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Investing in wine

INVESTMENT GUIDE: Tim Bradshaw passes on what he's heard on the investment grapevine
May 14, 2008

Like property, commodities and equities, wine has had a strong run over recent years. Some bottles have tripled in price since 2005. So, naturally, there's concern that with the recent stock-market turbulence and its impact on City bonuses, wine might also be hit. Some pundits have forecast that the recent market falls could see wine prices fall by as much as a third as slightly less rich City workers liquidate their cellars. For new entrants to wine investing, that may create a good point of entry to what has been a seller's market.

Wine makes a strong defensive asset in such times of uncertainty. Diversification of investments is always important, and apart from the indirect effect of high earners suddenly cashing in luxury items, wine prices aren't hitched to the stock market. Unlike equities, a case of Bordeaux has fundamental laws of supply and demand increasingly working to its favour. Vintages are, by their very nature, one-offs that can never be recreated.

"If there's a recession and interest rates go up, wine prices will go down," says Jamie Hutchinson, who runs independent London wine store The Sampler. "But the asset has an underlying value and a finite supply so values are relatively well underpinned." That said, he doesn't recommend betting a mortgage or pension on wine.

Joss Fowler, of wine merchants Berry Bros & Rudd, is more bullish. "I don't see any reasons for [rising prices] stopping," he says. "It's a luxury, aspirational good. Fine wine has the capacity to last for 20 to 30 years.” That means it has time to recover its value in the event of sudden falls, the last of which was in 1998, when at their most extreme prices tumbled 40 per cent. "If the price goes through the floor, my advice is to hold on to it because the price invariably will go back up."

BUYING

Few serious wine investors stray beyond the top 20 or 30 chateaux of Bordeaux. Mr Hutchinson says that the top eight have historically shown the lowest price volatility and greatest liquidity. David Hesketh, UK managing director of Laurent Perrier and a Master of Wine, says that one common characteristic wine has with any other investment is the importance of good research. "You need to find a good vintage that's maybe been underrated, which with a bit more time will see its value rise," he says.

That's harder to judge when buying a wine "en primeur", or before the wine is bottled. Buying en primeur allows the cheapest prices, but seeing how a vintage evolves over time is an important determinant of its price, so buying en primeur can be risky. The 2000 and 2005 vintages were particularly good, but 2006's offer en primeur was so expensive as to make 2000 seem relatively cheap, making the latter look a "great buy", says Mr Hesketh, warning that the 2006 en primeur is particularly risky given the uneven weather.

After the first tranche of a vintage is released, a reputation can quickly be established and prices can rise pretty swiftly. But getting in early requires a good relationship with a reputable merchant. Having a merchant store your wine is also important for proving the provenance of a wine to potential buyers, who want to know their new four-figure investment has been well looked after.

The other risk of buying en primeur is that you are banking on the merchant being in business two years later to deliver it. The wine market is unregulated, so investors need to watch out for less reputable traders.

Even so, wine is a more reliable investment today than ever before. Advances in technology are making for more consistent vintages, in spite of the weather.

However, Mr Hesketh warns against raising expectations that current vintages will appreciate as much as older wines. "Premier Grand Cru of 1982 would fetch a serious amount of money," he says. "But that was before wine became a fashionable investment."

New interest from outside the traditional buyers of America and Europe, such as Russia and China, has pushed up prices at the very top end of the market, raising the starting stake that most investors need to buy into the highest-grossing parts of the market. In fact, experts advise targeting a total investment worth at least £10,000, buying several different cases of quality vintages, which can cost upwards of £2,000 each, and holding onto them for at least five years. "If you can't put away £5,000 a year, you're wasting your time, in my opinion," says Mr Hutchinson. Annual returns of 15 per cent are "not unreasonable", says Mr Fowler, though he notes that instead of a dividend, wine investors receive a storage bill each year.

PRICING

Valuing your investments' current market price can be tricky, too. Price guides in the back of Decanter magazine aren't always updated as often as they might be, while online services such as Liv-Ex and Wine-searcher.com are aimed at merchants.

At first, prices are largely determined by the reviews of Robert Parker, author of bi-monthly newsletter The Wine Advocate and owner of the 'million-dollar nose'. "If you're honestly buying for investment purposes, you shouldn't trust your own palate," says Mr Hutchinson. Robert Parker is due to publish his final bottle verdict on the much-lauded 2005 vintage next spring. This will coincide with the arrival of the first bottles into England, "so we could see some speculative trading and some price movement ahead of that", says Mr Fowler.

A vintage's price lifecycle will see an initial scramble once the pricing is released for en primeur, followed by a period of little trading while the wine is bottled, before it is released to buyers. Then two or three years after the en primeur release date, Robert Parker releases his first set of scores (a rerating often occurs a couple of years later). By this time, buyers have their bottles, liquidity increases and the price starts to move. But it can then go quiet again for up to 10 years before the wine starts to be drunk. The lower-rated 1996 vintage are now starting to be consumed, for example, and has seen prices double as the wine is better than expected.

BORDEAUX IN PROFILE

RISK LEVEL: Medium.

BEST TIP: Bordeaux Chateau

Mouton Rothschild, vintage 2005. One of the all-time great vintages, but cheap relative to other chateaux such as Lafite or Latour, as well as being a chateau whose reputation is 'on the turnaround' over the next five to 10 years.

AVERAGE RETURNS: 10 to 15 per cent a year.

Top eight bordeaux chateaux:

• Lafite

• Latour

• Margot

• Mouton Rothschild

• Haute Brion

• Petrus

• Ausone

• Cheval Blanc

RECOMMENDED INVESTMENTS:

• 1995 Lafite

• 1996 Haute Brion

• 2005 Mouton Rothschild

• Good value to be found in 2004, 2001, 1989, 1988, 1983

CLASSIC VINTAGES INVESTMENTS:

• 1945 Mouton Rothschild

• 1961 Latour

• 1900 Margot

• 1989 Haut Brion