Interest in wine investment has grown markedly over the past decade. The apparent advantages are many: wine’s low correlation with traditional financial markets, comparatively low volatility and a history of delivering reliable returns. However, as somebody who is at core a wine lover, the idea of purchasing wine purely for financial return makes me a little sad. My own approach to wine “investment” is aimed at securing wines that I love today and believe may become unaffordable (or at least painfully expensive) in a few years’ time. One historically popular hybrid approach is to buy two cases of a wine, one for drinking and one for selling, ideally generating enough profit to cover your costs.
Points to Consider
Whatever the goal, anyone considering investing in wine should be aware of the challenges: one, unlike financial instruments or even real estate, wine doesn’t produce a series of cashflows. In fact, the cash flows in the other direction; considerable funds need to be spent on storing wine properly to maintain its value. If you plan to re-sell the wine, the standard goes way up (don’t imagine that a home wine fridge is sufficient). A bonded warehouse in London like Octavian Vaults or London City Bond is the gold standard for most tradeable wines; often a private individual wouldn’t have their own account, they would store with a merchant who has one. Expect to spend about £15 per case per year to store in these conditions.
Understanding the different investment products is also quite complex. Along with the list of property names (Châteaux in Bordeaux, or Domaines in Burgundy), each vintage needs to be considered individually. In Burgundy, each Domaine also typically produces several cuvees (aka “labels” or “wines” in simpler terms). Fortunately, there are an increasing number of online tools like Liv-Ex (the London International Vintners Exchange), a global marketplace for professional wine traders with useful price indices; Wine-Searcher (particularly a Professional account) is a great tool for determining individual wines’ prices; another data-driven tool, Wine-Lister, aggregates critics’ scores and past performance to generate a single score of a particular wine’s market potential.
The market is also, ironically, quite illiquid. Although Liv-Ex has a trading platform, it can only be used by professional traders so unlike equities, selling your wine is not as simple as pressing a button. There aren’t instruments like reputable ETFs that allow you to buy a “basket” of products that is easily tradeable. In lower-regulation markets like Hong Kong, there are plenty of merchants and even storage facilities who will help arrange fairly low-cost transactions for you, but whether you can achieve the price you would like for your wine (and how quickly) is far from guaranteed.
Finally, there is the concern around authenticity. Wines older than say 15 years old are less likely to have any sort of tracking mechanism and the paper trail may be incomplete. Even setting aside outright counterfeits, you need to be aware of wines that may have been stored poorly, harming their quality (according to wine authenticator Maureen Downey, many wines that are damaged during hurricanes in the US end up on the Asian market with suspiciously cheap price tags, which is why many professionals are wary of US import labels). If a price seems too good to be true, it definitely is.
Of course, you can avoid this problem by investing in wines directly from the châteaux where possible or en primeur from established negociants, but then you are paying up front for wines that may not be ready to drink for many years (in the case of en primeur, they’re not even in bottle yet). If you are investing in wine en primeur, you need to be aware that the contract for the wine usually exists between the château and the negociant – if the latter goes out of business before the contract is up you don’t necessarily have a way to claim your wine. In most cases, I recommend against investing in en primeur wines if you’re just starting out.
At this point you might be thinking that the best thing is to invest in a wine fund, which seems simpler because it’s managed for you by a wine investment expert. However, these are typically unregulated, may use creative methods to value their portfolios, will often require that you invest for a considerable period of time (say five years), have long redemption periods and may struggle to divest themselves of assets (i.e. wine) in a falling market. Some funds are so large that one of them deciding to sell a particular wine can tank that wine’s market price. On top of all this, fees are at levels that any hedge fund manager would salivate over: a 15% upfront management fee, or 10% commissions on purchases and sales are far from unusual (compare this to 0% commissions on many stock trading apps). Personally, I wouldn’t go down this track.
What I Would Do
As I say, my own approach to investing in wine has been to focus on protecting my future self from being priced out of the market. Looking at a resource like Liv-Ex, I can see clear differences in how certain regions have performed over the past five years. Price growth for the Rhône Valley and Bordeaux has been comparatively slow (and recent growth has been slow or negligible), while for Burgundy it has been astronomical. The first two are probably not going to suddenly become unaffordable (in fact, older vintages of Bordeaux have typically been less expensive than buying en primeur until the 2019 vintage), and Burgundy is arguably already too expensive, for me anyway. Instead, I’m focused on Champagne and Italy, two regions that have seen considerable 5-year, 1-year, and month on month growth (and I also adore the wines).
To continue my research, I might then glance at recent trade reports from organisations like Wine-Lister or consumer resources to figure out which brands are receiving a lot of attention. If there’s one I don’t know, I would try to find some some mature examples from that brand to try. Meanwhile, if one of my favourites has become a hot ticket, I know I need to buy quickly.
I would then determine a budget for the year with roughly half spent on wine for drinking within the next 24 months (red wines that are 10-30 years old; whites and sparkling 5-20 years) and half on wine for laying down for 5-10 years (recent release wines that are at least 5 years old). Over time I can reduce my budget for “drink now” wines as my “laying down” wines become ready to drink. The “laying down” wines should be ones that I expect to appreciate enough in price to more than cover the cost of 5-10 years’ storage. That storage may not be too expensive if it’s just a large wine fridge at home, which can be good enough if you’re only cellaring wine for yourself (i.e. not to re-sell).
Having done a little bit of homework, now would be the time to go to a traditional merchant with a good reputation (many from the UK) and ask for some personalised advice based on your tastes and expectations. Berry Brothers and Rudd, Corney and Barrow, Farr Vintners, Goedhuis & Co, Fine + Rare, Bordeaux Index and many others have offices in Asia with knowledgeable sales teams. Because this is a very competitive space, these merchants’ pricing tends to be reasonable. Also, if you buy through them, most have storage in the UK that you can rent for less hassle then getting your own account. While other channels like auctions offer the chance of a really good deal, I feel that the high-adrenaline environment of an auction (even an online auction) is too risky until you’ve developed a more instinctive sense of what various wines should cost.
You won’t always get it right: many wines you buy won’t appreciate in price at all and are widely available pre-aged, so in five years you may be kicking yourself for going to the effort of storing them. On the other hand, some wines won’t appreciate in price but are impossible to find with any age on them, so even though it may not have been a good financial investment, your ten year-old Oregon Pinot may be virtually priceless to you. Over time you will develop a better sense of which wines tend to rise in price and which don’t and hopefully you will have many happy experiences enjoying your wines along the way!