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How to Make Money in Fine Wine

Raising a glass to the asset that beats stock markets and commodities.

In 2015, the market for fine wine had its best year for five years, and gave a better return for money than copper, gold and the FTSE 100 share index. Wine has had a London exchange since 2000, but the headquarters of Liv-Ex are about five miles south of Paternoster Row, near Battersea Park. Wine merchants monitor five main indices, including the Liv-Ex Fine Wine 100, a monthly calculation of the fluctuation in price of the 100 most sought-after wines in the world.

Most of those 100 are wines from Bordeaux, because of the heritage and consistent quality of wines from that region of south-west France. Wherever wine is spoken of in investment terms, the talk will be mainly of Bordeaux, where 10,000 producers make 850 million bottles per year. Some fine wines come from other regions of France, including Champagne, and from Italy. Would-be wine investors have traditionally bought via wine merchants who have long-standing links with vineyards and fine wine traders, or, less commonly, bought at auction (Christies holds about 20 wine auctions annually in London, Hong Kong, Shanghai and New York). In recent years other methods have become available.

Wine funds increased in number in the middle of the last decade on the back of a flood of Chinese money into the fine-wine world. The subsequent bubble and its bursting saw more than 50 UK-based wine funds go under and, according to a BBC report in 2012, take more than £100m of investors’ money with them.

“The wine funds that are still around are august and serious,” says Christopher Harvey, executive manager of Noble Rot fine wine investment. “Those that went bust were started by people who knew about investments but knew nothing about the wine industry. It was quite a difficult time.”

Prices are gradually going up again, having undergone, as they say in the investment world, an adjustment

Harvey prides himself on knowing all there is to know about the wine industry. Noble Rot is a syndicate established in 2004 to buy investment-grade wine and manage portfolios for its clients. As with the clients of a wine merchant, the syndicate’s clients own the wine bought on their behalf – a privilege not afforded to clients of the wine funds, who are merely investors. And, as with merchants, the syndicate deals directly with châteaux and wine producers, and in particular the négotiants, an influential group of dealers who buy about three quarters of Bordeaux wine and negotiate with agents in over 160 countries.

Harvey says that the benefit of buying through his syndicate over a merchant is an edge on price, because merchants tend to also be retailers, with the overheads of that side of the business to cover. “The key thing,” Harvey says “is that if you’re going to invest in wine, find somebody that you know can be a reliable advisor, a broker or a merchant or whatever. Merchants like Berry Bros. & Rudd, Justerini & Brooks and Corney & Barrow know what they are doing. It’s about finding someone who you can rely on and trust, who can provide you with regular recommendations.”

Fine wine does not incur capital gains tax, and all fine wine bought for investment is stored in a bonded warehouse, which means there is no VAT to pay. “And because it’s in a bonded warehouse, it provides a sort of provenance of the wine,” says Harvey. “If the wine is released from bond, you pay the duty and the VAT, then it loses its provenance, and nobody knows where it goes.” So do investors have to think very hard about sampling their assets? “Some of our clients are keeping it to drink,” Harvey says.

And what of the 2015 vintage from Bordeaux, due to be released in April? “It looks as if it’s going to be the best vintage since 2010,” Harvey says. “Really very good, not necessarily great – but we don’t know for sure until they come out. We will advise our clients as to what is a good investment prospect. We’re looking at the quality and the price, and we do this by individual wine.”

Fine wine investment is rarely for the short-term. Harvey suggests that “potential clients should buy for a minimum of five years, preferably longer.” He also, as any good advisor must, explains that the value of any investment can go down as well as up. “For example, 10-bottle case of Château Lafite 2010 vintage, released in 2011, was about £12,000. That has since lost 50 per cent of its value. It will probably recover its value in the long-term. The 2014 vintage released last year was good; 2015 is supposed to be a bit better.

“We don’t know what prices are going to do,” he continues, “but wine is doing very well compared to other commodities. Fine art is slowing down. Oil is having its difficulties. The classic car industry is being spoken of as having some issues. These are things that fine wine performance is often compared to, and of course the general stock markets. Fine wine at the moment is doing quite well and has been since the beginning of the year. Prices are gradually going up again, having undergone, as they say in the investment world, an adjustment.

“The top producers have great resources to be able to grow grapes in the vineyards in the wine regions, and you see these remarkable wines. One could argue about what is the real value of a bottle of liquid that comes from this, but that is not the point. There is a free market, and there is magic and romance. Wine really is an extraordinary thing.”