A good wine can make or break a gourmet meal, but can it do the same for an investment portfolio? Recently, the value of fine wines has appreciated at an impressive rate. They do not correlate with stocks or other traditional assets, and tend to be more stable. For investors interested in diversifying their portfolios, a bottle—or a case or two—of wine may be just the thing they need.
What makes wine a worthwhile investment? The demand for fine wines is increasing as more people worldwide take an interest in it as a commodity. Traditionally based in Europe and North America, the market has recently spread to include Russia, India, China and Korea, according to The Fine Wine Fund.
Yet, although more people in more countries are actively seeking out fine wine, “there are relatively few (perhaps only about 75 in total) investment grade labels, whose production levels remain more or less fixed,” according to Decanter, a United Kingdom wine magazine. Then there’s the added factor that wine can be drunk, which diminishes the supply of desirable vintages. Because demand is quickly outstripping supply, the value of fine wine compared with other investment options is higher than one might think.
The demand for wines as an investment commodity is increasing
"Since the start of 2006, The Liv-ex 100 index [of investment wines] rose + 43.2 [percent] to November outperforming other asset classes such as oil, copper and gold, the FTSE and Dow Jones,” according to
Decanter.
But along with the good news, there is also a warning for potential investors: With the purchase of wines becoming so competitive, it is possible that the initial purchase prices will rise to the point that it is difficult to make much profit.
A number of wine investment funds exist throughout Europe, the United Kingdom and much of the rest of the world. These funds allow investors to put money into fine wine while avoiding the complications often associated with the market—namely cellaring, regulating the environment for quality control, issues with imports and, of course, the desire to drink it. Many of these funds have done well in recent years.
“Following a further 0.4 percent rise in August 2007, the [Fine Wine Fund] has posted a 45 percent increase since launch in autumn 2006, and 35 percent so far this calendar year,” according to Fine Wine Fund reports. The Vintage Wine Fund has reported returns of 23.97 percent for 2006 and 24.94 percent through September 2007.
Unfortunately, most overseas wine funds do not accept U.S. investors, and there are no such funds operating within the U.S at this time.
“But [that] could soon change, given the high interest from U.S. investors in the market. [Richard Bakal, executive director of The Wine Trust] also plans to launch the first U.S. wine investment fund, which he believes could work in spite of the regulatory constraints,” according to the Financial Times.
Investors interested in this approach may want to keep their eye on Bakal and wine-oriented organizations, as it may only be a matter of time before wine funds begin to appear in the U.S.
Of course, despite the recent success of wine investments, it is possible that an investment wine purchase could decrease in value. Investors shouldn’t put more money into wine investments than they can afford to lose. But at least with some wine investments, there is an advantage that does not exist with any other investment: Even in a worst case scenario, investors can drink the high quality wine from their stores.
