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Why Bordeaux is the most ‘liquid’ wine market

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Written by: Adam Lewis
10/12/2015
Investors in wine need to be aware that liquidity risk (not the drinking) is the largest potential pitfall when it comes to the returns that can be made out of the asset class.

With regards to wine, liquidity risk is the risk that a wine may not be bought or sold quickly enough and/or at an acceptable price. With this in mind, investment managers The Wine Investment Fund (TWIF) maintain Bordeaux’s unique combination of limited supply and an active secondary market makes it the only wine region  that they invest in.

Bordeaux’s more active markets arise partly for historical reasons – it has always been heavily traded – but also because Bordeaux typically has higher average production than other areas. According to TWIF, a typical Bordeaux chateau in its investment universe might, for example, produce 10-20,000 cases per year: a Burgundy or Barolo of equivalent quality might produce 500-1,000 cases.

However while production might be high, TWIF says it is also important to note that the supply from Bordeaux, while sufficient to generate active secondary markets and therefore reduce risk, is still limited. This is because once a vintage has been bottled, no more of that wine is available, no matter how good or otherwise that vintage may be considered.

Andrew della Casa, the founding director of TWIF, says: ““We have adhered to a clearly defined and tried and tested investment philosophy since we launched in 2003. We exclude en primeur and wines nearing the end of their drinking windows from our stock picking universe of approximately £5bn of Bordeaux wine.  Our wines are stored in UK government bonded warehousing and are insured at market value.

“Fine wine, as a physical commodity with similar characteristics to gold, benefits from uncertain conditions elsewhere, while wine’s intrinsic value and inherently diminishing supply dynamic means that it retains its appeal in unstable market conditions.”

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