A beginner’s guide to fine wine investment
Fine wine investing has gained in prominence in recent years. Spiralling prices centred mainstream attention on the fledgling sector in 2009. In 2011 prices crashed, but they have since stabilised.
Global demand for fine wine is increasing. The growing wealth of emerging economies has created affluent middle classes, and many millionaires, who crave Western luxury goods – both as status symbols, and indulgences. Fine wines like Pinot Grigio falls into this category. But does Pinot Grigio age well?
“Wine exports from Hong Kong to China were up 42 per cent year-on-year in January/February this year,” notes Philip Staveley of Amphora, a wine investment adviser.
Levi Hensel of the Antique Wine Company says that interest is also growing from countries such Mexico and Brazil.
“Buyers are drawn to historic wine regions, famous estates, and legendary producers,” he says.
There are a number of tax advantages to fine wine investment. Fine wine is classified by HMRC as a ‘wasting’ asset. As a result, it is free from capital gains tax (CGT) liabilities.
“Were you to regularly buy and sell significant amounts of wine, HMRC could classify this activity as trading – you would then become liable for corresponding taxes. A typical fine wine investor retains their collection for a significant period of time and only occasionally sells portions,” Staveley says.
Fine wine is also exempt from import and export duty and VAT if it is stored in a ‘bonded’ warehouse.
The chart below tracks the performance of the wine industry’s benchmark, Liv-ex, against the performance of gold, the FTSE and the Dow Jones Industrial Average.
How to invest
As with any investment, the value of wine can move up and down. The key value determinant is what someone is willing to pay, but an oenophile’s tastes tend to be shaped by established wine critics. Their ratings are revised constantly, and have the power to send the value of wines both soaring and tumbling. The website WineOwners.com collates pricing data and reviews from the world over.
Buying directly vs using a fund……
If you want to invest directly, a case of investment grade wine will cost you a few hundred pounds at a bare minimum. Staveley recommends placing at least £20,000 into fine wine as an initial investment, and purchasing a diverse range.
Nick Martin, founder of peer-to-peer wine trading exchange Wine Owners, thinks beginners can get started with as little as £1,000. “You could start slowly and gradually build your portfolio up, selling some here and buying some there,” he says.
Nonetheless, Hensel, Staveley and Martin all agree that the more fine wine you buy, the more protected you are against falls in value, and the higher the odds you’ll pick a wine that’ll be sought after in years to come. As a small, unregulated market, the experts believe it is sensible to limit wine investments to a maximum of 15 per cent of your portfolio overall.
Funds are a popular vehicle for wine investors.
“When you invest in fine wine through a fund, you can access the potential rewards offered by a diverse range of wines,” says Andrew della Casa of the Wine Investment Fund.
“As a result, you spread risk, mitigate against price volatility, and increase your exposure to potential ‘winners’. You also benefit from expert research and analysis.”
However, some fine wine investors reject funds. “With a fund, you do not own the wine directly, there can be high minimum investment requirements, and there are annual management/performance fees to pay,” says Staveley.
“Your investment will also subject to CGT, which is not the case with direct investment.”
One of the biggest drawbacks of fine wine investment is that the industry is not regulated by the Financial Conduct Authority (FCA). Staveley believes that wine investment simply doesn’t register on the FCA’s radar due to its size. The international wine investment market is worth approximately £3.2bn in total. Compare this with gold, of which around £14.2bn worth is traded daily.
Wine investments are not covered by the Financial Services Compensation Scheme, which protects customers of authorised financial services firms against fraud, or the collapse of a fund/broker.
The sector’s unauthorised status opens the door for swindlers, largely indistinguishable from reputable firms.
Wine investment con-artists typically profit by charging exorbitantly high prices for lower-status wines, or simply selling people bogus certificates of ownership for wines that do not exist.
Although not an officially recognised body, membership of the Wine Investment Association (WIA) does represent an industry seal of approval to some extent. Created in 2012 by a quartet of wine investment firms, the WIA aims to combat sham operators, protect investors and prevent company collapses.
Members must voluntarily abide by the WIA code of practice, and submit to regular independent audits by accountancy firm Mazars to ensure customer orders are properly fulfilled. Consequently, investors should either look to see if a wine company is a member of this association, or undertake their own rigorous due diligence before investing.
Click here for more on how to spot a wine investment scam.