On the last day of 2010, Liv-ex published the results of the Liv-ex Fine Wine 50 Index. This indicator tracks the performance of 10 vintages of the 5 Bordeaux First Growths (Lafite, Latour, Mouton, Margaux and Haut Brion). For the first time in its history, it broke the 400 barrier, having been based at 100 in January 2004.
Fine wine as measured by this index in 2010 outperformed all other investment classes including gold and crude oil and made the S&P 500 and FTSE 100 pale in comparison. Even measured over 5 years time, wine easily shows the highest returns:
1 year 2 year 5 year
Liv-ex Fine Wine 50 57% 93% 269%
Gold 35% 52% 204%
Crude Oil 20% 97% 69%
S&P 500 13% 40% 1%
FTSE 100 11% 35% 7%
These figures have attracted a lot of attention from the media. In the past 3 years, it has also led to a surge in the number of companies that sell fine wine as an investment. Some good and some not so good. Whilst investing in fine wine is quite straightforward, you do need to know some of the basics.
Even if you don't want to familiarize yourself with the wines themselves, you do need to have an understanding of how the companies that help you to buy into fine wine operate.
Basically, you have 3 options:
1- Buying into a wine investment fund
2- Going through a fine wine investment broker
3- Buying directly from a fine wine merchant
Which option is best for you depends for a large part on how much guidance and advise you need. The first 2 options will mean you pay a substantial management fee and you will most likely also pay a performance based fee, but you will be taken by the hand. In return you get the expertise that will hopefully lead to a good return on your investment. The best funds and less so the brokers have the expertise to potentially make your portfolio do better than when bought yourself or when bought based on advise of wine merchants. At the same time, particularly the wine funds will be the most traditional and conservative in their pick of wines. A disadvantage of the funds is that you don't know nor have a say in which wines they buy. And therefore you're also unable to judge whether you pay a fair price for these wines.
What many people forget is that these fees are not the only costs you incur. The wine also needs to be bought and sold. You need to be confident that your supplier/partner (let's call them partner from here on) is able to buy and sell at competitive prices. You want to pay as close to market prices as you can and, on selling, your partner should be able to do so at the highest price possible.
This is where a bit of research is necessary. Most of the newly established wine brokers will not be able to purchase at the best prices. Some of the bigger and oldest wine funds will although the established wine merchants will score best on this. After all, this is their business - they buy and sell every day and have the network needed to do so competitively.
Selecting the right partner can make easily make a difference of 20% in purchase price and in the selling price. In total 40%! It's absolutely vital.
Whichever option you choose, please please do your homework. Check the prices of the wines you are being advised to buy. It's dead easy. Just go to http://wine-searcher.com It's the best way to gauge your partner's buying strength and to make sure you are not being ripped off.
This is just a first introduction into the do's and don'ts of investing in wine. I'm regularly writing and advising about this subject so please get in touch if you'd like to know more
Mark Schuringa is the MD of Ditton Wine Traders. http://dittonwinetraders.co.uk are London based Fine Wine Merchants, specialized in the best, investment grade Bordeaux. We have direct allocations of all the major wines. Our sourcing network is extensive.
Ditton Wine Traders strategy is to offer very competitive prices. This allows us to trade large volumes and get ever bigger supply of the most sought after wines. Essentially we are wholesalers, often supplying fine wine brokers. We do also offer advise on wine investment to private individuals and indeed are able to supply these wines without additional costs. Please visit http://dittonwinetraders.co.uk/invest.asp to understand more about wine investment.
Mark Schuringa also comments on news and developments in the fine wine market on his blog.
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