Pros and cons of buying fine wines

The returns on fine wine have been over 180 per cent in the past decade (as per Knight Frank Fine Wine Icons Index). Rare wines can return on an average up to 13 per cent a year. Fund managers believe allocating $100,000 to wines in UK can provide high performance assets, although, the returns reduced from 26 per cent in 2016 to 13 per cent in the current year. The secondary market of these wines is of value $5 billion and the total value of the wine market, globally, is $302 billion.  There are various pros and cons of investing where the buyer needs to have proper knowledge of the different types of luxury wines and he can look for some of the popular brands at Liv-ex Fine Wine 100 Index.

Some of the best brands include the French wines e.g. French Bordeaux -which is one of the premier names and can be traded at top markets. In 2017, investors were mostly buying Bordeaux and Burgundy- allocating 40 per cent to these where burgundy was 20 per cent, but Bordeaux sells better. There are many bottles categorised as vintage but it is difficult to identify, and critics do not give good ratings for vintage as the risks are higher and the increase in price is up to 40 per cent, which is possible only on holding the assets for a few years of investment.

Some invest in barrels that can be exceedingly risky as it requires more investment towards storage. Some of the leading investors keep wines of hundreds and millions dollars in storages for years, which, typically, contain 65 per cent Bordeaux and 15 per cent Burgundy.  50 per cent of wine investment is made by UK customers and Asian make up for 40 per cent of the bulk, while, the rest of world and America accounts for 10 per cent of the buyers.  Wines can be sold at restaurants and some new bottles from Italy, California and Rhone Valley are also very famous at hotels.  Some of the prices have trebled since 2003 at the index where highest growth in prices was reported before June 2011.

With the new investment boom from Asia – Hong Kong, Singapore and China, Cult Wines have opened offices in these regions and offer top holdings at $304 and $621 per bottle. One of the most famous is the Domaine de la Romanée-Conti priced $17000 a bottle.

Investors should make sensible allocation of funds and should not invest in risky ventures. Some buy it as a hobby and diversify into other classes such as luxury cars or watches. The bottles need proper storage to ensure security, and temperature control is necessary to prevent loss of value and taste.

Storage can be done under bond to avoid paying the duties, and stored wines can sell for higher prices. Extreme exposure to temperature changes or poor storage can lead to damage. These can be stored in bottled boxes or individual cases, where some of these cases lead to loss of value. Some get professional storage facilities to avert loss of quality.

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