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Fine wines, fine investments
Britain has always been a popular place to do business in the international wine trade. Chris Carter looks into the market, and explains how to invest in fine wines.
There's not much we can be sure about as the Brexit negotiations get under way. But given the European Union's fondness for pomp and ceremony, you can bet some pretty fancy wines will be quaffed along the way. Funnily enough, in the weeks following the Brexit vote, the market in fine wine held in Britain received a fillip from foreign investors, who piled in on the back of the weaker pound, which is still down by 11% against the dollar and 12% against the euro. That bonanza was always destined to be short-lived, however. As the wine was snapped up, new stock had to be sourced from, predominantly, France, at higher costs to the British-based wine merchants.
Nevertheless, Britain has remained a popular place to do business in the international wine trade. As most fine wines are generally considered to be "wasting assets" (defined as an asset with a lifespan of less than 50 years), they are exempt from capital gains tax. If the wine is held "in bond", ie, in a bonded warehouse, then no customs charges or VAT will be due either. Overall, the value of fine wine as measured by the London International Vintners Exchange (Liv-ex) 100 index, which tracks the price movement of 100 of the most sought-after fine wines, has risen sharply since the beginning of 2016. Despite a 0.53% dip in April, the index resumed its course higher in May, rising to 303.94 (the index was rebased at 100 at the start of 2004).
In fact, investment-grade wine was the top-performing alternative investment of last year, according to the Knight Frank Luxury Investment index. Fuelled by "the resurgence of the top Bordeaux chteaux" (see below), wine grew in price by 24% compared with 9% for classic cars although over ten years, cars are still way out in front, boasting growth of 457% to wine's 267%.
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Still, fine wine performed well at an auction held at Sotheby's in London at the end of April, suggesting that demand is continuing to hold up. For example, two bottles of Domaine Georges Roumier, Musigny 1999, a Burgundy red, sold for £12,338, beating the £8,000 upper estimate. Sotheby's will be holding its next London sale on 20 September, while the London offices of Christie's will be hosting an auction from 8 August. And fine wines will be going under the hammer at Bonhams next Thursday.
For those looking for a cheaper way to get into investing in wine, the en primeur market allows investors to snap up big-name labels before the wine has even been bottled. A cold snap at the end of April could affect this year's Bordeaux crop for the worse. But the good news is that 2016 is "a finer and more classic vintage than the much-vaunted 2015 vintage", according to MoneyWeek wine expert, Matthew Jukes. "The wines are calm, long, aromatically intriguing, succulent, relatively low in alcohol and spiked with crunchy acidity." We'll raise a glass to that.
How to trade in "wine futures"
"The annual highlight of the wine merchant's calendar is the en primeur market in Bordeaux, the closest thing the wine world has to a futures market," as Alan Livsey put it in the Financial Times in November. The chteaux offer limited allocations of their wines through authorised French agents, called ngociants, who in turn deal with wine merchants from aroundthe world.
En primeur proved a popular way for investors to snap up expensive wines at discount prices until 2011, when a series of mediocre vintages, and "unrealistically high prices", according to British wine merchants Berry Bros. & Rudd, saw demand for the wine ebb away.
En primeur prices still tend to be high, so "looking at the back vintages could offer a valuable alternative", according to Berry Bros., which runs an online wine brokerage service (see their website at BBR.com/fine-wine/bbx. The market in fine wine is still heavily focused on Bordeaux, but interest in other French regions, such as Burgundy and Ctes du Rhne, has grown in recent years. So too has interest in wines from Italy and the New World Berry Bros. recommends keeping roughly a third of your portfolio in these wines, with Bordeaux still "the backbone".
Once you've bought your wine, you need to think about storing it, ideally in a bonded warehouse to avoid paying VAT and customs duties (expect to pay around £12 a year). Either way, keeping it in tip-top condition is vital for selling the wine on later, and you should be looking to invest with a long-term view (a minimum of eight to ten years).
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