At DISCUS we are always on the lookout for interesting on different investment concepts or asset classes our readers can pass on to their clients. This week we have a recent article from LGT Vestra ‘Is wine for investment or enjoyment?’ written by Jonathan Marriott, Chief Investment Officer.

Personally, I have only ever associated wine with enjoyment, however the following article looks to see if there are correlations between wine and the financial market as a whole. Pour yourself and glass and find out…

 

Is wine for investment or enjoyment?

I first became interested in the potential to invest in wine at school; one of my teachers was interested in wine and showed us the cellars in the oldest part of the school where he had a personal collection stored. He told us that as a young man he had visited one of the oldest wine merchants in London: Berry Bros. & Rudd. He was advised that no one would ever pay more than two pounds for a bottle of claret. In front of us were two cases of Mouton Rothschild 1945, one of the finest vintages ever and by that time (circa 1973) worth close to £100 a bottle. I was determined to learn more.

The teacher who had owned the wine died some years ago but if his family still have it, Fine and Rare Wines in London offer a single bottle for £10,200. At University I probably tasted more wine than was good for me and in my early years in the City passed the first two wine trade exams, but in the end I decided to drink wine for pleasure rather than for profit. Over the years I have kept my interest up but rarely profited from it financially.

There is limited supply of fine wine and the quantity available is reduced as it is consumed. Classic fine red wine ages well, as do some sweet white wines, but even the finest wines will eventually fade. However, this may be a long time and in general people will pay more for older vintages, particularly those from good years. A client of mine once had a collection that was “particularly strong in pre-Phylloxera wines”. Phylloxera wiped out most of the vines in Europe in the late 19th Century and since then, vines have been grafted onto disease resistant root stock.

 

The value in wine

When it comes to investing, there are cases where lesser known wines spiral upwards in value but the safest way is to stick to the best wines from the classic regions of Bordeaux and Burgundy. Port has risen steeply in value recently and the very best from Spain, California and Australia may also be worth considering in future. In 1980, I bought two bottles of Quinta do Noval Nacional 1963 for £25. ‘Nacional’ indicates that a wine has been made from vines that survived the Phylloxera Plague and are un-grafted, consequently making these very rare. Since 1980, retail prices have moved up about four fold, so £25 in 1980 adjusted for inflation becomes £100 today.

If that had been £25 invested in the UK equity market, it would be worth £732 today after dividends have been reinvested. However, these dividends and gains would attract tax reducing the return. In the UK, wine is deemed to be a wasting asset and as a result for a UK resident it is exempt from tax unless you are a trader. I sold a bottle of my Quinta do Noval Nacional 1963 this year for £2,000 despite a torn label, so my bottle of wine was a much better investment than the stock market. Unfortunately for me, I bought two bottles and one was drunk soon after I purchased it.

 

The Liv-ex Fine Wine 100

The Liv-ex Fine Wine 100 is a UK benchmark which tracks the price of top quality wines from around the world. This has risen over 200% since it started in July 2001. However, as with any market, it has suffered the vagaries of market sentiment and dropped 35% between 2010 and 2014. Wine being used to buy influence in China and the clamp down on corruption may have impacted the market at this time. Wine is an international market and the devaluation of sterling has boosted the index since the Brexit vote last year. There may be a case to say that prices should move with global consumer sentiment. As a result, I have tried to look for correlations with other investment markets. Curiously between 2002 and 2012 the index correlated closely with Gold miners as the chart below shows. However I suspect this is entirely spurious.

Wine carries no cash flow and so comparison with financial investments is thus not really valid. Art or classic cars may be a better comparison but unlike wine these can be enjoyed without consuming them. For myself, I chose to go into financial markets and decided that wine would be purely for pleasure.

Do agree that wine should purely be for pleasure and not investment? As always, we enjoy hearing your thoughts and opinions, so please feel free to comment in the space below.

 


This article was created for the DISCUS website based on the views of Jonathan Marriott, Chief Investment Officer of LGT Vestra. You can find out more about the LGT Vestra discretionary investment services here ›