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11/10/2018

Wine Investment: How to Spend It (City AM Column)

by Gary Boom (Managing Director)

Over the past 12 weeks, we have toured the wine and whisky investment world, starting with the traditional “investment grade” wines of Bordeaux, before reviewing the more recent additions to that group - Burgundy, Champagne, Tuscany, California, and – beyond wine – the highlands of Scotland. Here we seek to wrap up our last in the series of these articles by reviewing the key points about wine investment and how to access the space.

There is no doubt that the long-run performance of the fine wine market is compelling - with a compound annual growth rate of over 11% over the last 30 years it compares favourably with the FTSE All Share (9% including re-investment of dividends), Oil (4%) and Gold (also 4%); interestingly the volatility of the asset class is similar to the FTSE, so it is a case of higher return for similar level of risk.  Wine is unusual but interesting in its low correlation with other asset classes, generating particular benefit to a portfolio during periods of disruptive market events. 

As an investor looking to enter into fine wine, there is a spectrum of alternatives, ranging from buying top wine for drinking but keeping an eye on value appreciation potential; to learning about wine and building a modest investment portfolio with some input from a trusted merchant; to entering into a more traditional asset management arrangement for larger portfolios.

For any portfolios, and especially larger ones, there are key aspects to consider when examining merchants: i) scale and distribution capability – large merchants, with a global presence (e.g. Hong Kong, Singapore, US) obviously have superior ability to source desirable wines in quantity, and then to sell them on for you at investment exit; ii) genuine expertise in both the wine and investment spaces, rather than one or the other; iii) entry and exit trading spreads and willingness to repurchase wines rather than simply broking; iv) ability to provide robust and regular valuations; and v) investment fees (noting in this context that large upfront fees are not aligned with investor interests).

Here at BI, we are uniquely positioned as the only large-scale global wine merchant with a specialist investment department; our focus has been and continues to be enabling investors to access fine wine and premium spirits in a true asset management context – this is aided by our proprietary LiveTrade online market-making platform, ensuring investment grade wines can be bought and sold instantly at market-leading spreads.  Our ability to source and advise on the broadest spectrum of wines allows us to construct portfolios which account for investor risk appetite, liquidity requirement and investment horizon, whilst delivering returns significantly in excess of the broader market.

There is no one-size-fits-all approach to wine investment at BI – we sell wine to collectors for whom drinkability and wealth appreciation run side by side; and we manage portfolios for professional investors who will only ever see their wine on their valuation statement.  The broader global and financial market backdrop will mean the importance of wine as an alternative asset class will continue to increase in significance – make sure it’s your glass which is half full!