Wine Investment – Part 1

by John Stimpfig

This page
Investment tips, Top ten investment brands, Top ten traded wines. 10 great investment wines

On other pages
Part 2:
Why invest in wine?
What are the potential disadvantages of investing in wine?
What is an investment wine?
Which properties and regions to consider
Which vintages?
How much do I need to invest?
Do's
Don'ts
En primeur vs older vintages
Tricks of the Trade
Where to buy?
Where to sell?
How do I value my cellar
10 great investment wines (and 10 not-so-good)
Contacts
Useful websites
Glossary

Part 3:
Investing in the Rhone (fully updated January 2009)

Part 4:
Wine Investment Archive: 2006-2007


UPDATED DECEMBER 2008
This section has been fully updated by John Stimpfig, 18 December 2008

For most of this year, the wine investment market remained largely immune from the credit crunch. The Liv-ex 100 Index continued to rally and rise from January through till the early part of the autumn.

After a small drop in September, the floodgates finally opened in October when the Index experienced its biggest ever monthly fall of 12%.

November also saw a further 5% drop with the result that the Index has lost over one fifth of its value since the summer.

Without question, the first and biggest casualties to date have been the blue chip 2005 clarets. Firstly, they had risen much faster than other vintages and many felt they were overvalued.

Plus they were the most liquid vintage on the market. So in the dash for cash it was perhaps little surprise that some are now trading at a significant discount to their June prices. Some are down by a third in value.

Since then other vintages have also been dragged down including the 2000s, 2003s, 2004s followed in November by more mature vintages such as the 1995s, 1990s and 1989s. The result is that the Liv-ex 100 Index is now down by 13% compared to the start of 2008. However, it is worth bearing in mind that the FTSE is still down by over 30% in the same period.

Where do prices go from here? Many wine investment professionals remain confident that the market fundamentals remain extremely sound despite this latest blip. Moreover many are tentatively predicting that the market will experience a rally in the first quarter of 2009.

One obvious reason for this is new availability of stock on the market and prices so low there are some very good deals to be picked up, particularly if you are buying UK stock in dollars or euros. Meanwhile many investors, including the major wine funds, believe that prices are about to or already have bottomed out now and that January and February will provide some un-missable opportunities to go back into the market.

However, the market could still be in for a bumpy ride, given the uncertainties of the broader economic landscape. Moreover, the fine wine market's position is unlikely to be eased by next year’s (2009) Bordeaux en primeur campaign which is could be yet another very tough sell for all concerned.

Top Ten Investment Tips

1. Only buy your wines from reputable, well established merchants or suppliers. This particularly applies to en primeur purchases. A small number of merchants have gone bust, leaving consumers unable to get their money back or receive their wine.

2. If you are buying wine from a wine investment company, do not pay an up front commission fee. Some specialist investment companies have been known to charge 25%. Similarly, do not deal with anyone who uses cold calling or strong arm sales tactics. Do not deal with anyone who operates via a PO Box. Be wary of anyone whose prices are too low or too high.

3. Keep your wines in a professionally managed bonded warehouse. This can be done independently through your own account or through your merchant and will ensure that your wines are kept in good condition, which is vital for their resale value. It also means you will avoid paying VAT and Duty when you re-sell your wine. However, do compare storage facilities and prices as they can vary quite significantly.

4. If you are dealing with a wine fund or specialist wine investment company, look at their track record. How have their funds or porftolios performed historically. Also check what charges and commissions are involved.

5. If you are buying independently for a capital return, stick to investment grade, red Bordeaux from the best vintages. Bordeaux makes up over 90% of the wine investment market. Bear in mind that generally, the back vintages offer greater investment potential than more recent vintages. (See Top Ten Investment Brands below.)

6. When you are buying wine for investment (or drinking), always compare prices and shop around. A good way to do this is on www.winesearcher.com

7. Rather than buy a large number of inexpensive cases, it makes more sense to buy a small number of high value wines. Otherwise, annual storage charges will significantly reduce your profits.

8. Generally, wine does not attract capital gains tax as it is considered a wasting asset by the revenue.

9. If you are buying wine, do not invest more than you can afford to lose. Wine has proved to be a resilient asset class over the long term, but recent events have shown that wine prices do go down as well as up. Wine should only represent a small part of your overall investment portfolio.

10. Champagne has provided some very good returns to investors over the last two or three years. At times it has even outperformed top class claret. However, only stick to the top prestige cuvees such as Krug Vintage, Roederer’s Cristal and Dom Perignon. Also bear in mind that some consider Champagne to be a more risky investment compared to red Bordeaux.

The Top Ten Investment Brands

Which wines should you be focusing on for your investment portfolio? One simple and effective way of looking at this question is to consider which wines were most traded in 2008 on the Liv-ex Fine Wine Exchange. This global on-line exchange comprises more than 200 wine trade members and is a invaluable barometer of brand as well as demand and prices. So who were the most sought after labels last year?

As ever, Brand Bordeaux came top of the pile. And as ever, the usual First Growth suspects led the field, with all five Premier Crus coming top of the pile, just as they did in 1855. In 2008 though, Lafite was the leading performer in terms of trade by value. It accounted for an astonishing 17% of all trades on the exchange, five per cent ahead of its nearest rival, Chateau Latour. Moreover, when you factor in that its second wine, Carruades de Lafite, that total rises to more than one fifth.

Underlining Bordeaux’s strength in depth is the fact that it takes nine of the top ten places in the Liv-ex League table, with only Burgundy’s Domaine de la Romanee-Conti sneaking in at number 10.

The top ten traded wines (by value) on the Liv-ex Exchange in 2008

Chateau Lafite-Rothschild

Chateau Latour

Chateau Margaux

Chateau Mouton Rothschild

Chateau Haut-Brion

Carruades de Lafite

Chateau Petrus

Chateau Cheval Blanc

Chateau La Missin Haut-Brion

Domaine de la Romanee-Conti

2005 First Growth Price falls from July to November

Case prices in sterling taken from Liv-ex in December 2008

Chateau July November
Ausone 24000 19500
Cheval Blanc 7700 6,200
Haut-Brion 7775 5650
Lafite 8500 6750
Latour 9950 750
Mouton 5650 4595
Petrus 36000 28343

10 great investment wines (including their investment peaks in June 2008

(prices in sterling)

Label Vintage Nov 06 June 08 Nov 08
Latour 1996 3900 5950 5500
Lafleur 1982 22500 24900 27500
Mission Haut Brion 1982 6400 7800 6660
Lafite 1986 5025 8500 7800
Lafite 1996 4200 7400 6000
Ausone 2000 9800 18270 15500
Latour 1982 9700 14500 13500
Lafite 1995 2320 3900 3650
Lafleur 1990 10500 13,596 11,500
Margaux 1996 3645 5250 4794
Margaux 1986 3479 4000 3966

Figures supplied by liv-ex.com

Back to top

On other pages:

Part 2:

Why invest in wine?

What are the potential disadvantages of investing in wine?

What is an investment wine?

Which properties and regions to consider

Which vintages?

How much do I need to invest?

Do’s

Don’ts

En primeur vs older vintages

Tricks of the Trade

Where to buy?

Where to sell?

How do I value my cellar

10 great investment wines (and 10 not-so-good)

Contacts

Useful websites

Glossary

Part 3:

Investing in the Rhone (fully updated January 2009)

Part 4:

Wine Investment Archive: 2006-2007

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