What is the difference between collecting fine wine compared to investing in it? Arguably it might be as simple as the heart making the decision to purchase rather than the head. Collection may be driven more by passion where investment should be based on performance data, market trends, known influencing factors, potential outcomes and attitude to risk. The fact is the ‘canny or astute collector’ and ‘passionate investor’ are often seeking the same financial goals but a collector may have different motivations for their collectable asset.
Fine Wine Collecting
Fine wine is often referred to as a ‘passion asset’ or ‘luxury collectable’ and the attraction for fine wine collecting may be based on any of the following:
- Heritage or brand – a wine estate with a history that can be traced back decades or centuries, as is the case with Bordeaux First Growths, the Burgundy Grand Crus and the great Champagne houses, can create huge loyalty and collector appeal. Equally more contemporary brands with outstanding credentials for quality such as Napa’s Screaming Eagle create passionate followings of collectors for their great wines.
- Rarity – as time goes by and vintage wines are consumed, increasingly rare bottles can command significant prices should they become available for sale. The goal for some collectors will be to own ‘the only’, or one of a limited number in existence and so the wine becomes a must for wine collecting.
- Special editions – fine wines ‘packaged’ to indicate a special vintage or event can add extra collector appeal. For example, Chateau Angelus adorned its 2012 vintage with a gold label to commemorate the year in which the estate achieved its St Emilion Grand Cru Classe A classification. Collaborations with artists have also resulted in collector-appeal – Mouton Rothschild has a new artist designed label each vintage – for some collectors this is a reason to purchase and add to their wine collection.
- Vintage wine collection – some collectors building a vertical will simply acquire a case of wine on the release of a new vintage every year and seek to complete as far as possible an archive or ‘vertical’ of back vintages into their wine collection.
- People – we are all drawn to certain individuals and especially those who are recognised as a creator of something unique or highly prized or a key influencer based on their expertise, ethics, practices, etc. Wine collectors may trust and collect the wines made by certain wine-makers, for example the influence of the great Rothschild dynasty and individuals such as Michel Rolland who has been involved with many of the great wine projects around the world, exporting their expertise from the top Bordeaux estates to other vineyards in Europe and some of the leading Napa estates.
- Future returns – many collectors will of course have an eye on the value their assets can return in future and the potential to protect wealth in times of economic uncertainty. They may also consider their wine collection as a lasting legacy for family or the wider community.
There are, of course, other reasons for wine collecting, many may be sentimental or simply for pure enjoyment, the point is the primary focus may not be the financial target, but of course it is an important consideration. For many wine collectors the aim is to ultimately drink their wine collection and these are the collectors who absolutely claim the ultimate passion for their asset – to consume, or use, it for its purpose and not for its potential future sale value.
High profile fine wine collectors include Sir Alex Ferguson who in 2014 talked about his collection at the time he was selling some of it: “The importance of collecting wine was that it served as a distraction and gave me a balance in my life that helped me in dealing with the intensity and demands required of me as the manager of Manchester United. In retirement, I now have the time to visit the places and people that will feed my passion, so felt it made sense to release a large number of the wines I had collected over the years. I hope many will enjoy exploring my collection.” Through three online auctions hosted by Christies in New York, Hong Kong and London that year he sold about 5,000 bottles, including rare DRC and Petrus vintages, raising circa £5million in 2014.
Andrew Lloyd Webber is also another celebrity fine wine collector and claims to have developed a taste for great wine at a very young age and had started his wine collection at the age of 15. Our ‘greatest Showman’ went on to sell over 8,000 bottles, including rare DRC vintages, at auction in 2011 in China, which raised about £3.5m.
Knight Frank property investment specialists prepare an annual Wealth Report which also reviews the spending habits of Ultra High Net Worth’s around the world; what wine they collect and invest in. They have created a measure for trends in investment in luxury collectables. In their 2020 Report their findings showed the performance trend of those passion assets over one year and ten-year periods to the end of Q2 2020:
|Asset||1 Year||10 Years|
|Rare antique furniture||-1%||-26%|
Source: Knight Frank Wealth Report Update December 2020, data at end of Q2
It is important to note that the source of wine data in the Knight Frank Report is from Wine Owners Limited and tracks the performance of their collection of wines and not the Liv-ex market which is a broader measure. The period under review is the 12 months and ten years to the end of June 2020.
Transparency on price and valuations is a challenge for all of these assets except for fine wine. The majority are sold at auction or in private sales and whilst fine wine is also sold at auction it has the benefit of a recognised global exchange in Liv-ex delivering live bid and offer price information, historic trade performance and market analysis. Since its inception in 1999, Liv-ex has delivered increasing transparency and efficiency to the market providing investor confidence and fundamentals to support growing involvement by an increasing number of fine wine investors from around the world.
Fine Wine Investment
Whether a novice or experienced in fine wine investment, seeking expert advice from a wine investment specialist will ensure access to wines which enjoy strong secondary market activity (one of the key fundamentals of investment wines) and assistance to achieve your wine investment goals.
An investor will consider what the aims are for placing their capital in fine wine and factors to influence their investment with a view to building a rewarding portfolio including the following:
- Capital – The amount of money to invest in fine wine with a potential timeframe, bearing in mind that fine wine should be considered a medium to long term hold to optimise returns
- Diversification – To diversify a wine investment portfolio into a tangible asset which does not correlate directly with financial markets – Covid-19 has demonstrated this characteristic clearly with the Liv-ex fine wine indices maintaining stable growth since Q2 2020 to date
- Performance – typically investment wines deliver stable, long-term growth which can outperform equities and other assets. The Liv-ex 100 has seen 6.3% growth in the 12 months to 31st January 2021 compared to the FTSE 100’s -11.7% loss and over five years the Liv-ex has increased 33.2% and the FTSE 5.7%. Individual investment wines have seen double digit growth during the last year.
- Tax efficient – gains made from fine wine sales are generally exempt from Capital Gains Tax, subject to individual circumstances
- Portfolio composition – To structure a wine portfolio (or collection) to benefit from performance trends of individual fine wine brand’s historic price performance, supply and market liquidity, quality and critics’ reviews, regional trends in demand, provenance and many other factors
- Investment information – Ongoing performance analysis and data to ensure an investor can act on market opportunities and manage risk
- Exit with a profit – The ultimate goal with any investment is to buy low and sell high – ideally the investor will have the information required to determine the optimum time to sell to maximise gains and also manage risk and losses. Like all investments the value of fine wine can go up as well as down. These decisions are perhaps easier for an investor to make than the more emotionally involved collector.
All of these factors will be considered by the investor alongside some of those also important to the collector. As fine wine investment specialists, all of the information and commentary we provide is to help investors in fine wine understand the market and the opportunities and benefits to be enjoyed, alongside being informed about the risks. For more information speak to a member of our expert team on 0203 384 2262.