Investing in fine wine is the treatment of wine as a tangible, alternative asset with the potential to deliver a return on your capital over time. Fine wine performance is commented on regularly in mainstream media, but how do you invest in fine wine?
The key is to understand which wines are recognised by the market as being ‘investment-grade’ and then creating a fine wine collection or portfolio, which offers growth potential in line with the amount of capital you have available to invest and the time frame you want to hold your wine for.
What is fine wine?
What do people mean when they refer to ‘fine wine’? Ultimately, it’s a general term, it’s not prescribed or specified and some would say it’s subjective, as everyone’s palate is different. Most would understand that the term ‘fine wine’ applies primarily to red wine of consistent, very high quality with proven ageing ability and a high price tag.
The Official Classification of Medoc and Graves of 1855 was established, at the request of Emperor Napoleon III, to provide a ranking system for Bordeaux’s finest wines and is still key to guiding the global market today on Bordeaux’s fine wine from the Left Bank appellations. St Emilion also has its own classification (Right Bank) as do other wine regions but investors need further information when it comes to selecting wine for a fine wine investment portfolio.
Perhaps more pertinently, what is investment-grade wine? Wines which satisfy the following criteria are considered appropriate for investors to consider including in a wine portfolio:
- Brand: The wines are produced by chateaux and wine estates with the heritage and proven track record of creating consistently excellent quality wines to the extent that they are a recognised global ‘brand’
- Quality: The highest quality fine wine as accredited by international wine critics with global reputations
- Ageing and rarity: The ability of the wine to age and improve in quality over time and the opportunity for investors to enjoy growing value as it ages and becomes more rare
- Finite supply: Fine wines produced in low quantities which have to satisfy global demand and reduce in supply as they are consumed over time support a strong long-term price performance
- Demand: The wines enjoy such demand that there is a strong secondary market in them, ensuring the opportunity to exit profitably at a point to suit the investor
- Provenance: Wines are selected from sources which can confirm excellent provenance, either direct from Chateau cellar or through supply where the wine has been kept in a bonded warehouse, or storage facility, which guarantees the required conditions to protect the quality and future value of the wine
- Vintage appeal: the average overall score of a region’s vintage will determine whether collectively the vintage is a great vintage with a higher proportion of perfect to very highly scored wines, through to Mid and Off vintages where the average number of high scores will be increasingly lower but there will still be individually great, and valuable, wines. A Prime vintage is likely to add a premium value to all investment-grade wines in that year, so a Mid and Off vintage may offer opportunities to buy great wines at a slightly lower price but provide excellent growth potential as the best wines of the vintage, scored as highly as the same wine in a Prime year.
- Liv-ex: wines which comprise the Liv-ex indices, providing performance benchmarks for a region are important for investors. Liv-ex is the stock-exchange equivalent for the fine wine market and provides a trading platform for over 400 international wine merchants. Pricing information is made available, providing market transparency and liquidity and performance benchmarks track values against financial markets and global commodities.
Our team focuses solely on those investment-grade wines produced by the top producers from Bordeaux, Burgundy, Champagne, Rhone, Tuscany, California and a few from Spain and Australia. These enjoy the status of being recognised as ‘luxury brands’ with collector appeal and active secondary markets and all have proven track records in terms of price performance and delivering returns to investors. These wines have outperformed equities, gold and other alternative assets over time and offer the opportunity for investors to diversify their portfolios into a tangible asset with the ability to protect wealth and enhance overall growth.
The benefits of investing in fine wine
As a tangible, alternative asset the following benefits can be enjoyed by those who invest in wine:
- Performance– over the long term, the finite supply, ageing ability and global demand for fine wine delivers a strong growth performance which does not directly correlate with financial markets. It is consistently one of the top performing luxury assets.
- Tax efficient– Capital Gains Tax does not generally apply on any growth due to HMRC’s classification of fine wine as a ‘wasting asset’ – individuals should always seek advice from their professional tax advisor.
- Hedge against inflation and currency devaluation – investment wine is less susceptible to market downturns and adverse economic conditions. It can be used to counter the negative effects of inflation, movements in financial markets and can protect wealth over time.
- Liquidity and flexibility – the secondary market in fine wine is well established and benefits from platforms such as Liv-ex.com which have helped create further price transparency, liquidity and market authority. We encourage investors to view fine wine as a medium to long term investment to optimise investment returns, but the asset can be sold at any time to suit personal circumstances. This is a considerable benefit, whilst the sector is not dynamic as financial markets, it provides much more flexibility than other tangible assets, most of which are more reliant on auctions and have very little clarity on values.
- Portfolio diversification – fine wine asset performance delivers stable, long term growth and does not directly correlate with more volatile financial markets, which means that it can be used to diversify and de-risk an investment portfolio. Fine wine is an unregulated investment and this should also be considered.
- Passion – Investing in wine is enjoyable – each wine has a unique history, there is a lot to learn about and enjoy, and many investors and collectors of wine do so because of the pleasure of owning fine wine.
Being guided by a wine investment specialist is very important unless you are knowledgeable. The key steps are:
- Be clear about your budget– how much capital do you have available to acquire fine wine and remember that, like all investments, prices can go down as well as up and there are no guarantees on performance
- Time frame– how long do you want to hold your investment in fine wine?
- Wine selection– dependent on budget and time frame your fine wine specialist should help you to select investment-grade wines with excellent provenance that meet these targets
- Storage and insurance– your fine wine should be stored in a specialist bonded warehouse to guarantee advantageous tax treatment (Capital Gains Tax exemption and VAT and Duty charges will not apply unless removed from bond) and to protect the quality and future value of your wine
- Stay informed– monitor market performance and ensure that additions and changes to your portfolio over time are geared to achieve your investment goals. Our portfolio managers are dedicated to helping our clients to create rewarding fine wine portfolios.
For many, investing in wine is a new experience and we provide regular information to educate and inform, utilising Liv-ex performance data and industry news from the fine wine and investment markets. Our Vin-X Newsletter and regular Fine Wine Market Reports keep our clients aware of news and events which provide opportunities and may affect the value of their wines.
More investors are looking for alternative assets to diversify and strengthen their investment portfolios and Vin-X helps private individuals and organisations to understand the fine wine market and to create rewarding fine wine collections.
Our Guide to Fine Wine Investment offers a comprehensive introduction to investing in wine, the wine market, the tax treatment of wine, market fundamentals, investment-grade wines and performance.
The Vin-X Fine Wine Market Report will give you the latest fine wine performance data, top performing wines for investors and information affecting fine wine prices.
For more information on the Tax Treatment of Fine Wine see our report prepared by an independent tax specialist.
Finally, for more information on our specialist fine wine investment service, our fine wine experiences and the Vin-X team contact us by telephone on 0203 384 2262 or email firstname.lastname@example.org.