The deterioration of the global economy over the last few years has had countless repercussions. From the man on the street struggling to cope with the inflated basic costs of living, to the currency investor who has seen his portfolio demolished, it has affected everyone.
Despite the media climate of doom and gloom, for the perceptive and shrewd investor there are still opportunities to make money. The growth of alternative investments has been huge over the last five years, and whereas equity once dominated the portfolios of investors, it is now becoming more common to find commodities such as precious metals or assets such as fine wine featuring highly on the investor radar.
Joan Collins once famously said: “Age is just a number. It's totally irrelevant unless, of course, you happen to be a bottle of wine.” Time means everything in the wine industry and 2012 is an incredibly exciting time to invest in fine wine, often referred to as “liquid gold”.
Over the last five years, fine wine investment has delivered double digit annual growth of 66 per cent. However, this year more than ever, a unique set of circumstances have come together to provide the perfect conditions to consider investing in an asset class which has traditionally performed well in times of recession and yet is not generally understood by the average private investor.
Wine follows the ‘rule of three’ that is applicable to alternative investments. Firstly, and crucially, it is a finite resource. Each Chateau produces between 12 to 18 thousand cases per vintage, meaning that there is only a limited supply of each yield. Naturally, therefore, the more a particular vintage gets drunk, the more valuable the remaining cases become. Secondly it is tangible, you can put it in your cellar overnight and sleep safe in the knowledge that it will be there in the morning thus removing the risk of the turbulent equity markets. And thirdly, it will diversify a portfolio. In difficult and turbulent economic times, the best portfolios are diverse, avoiding the situation of putting all of your eggs in one basket.
In addition to diversifying your portfolio into the wine sector, there is also the opportunity for diversity within the wine investment market, with a number of Chateaux, vintages and stages (en primeur or in bottle) to invest in. This diversity is a rare opportunity in the investment world. Whilst gold is simply gold, and silver is simply silver, with wine you are given the selection of a number of options. For people with large amounts of funds to invest in, the Premier Cru, or First Growth wines, can cost around £10,000 per case, but for those with less investment capital, Second Growth wines, which are still of high investment quality, can be purchased for as little as £1-2000.
Those are the foundations that make wine a solid investment, what make it a great investment are certain conditions apparent this year.
American wine expert Robert Parker is the leading global authority when it comes to appraising the quality of wine and in particular his review of the investment grade wines of Bordeaux are much anticipated by the market. Parker’s scores grade the quality of wine out of 100 points, in which investment quality wines generally command a score of more than 90 points and the truly extraordinary rate between 96 – 100 points.
Wines are scored each year at en primeur stage (following the previous Autumn harvest); for example the 2011 en primeur tastings are expected imminently. These wines will remain in cask for up to three years and will then be tasted and scored again as they go into bottle. The 2009 vintage was scored at the beginning of March and Parker has determined that 2009 is recorded as the best vintage in modern times; awarding a record 19 Chateaux the perfect 100. These scores have a huge impact on the investment market and have already driven up prices as investors clamber for the finest wine ever made.
The effect Parker’s scores can have on the investment market are immense. In just 24 hours following Parker releasing his scores, the market value of the 2009 Bordeaux moved in excess of $100 million. When this is investigated in terms of individual Chateau, this effect is quite remarkable. The Cos d’Estournel for example, jumped up by approximately 35 per cent in three months, from £2,595 at the end of 2011 to £3,500 following the release of Parker’s scores. The Smith Haut Lafitte, meanwhile, nearly doubled in value overnight, increasing from a price of £700 pre-scores to trading price of £1,300 once the scores were released.
Equally history has a habit of repeating itself which further suggests that 2012 could be a very good year. Wine investment has only seen three corrections in the market; 1998, 2008 and last year in 2011. Following the first two corrections, what followed was two to three years of strong growth, meaning there is no better time than the present to enter the market.
Elsewhere, though the Eurozone remains locked in crisis, the BRIC countries continue to show impressive growth in particular in China, which is having a huge knock on effect on the wine market. China recently reported that its economic growth had slowed but was still at 8.9% in the fourth quarter for 2011. Indeed growth from the year as a whole was down from 10.3% in 2010 but still remains strong at 9.2%. The rapid growth has seen a significant amount of new wealth develop in the country, thus breeding a new affluent class who are unafraid to show it off. In recent years there has been a huge amount of fine wine consumed in China. The effect is twofold; not only is there a greater demand which drives up prices but also the more that gets drunk, the rarer it becomes which again impacts on value. Tax changes expected in India later this year could potentially instigate a boom in fine wine importation there too adding to the global appetite for an already finite supply, presenting a further significant opportunity for investors.
Fine wine is increasingly a valid investment option for the man on the street and more investors are turning to wine. What isn’t so well understood by the average investor is that some of the finest vintages can be bought for as little as £1-2000 per case with some of the “Super Seconds” emerging as superb investment grade brands. With all of the conditions mentioned above in place, the time has never been better for investors to move into the wine market for the first time, so why not dip a toe into wine this year?
Ultimately, if the world does end in 2012 (as some might predict!) then at least during the Armageddon you are left with a commodity that you can drink!
About the author
Peter Shakeshaft is the founder of Vin-X Limited, the fastest growing fine wine investment specialist in the UK.
Founded in 2010, Vin-X specialises in introducing private individuals to the benefits of investing in fine wine and helping clients access the potential of the fine wine market. With a team of professional stockbrokers and wine specialists, Vin-X maximise their clients’ investments by ensuring access to the most promising Bordeaux vintages available.
Peter is a leading expert in investment, with career highlights including growing a leading financial services company to over £100 million in sales to being a majority shareholder in a leading logistics firm. Through his businesses he has employed over 500 people.
Peter’s philanthropic ventures include being a Governor of a dyslexic school, Chairman of a Surrey environmental pressure group, building a nursery at his local school and being the Junior Chairman of his local rugby club. A keen sportsman, Peter enjoys skiing, sailing and rugby as well as being Chairman of the British Bobsleigh Association.