Investing in wine

It has been traded for more than 400 years but investing in fine wine has lost none of its appeal. While global stock markets have floundered on extreme volatility since 2008, fine wines were less volatile and, in fact, appreciated in price since 2006.

The 2011 Capgemini World Wealth report has a chapter solely devoted to the growth of ‘passion investing’ by high net worth individuals globally, reinforcing its establishment as a separate global asset class. Wine, with its long legacy of value, makes up a chunk of this asset class worldwide and is likely to continue to grow in worth.

The world’s leading wine benchmark offers ample evidence of this. Despite recent correction, the Liv-ex Fine Wine 100 index – which tracks 100 of the world’s most sought after wines – has climbed nearly 40 percent between October 2006 and the end of March 2012.

In very tough economic conditions investors punished share prices globally. The Morgan Stanley Capital index – measure of the performance of global equities – lost approximately 5% of its value in extremely volatile conditions.

The fact that the performance of wine is generally uncorrelated to stocks and bonds has made investing in it all the more popular. Pundits put the correlation between fine wine and equities at around 0.03 – which essentially means there’s no correlation at all. This is good news against a backdrop of global markets which remain in volatile territory and interest rates globally which stay close to zero – making wine the perfect hedge against your stock portfolio.

Aside from this, wine investing – by its very nature – has market fundamentals on its side. For one, wine producers can only produce a limited amount of wine each year (given that vineyards are fairly fixed), and every time someone drinks a bottle of wine, there’s one less available. What is more, wealthy Chinese investors have developed a taste for the best fine wines on offer. Analysts reckon that Chinese demand for wine could rise some 30 percent over the next three years – and that could spread throughout much of Asia. South Africa, specifically, has its own unique demand driver in that pundits are now forecasting a red wine shortage in the country.

However, raiding your cellar for the oldest bottle of red you have does not mean you’ve automatically got a valuable investment, as very few wines can be traded. Only one percent of wines across the world are of the appropriate investment quality (in a market worth some $3-billion annually). Most of these are red, and come from France’s Bordeaux region. This means that discerning epicureans should distinguish between the pleasure of a bottle of their favourite vintage and the investment value of only the best wines from the best vintages.

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So how do you know if you’re onto a good investment opportunity? Well, ideally you need a good source of information, and a good palate. Wines are carefully rated and it is essential to tap into that information before buying (for example, check eRobertParker.com – which is run by US wine critic Robert Parker, who publishes his score for wines he tastes out of 100). Read decent wine guides, or speak to experts in the wine industry (like sommeliers – who order wines served in restaurants). And of course, where possible, taste the wine yourself (auctioneers, for example, hold a pre-auction tasting the night before).

If you’re shopping for wine internationally, look at wines out of the Bordeaux region – such as the Chateaux Lafite Rothschild, Latour, Haut Brion, Margaux, Mouton Rothschild and Pomerol’s Petrus. These could set you back anywhere between R2 200 per case (the 1971 Haut Brion, for example) to R440 000 per case (the 1959 Mouton Rothschild). Burgundy also offers good investments, while tradable wines are also produced in Italy and even Germany. In South Africa, wines from Kanonkop, Rustenberg, KWV and Meerlust all have investment potential. The key? The wine must have the potential to mature well, and it must be rare (or set to become increasingly rare due to the high demand).

Investors can also look to buy fine wine at auctions. The Cape Winemakers Guild (CWG) Auction, for example, usually sells some of South Africa’s premier wines. The most recent CWG auction saw wines such as the CWG Bouchard Finlayson Unfiltered Pinot Noir, the CWG Saronsberg Die Erf Shiraz 2007 and the Ernie Els CWG 2008 enjoy high prices.

A word of warning, though – the wine market is still mostly unregulated, and fraudsters have preyed on eager wine investors in the past. In Europe investors have learned the hard way in recent times. Moreover, a rare wine doesn’t automatically mean a valuable wine. The best wines often mature over 50 to 100 years, but the quality of wine can just as easily deteriorate over time. Your best bet? Speak to an expert who knows his Haute Brion’s from his house reds.

Alwyn Van der Merwe