific wine-growing region with the most established fine wine market. There is an increasing interest in the investment grade wines of a small number of key producers in Burgundy, Champagne, the Rhone, Italy, Spain, Australia and California. These wines offer the opportunity to diversify and strengthen wine portfolios.
Characteristics of Investment Grade Wines
The characteristics of investment grade wine is different to that of non-investment grade wine. There are a multitude of things that come in to make a wine of investment grade standard, some of the key things are as follows;
The wine is produced by a well-known or prestigious Chateau with exceptional reputation. But can also be from a smaller chateau or producer but is just harder for them to be noticed.
Investment grade wines must reach peak maturity at least 10 years after bottling and must be able to last for at least 25 years.
They appreciate in value with the increase of age, this can be shown through a consistent record of appreciation over 10 years or longer.
There must be enough wines available on the market to make the wine a tradeable asset. If a wine is produced in small quantities, it could be rare that the wine be sold, reducing that wines usefulness as an investment.
The wine must have been awarded with a score of 95 or above on the 100-point scale, by one or more noted wine critics.
Wine Rating 100-Point Scale
A wine rating is a score that is assigned by one or more noted wine critics after a wine tasting. This is then the subjective quality score of the wine. The 100-point scale is the most commonly used scale for rating wine within the fine wine industry, and it is the scale of the infamous wine critic Robert Parker. Parker’s wine rating system employs a 50-100 point quality scale to define the quality of a wine.
Below is a small graph showing Robert Parker’s scoring system, that is in place for ranking wines along with what the scoring brackets mean.
|80-89||Above average to very good|
The scoring is not just one straight forward singular score, it is the scoring of multiple aspects of the wine to give an overall score. Here is a breakdown of how Parker allocates his scoring to the wine.
|Is it wine?||Each wine gets this to allow a full 100 point system.||50|
|Colour and appearance||The appearance of the wine.||5|
|Aroma and bouquet||What the nose can denote and its complexity.||15|
|Flavour and finish||The tasting notes and the length of the finish.||20|
|Overall quality||A factor subjective to the integrated experience.||10|
This breakdown of scores allows us to see the complexity that is within these scores and how each wine can obtain certain score. But we as consumers of wine do not see the scoring breakdown, just the full score.
History of Wine Investment
While premium wines and fine wine investment have been around for centuries, the formal and organised sale and resale of wines for profit, or investment in wine, became more established in the late 1970s. But back then in the United States, it was illegal for people to sell wine and newspapers were exclaiming that investments should be drunk by the investors.
However, by the mid-1980s in the states of Illinois and California, it became legal to sell wine without a license in retail, causing more investors to learn how to transact their trades through legal brokers with the correct and necessary licenses.
History of Wine Rating
The widespread use of numerical wine rating systems is a relatively new phenomenon. In the mid 20th century, as interests in fine wine investment and wine in general was developing, consumers became introduced to a vast assortment of wines from around the world but had no real way to know the standard of the wine without tasting it. The surplus of wine that had become available created a niche market for wine critics to provide a service in reviewing wines and making recommendations to ease the buying process for consumers.
Following this, critics began to write more condensed reviews, consumers could read to briefly read to find wines of interest. After this in the 1970s, Parker developed his 100 point system which was patterned on the American standardised grading system. This system yet again improved the readership for consumers as all they had look to for was a numerical evaluation of the wine at hand aiding in the investment of wine.
Investment grade wines only make up a very small 1% of all wine that is produced in the world. Of that 1% of investment grade wine, 80% of it is made by chateaux throughout France with most being Bordeaux investment wines. This goes to show how small, yet powerful the wine investment market really is. With Vin-X as your experts, we can help create you a strong portfolio to reach your wine investment plan and needs.