Uncorking the Fine Wine Market
Assistant Producer, CNBC
Investors looking for variation from stocks, bonds and currencies could try investing in good wine, which has provided good returns over long periods of time — but should beware of unprofessional advice in the area, analysts and experts told CNBC Tuesday.
"Wine has always been an important part of a rich man's portfolio," James Miles, founding director at Liv-Ex, the wine market's most prominent exchange, said.
It can be an attractive investment particularly because of its period-to-trade which is independent from mainstream financial markets. But not all fine wine is a safe investment, Jancis Robinson, Master of Wine and respected wine writer, warned CNBC.
"There are so many people who are relatively new to wine who are going around setting themselves up as experts on investment in wine and are spreading the complete myth that all fine wine is a safe investment. It's not," Robinson said.
"If wine's allowed to get much hotter than about 70 degrees Fahrenheit, that complex will cave," she added.
Wine investment does not often correlate with what is happening in the financial markets, Miles Davis, partner at Wine Asset Managers, told CNBC. "Long-term correlation numbers are actually extremely low," he added.
"Over the course of last year, the first four months after Lehman's collapse we lost over 17 percent of our asset value on our fund," Davis said. "In the following six months after that, we leveled out. The market gained equilibrium and since halfway through this year we've started on the turn again. We're probably about up six percent in the last couple of months."
Compelling Long-Term Trend
Wine Asset Managers' fine wine fund was up 4 percent month-on-month in August and the longer-term trends for wine investment are compelling: "It has produced consistently good returns over a twenty-year period," Miles said.
Ways to gain exposure vary, from investing with funds and wine merchants who often go through Liv-Ex, the wine market's most prominent exchange, to bidding at auctions that offer access to physical bottles of wine — but storage of wine is integral to maintain its value, experts say.
"Auctions tend to have things that you can't find in a store," Serena Sutcliffe from Sotheby's said.
A way to avoid the pitfalls of physically-owned bottles of wine is to invest in a fund, where the physical assets are held in professional bonded warehouses.
Davis suggests investors look to "proper asset managers" for guidance in the wine market. Super-returns are achievable following a correction, he added.
"The advantage of buying through a fund is that you're doing it with a professional. There's a high level of assurance that they're going to be buying it at the right price, and you're buying into economies of scale," Miles said.
According to vintners 2009 is expected to produce outstanding French wines. Favorable weather conditions have helped produce a bumper crop and good grapes.
"Demand is being very much driven from Asia, particularly Hong Kong and China at the moment," Davis said. "(Chateau) Lafite (Rothschild) has been the market leader this year. The Chinese demand for Lafite seems to be insatiable at the moment and prices of Lafite have risen between 30 and 60 percent this year, depending on vintage."
Red Bordeaux is the prominent wine to invest in as "production levels of Bordeaux far exceed other big labels," Davis added.