Investing in wine: grape expectations

Tired of poor returns on savings? Fine wines could be a more fruitful investment, with the market stabilised at 2012 levels. Sheila Prophet suggests you turn to drink

With traditional savings rates still scraping the bottom of the barrel, many investors are turning to drink. The trade in fine wine is a huge international industry for one very sound economic reason: demand (mainly from Russia and the Far East) outstrips the available supply.

“The great thing about wine investment is that the value of your investment can only rise in the long run, because you start off with a limited supply and as the wine is drunk, the remaining supply becomes rarer and therefore more valuable,” says Nick Burton, owner of Cirencester wine store Oeno.

The wine trade has its own exchange, Liv-ex (London International Vintners Exchange), complete with the alcoholic equivalent of the FTSE, the Fine Wine 100 Index. And after a fall in the index last year to 2008’s level, prices have now stabilised. With the right advice, this might make it a fortuitous time to invest.

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The famous 1982 Lafite Rothschild, for example, has risen in value by 1,000 per cent in ten years, with cases bought for £2,600 now worth around £25,000

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How experts make or break a new wine

The wine world also has its own cast of characters, led by the undisputed king of the critics, Robert Parker. Parker, who lives in Maryland, US, is the Simon Cowell of the wine world, with the ability to make or break a new star with a single word.

Experts such as Parker, and his British counterpart Jancis Robinson, are at their most powerful in the spring, when new wines produced from last year’s grape harvest are about to be offered en primeur (while still maturing in the barrel).

Every year, legions of followers await the critics’ judgements as they sample and grade the new vintages. Some investors will only buy wine that Parker has rated at between 96 and 100 per cent, what he describes as “an extraordinary wine of profound and complex character”.

Wine bought en primeur is generally cheaper than older bottled vintages, but for the buyer it does means gambling that it will live up to its promise as it matures. Beginners therefore need to do their research and seek wise advice instead of going solo and trying to stock up their own cellars. In fact, wine is a hands-off business, and the chances are you may never set eyes on your investment.

For a start, you cannot buy fine wine directly, but only through a broker or merchant.

“The most important thing is to find a good, reputable wine merchant, with a proven history,” says Nick Burton. “If you buy en primeur, the wine will be bottled and arrive in the country in around 18 months to two years’ time, and you can then store it in a bonded warehouse. The advantage of storing it in bond is that there is no VAT or duty to pay unless you take it out.”

Another advantage of these government-licensed bonded warehouses – vast underground cellars, often created from old air-raid shelters or military defence establishments – is that they guarantee the provenance of the wine. This means future buyers can be confident it has been stored in ideal conditions and at the optimum temperature.

Time to ferment

Buying wine is not a quick fix for your finances: wine offered en primeur this year will not be ready for drinking for at least five to seven years. But the most aristocratic wines can make spectacular profits. The famous 1982 Lafite Rothschild, for example, rose in value by 1,000 per cent in ten years.

Still, there is money to be made in more modest investments. “Spend £2,000 now on some quality wine and in five years you should have made a profit,” says Burton. And as HM Revenue and Customs classifies wine as a “wasting asset”, there will be no Capital Gains Tax to pay on that profit.

So which wines should you be looking at? For beginners, it seems all roads lead to Bordeaux, which produces most of the world’s top class wines, including the Premiers Crus classes, or First Growths, such as Chateaux Latour, Margaux and Mouton-Rothschild.

But perhaps go via Parker and Robinson first?