INVESTING IN FINE WINE IN 2019

"Never spare the parson's wine nor the baker's pudding" - Benjamin Franklin

Wine belongs to the rare luxury collectibles, where prices are not directly related to the stock market. It is assumed that the rates are driven by passion, where those who invest, adore investing in wines. 

The key drivers for fine wine investment are social media, price, experience, customer engagement, perceived value and involvement of communities. 

Global Wine Trading 

Digital marketing and online trading in wines is putting forward authenticity, offering deeper awareness on products, and providing opportunities to a wider buyer segment to get a start in this luxury segment. In the past, wine market was dominated by scarcity for a brand.  It was a collectors’ market where the only person with a case of classic old wine could set the price pretty high, and the rates exalted when the wines grew older. But the new wine trading platforms, allow rates to fluctuate, mostly on demand, more like the stocks and bond markets. 

Global Fine Wine markets

The 28 members of the European Union are the biggest markets for U.S. wines, which accounts for $553 million in retail sales.  The Global Trade War after the G7 2018 summit will affect wine sales from U.S.  The key importers of wine in the world are the US, the UK, Germany, France and China. The new market of China is expected to record a growth in sales by 15 per cent and the US market report will show a growth of 2 per cent in wine investment in 2018. 

The IWSR Drinks Market Analysis data show global alcohol consumption rose in 2017 by 8.3 million gallons as compared to 2016.  About 66 billion gallon of alcohol was consumed in the year, where beer consumption exceeded all the other alcohol sections. 

Merchant predictions of Fine Wine 

As per Liv-ex survey, which was conducted on 440 members, the respondents expect Liv-ex Fine Wine 100 Index to gain 3.7 per cent in the year, where 75 per cent believed the market will rise and 76 per cent claimed Burgundy 150 will be the best performing wine.  

The drivers of fine wine market

"Now wines are wonders; great wines are magical; and winemakers are mad. Like horse fanciers, they are always trying to improve the breed."  - William E. Massee
 

The wine market is driven by the retiring baby boomers – the largest native population of the US, that were first to demonstrate their fondness for wines. Boomers are now retiring, or are reaching retirement. They are consuming less wine and changing their spending behaviour on wine.
 
Gen X is next leading consumer of fine wine but they lack capacity and willingness to buy luxury wines. With early employment and high wages, they are at the top in spending and their consumption continues to grow, which can surpass the baby boomers. 

The Millennials are interested in substitute spirits and beer. They are price conscious and hence, avoid high –priced luxury wines. 

Tracking Fine Wine market 

Liv-ex members expect the Fine Wine market to rise in 2018 and the market predictions, according to the results of survey conducted in March 2018 by Liv-ex, found the respondents expect a gain in price in the range of 7 to 16 per cent. 

Liv-ex report May 2018

Liv-ex report show May 2018 was most active month for Fine Wine, since 2011, as the activities increased 38 per cent in traded value as compared to previous year. 

Bordeaux trading increased from 60 per cent to 66 per cent of the total value, and First Growth increased the market share from 19 per cent to 32 per cent. 

Other active wines were Haut Brion 1989 and Latour 1982.  

Burgundy market share rose to 16 per cent. 

Bordeaux Legends sub-index rose 3.4 per cent in May, where the Liv-ex Fine Wine 50 and the Liv-ex 100, gained 0.3 per cent and 0.5 per cent respectively.

How to begin in fine wine investment?

Today, investing in fine wine is becoming more like investment in stocks and shares. The new markets of fine wine are equipped with technological advanced trading platforms and tools to help invest. To those who want to know how to begin in wine trading, should try to gain knowledge about such items and other desirables to protect themselves from market’s ups and downs. 
 

How to track rates – Fine Wine Prices?

Wine prices are determined by characteristics such as ratings, vintage or ranking. Fine wine may not provide attractive risk-return but improve overall equity portfolio through diversification. 

Wine rates can be tracked at Liv-ex Fine Wine 100, and there are dozens of wine estates or châteaux for investment purpose.

Different types of wine investment 

Buying vineyards or building a collection from an auctions

Wealthy investors can own a vineyard directly, or build a collection of some of the finest wines, purchased from auctions or the producers. 

Self owned fine wine

Fine wine can be bought from producers in wooden cases, and it can be stored tax free at UK storage facilities. {It is a ‘wasting asset’, which has a predictable life of 50 years or less, and a gain on wasting asset is exempt from ‘Capital Tax’ (except in conditions when capital allowance is claimed for it).}

Wine bonds

Wine bonds are another way of investing in wine, which does not require VAT or duty to be paid. (VAT or duty is paid only when the wines are physically stored at HM Revenue & Customs approved warehouses.)

Wine funds 

Wine fund is the way of diversification where investment grade wines are bought from secondary market rather en primeur (before bottling). Most wine funds are unregulated, only available to wealthy or sophisticated buyers.

Wine funds operate like private equity funds, where investors buy specific grade wine and get returns after the completion of terms (such as five years). These funds charge 1.5 per cent management fee and performance fee up to 20 per cent. 

E.g. Cult Wines operated funds where separate individualized actively managed portfolio of fine wines for desired duration is offered. 

Wine enterprise investment scheme

Wine enterprise investment scheme offers investment in small wine companies instead of bottles of wines.    

Investing through a broker 

Traditional method to investment in wine is through a broker who helps in building a tailored investment portfolio as per market condition. Wine is an illiquid investment, and one need to seek advice from brokers to invest in the best as per market conditions. 

Broker charges fees at both buying and selling phase. A minimum of US $10,000 can be invested and price up to US $50,000 offers opportunity to get diversified portfolio in fine wine.

Wine storage 

Investment grade wine requires proper storage. Most investors hold wine in warehouses, or stores at an annual charge. Storage can be independent, or at some specialist bonded facility regulated by HM Revenue & Customs.  

Fine wine Investment rules 
 
The key factors which determine the price of wine is – brand, vintage, availability and points (or parker). The rules to invest in fine wines are - 

1.    Build a portfolio in fine wine - The predilection for specific flavour or style should be avoided. One should not be driven by prejudices to buy specific vintage bottle of choice.

2.    Buying quality and less - Buying less is better. Buying quality and less is better than buying more because the storage fee is high.

3.    Build relationships - Try to build relationship with companies trading in wines.

4.    Buy En Primeur -If you are unable to get wines at discounted price, buy En Primeur. (En Primeur provides an alternative to invest in future, where the wine is bought in barrels, two to three years, before its release.  These days En Primeur can be bought online through a bond, or one can take its delivery at their place. )

5.    Pay for older scarcest - Buy the best quality and in original packaging to add quality to your collection. Be ready to pay for older scarcest brands and try to diversify in brands.

6.    Store wine under single company - It is advised to manage and store wine under single company, where the wines are insured and valued accurately.