PERSONAL FINANCE:With the average growth in returns on high-quality wine hovering at 15 per cent for the past 25 years, it's an investment that could be worth a look – once you do your research, writes PATRICK FREYNE
IN THESE uncertain times, in which blue-chip and property investments disappoint, many investment gurus are touting the advantages of gold, art and wine. According to wine merchants Berry Bros and Rudd, the average growth on high quality wine has been 15 per cent per annum for the past 25 years, a figure which looks increasingly healthy the more we detox from our property mania. At the time of writing, the Liv-Ex 100, the index of the top 100 fine wines, is up 38.3 per cent year-on-year.
Yet while Irish people have embraced both wine-culture and speculative investment, wine investment is still a minority interest. It is still generally seen as the realm of aficionados. “Usually investors have some interest in wine to begin with,” admits Jessica Lavin from Berry Bros and Rudd. “In fact, sometimes they’re using their investment in fine wines to fund their everyday drinking of fine wines.”
That said, Lavin notes that there has been an increase in investment by people who simply know a good opportunity when they see it. Of course, this process doesn’t begin by getting a few bargains in Lidl and keeping them in the shed. Only 1 per cent of the wine produced every year is of investment grade, and this is always culled from top chateaux of the Bordeaux region.
“There are about 100 top investment wines which are generally listed on the Liv-Ex,” says wine-merchant James Nicholson. “There’s an odd one that’s not in the 100 that takes us by surprise. But usually when someone tells you they’ve got a new thing that’s going to treble in price over the next few years that no one has heard of it, you can discount it. It’s like someone saying they’ve found oil off the Co Down coast.”
Another misapprehension people have is that wine investments are kept in fancy cellars for boasting purposes. Even those with well-constructed storage facilities are advised to keep their investment wine “in bond” (usually in special warehouses the UK) rather than taking them into their own possession. As well as meaning that the investor isn’t required to pay VAT or duty (wine is also exempt from capital gains tax), it also ensures that the way the wine is stored remains above reproach.
“In the 1980s there was a huge demand in Japan for high quality Bordeaux and a lot were shipped over in containers and ended up sweltering in the dark in the docks of Tokyo,” explains Denis Hartnett of Vintage Wine Investment. “When the market collapsed in Japan in the 1990s it was sold back into Europe and a lot of it when opened was out of condition. They’re now bringing in an e-tag which will track the movement of the wine worldwide and take account of how it’s stored.”
Wine is not an abstract investment. Despite the increasingly escalating prices of the good stuff, and the fact that some quality vintages can be opened after 100 years (“Château Mouton 1982 is considered to be a 100 year wine,” notes Hartnett), it is ultimately designed to be drunk. Indeed, Hartnett recalls drinking a €6,000 bottle of 1959 Château Margaux at a client dinner. The very fact that people want to ultimately drink the investment means that it’s a diminishing asset. If anything the output of the Bordeaux region can’t keep up with the demand from growing markets of millionaires in Asia and Russia.
“2000 was an excellent year and Lynch Bage produced 20,000 cases,” explains Jessica Lavin. “Now in 2009, about half of those cases have been consumed. So it’s a constantly shrinking pool and that pushes the price up over the years. It’s not as risky as you might think. It’s not like they can reproduce the 2000 vintage. It’s been produced and more is consumed every year that goes by.” But who decides what constitutes a good year? 2000, 2005, 2009 are all regarded as the best harvests of the past decade. This information is determined when the world’s wine buyers and wine critics descend on Bordeaux in the spring/summer months to taste the new batch straight from the cask.
The most powerful man in the world of wine is US critic Robert Parker, whose nose is insured for $1 million and whose palate is so trusted that the world’s wealthy are said to purchase their expensive booze according to his “Parker Points” (delivered out of a hundred).
While 2009’s wine seems to be unanimously declared a success, 2008 was more controversial. “The weather reports weren’t looking great,” says Lavin. “But they then had a very good weather spell around the harvest – a very dry September – so the grapes were in a good condition. When Robert Parker tasted the vintage in spring 2009 he gave it really good reports comparing it to 2005 and 2000, but a lot of people disagreed. Our own fine wine director wasn’t mad about 2008 at all.”
The unanimously good reports for 2009 meant that prices have racked up to a minimum of €800 per case (2008’s cases sold for closer to €500) meaning that prices are rising to “challenging” levels according to James Nicholson.
“If you take the 2005 Bordeaux and the 2009 Bordeaux, we sold probably 10 times as much of those two vintages than we did of 2006, 2007 and 2008 put together,” he says.
Like any speculative endeavour, there have been peaks (2005-2007) and troughs (1998– 2002), but the experts insist that this is generally based on issues of quality rather than boomy hysteria, that it’s only tenuously linked to other markets, and that good vintages always appreciate over time.
If you want to invest, apart from needing some money – “A minimum of €1,000,” suggests Lavin, “and €5,000 if you’re taking it more seriously” – you also need a trusted agent. “There are a lot of fly-by-nights in our business,” notes James Nicholson.
“If you buy en primeur in 2009, for example, you won’t actually take delivery of that wine until late spring 2012, so you have a couple of years where your money is sitting with your merchant and ours is not a regulated business. If you buy stocks and shares there are a lot of financial stipulations and regulations. It’s different here so you need to be sure you’re dealing with someone reputable. In 2000 a lot of people were conned out of their money. That’s more difficult now thanks to winesearcher.com and liv-ex.com. Now when people come into us they have a good sense of what the prices are already, which is good for the industry.”
Nicholson observes that given the fall off in traditional investment prospects he’s seeing more people interested in wine investment.
“The thing is, if you invest wisely in wine you’ll see better returns than on any other investment,” he insists. But what if you invest unwisely? I ask.
He laughs. “Well, unlike stocks and shares, if things don’t go so well, at least you’ve got something to drink.”
“If you buy en primeur in 2009, you won’t actually take delivery of that wine until late spring 2012, so you have a couple of years where your money is sitting with your merchant and ours is not a regulated business
