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The fine wine market is estimated to be worth between £1-2 billion a year. The definition of fine wine being collectible wine which can improve with age and become tradable in a secondary market.
This may not be startling news to many as wine has long been recognized as a tradable opportunity. The value of a case of twelve bottles stored correctly, often matures rather well when set against FTSE 100 prices. With global demand outstripping a very limited supply, the value of the top 600 wines has climbed by more than 300 per cent over the past five years. {mosgoogle}
As with all investments, risk is a factor. Choosing what to buy and where and when to buy it, requires careful consideration. The question of when to sell has also become more complex as an increasingly speculative market means fine wine should no longer be seen simply as a long-term investment. However, these obstacles are overcome daily by collectors and professional wine traders following basic trading principles.
When deciding what to buy, I would always advise developing your own knowledge and taste, trust your own judgement and take careful advice from people in the industry. Buy the best, in the best vintages. Stick to first and “super” second growth Bordeaux, Burgundy from Domaine de la Romanee-Conti and other top growers such as de Vogüé, Lafon, Rousseau and Roty. You should also take a look at the “new classics”. These include: Penfolds Grange from Australia, Sassicaia from Italy, Vega Sicilia from Spain, Opus One, Dominus and Ridge from California. Port from Taylor’s, Graham’s and Fonseca has also proved a sound buy over the years.
Investors may be attracted by “boutique” wines, which have fetched the highest prices. Some have a tiny production of just a few hundred cases. Le Pin from Pomerol in Bordeaux or Screaming Eagle from California fall into this category. Here, I would strongly recommend consultation with an expert before purchase, as prices are often astronomically high and can be volatile.
Best prices of fine wine are to be found at release (en primeur) or as early as you are able to buy, after assessing that a wine is of the very top quality. If buying from a merchant en primeur, be sure to check its credentials. Wines will not be ready for shipment for two years. This wait may be a long one if you are worried about the solvency of the company. Be very careful of so called “wine investment companies”, often they are run by rogues and prices are uncompetitively high, leaving little room for value growth.
Whilst the popularity of “boutique” wines has resulted in the market becoming more aggressive, I would still recommend a medium to long-term view. Investors should usually expect to hold on to wines for 5 to 10 years before realizing a significant profit. Appreciation in fine wine prices is of course susceptible to global economic factors, in line with more traditional investments on the Stock Market. However, as wine drinking and collecting continues to grow, there is an inevitability about the growing scarcity of the best. Scarcity, maturity and a good write up by a top wine journalist are the driving forces for value, watching these three is not that complicated.
Investors in fine wine must also invest in appropriate storage conditions. It is probably true to say that nearly one third of the mature wines I see for potential sale are not fit to be sold. Poor storage, shipping or handling is a common problem. Wine for investment, if you do not have a spacious, cool, damp, dark cellar, should be bought and stored in bonded or tax warehouses, to avoid any duty or local taxes until it is removed. Such warehouses offer first class storage conditions and insurance for a cost of approximately £7 per case a year.
Once identified, wine may be bought through an auction house, merchant or on the internet with uvine.com. All offer an impressive choice but commission levels vary. Auction houses charge up to 10 per cent on the seller’s side plus 10-15 per cent on pure brokered deals and 25-30 per cent if they hold the stock themselves. uvine.com offers the lowest commission rate in the world, a flat 3.5 per cent charge to both buyer and seller.
Having established the best price on the market, no mean feat in itself, investors should be aware that transactions are not completed overnight, the chain from grower to broker to merchant to shipper to a UK merchant can at times be rather long. Again, I believe the online stock exchange provides the solution. uvine.com matches buyers and sellers at an accurate price and a trade can be confirmed immediately.
Successful investors are invariably those who know their subject and make sure they enjoy drinking a few good bottles regularly. If the worst comes to the worst and the market is not appreciating the value of a particular wine you hold, I’m sure a few friends will.
Finally, the Inland Revenue have a firm view on taxation of profits from sales you’re your cellar. Generally the UK Tax regime applicable to investment in wine is benign. If you have set out to trade for profit and carry out regular trades, you may be deemed to be a trader and subject to income and capital gains tax. If on the other hand a sale is a clearance from a cellar built up over a long period, any benefits are generally deemed not to be liable, with the benefit of being regarded as a wasting asset on £6,000 property exemption.
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