Raising a glass to an investment in wine
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A million dollars for a bottle of wine? It might seem a steep price to pay for a nice Californian red – even if it’s a six-litre “methuselah” bottle – but that’s what one bidder shelled out at a charity auction in November this year.
The bottle of Setting Wines’ “Glass Slipper Vineyard” Napa Cabernet Sauvignon 2019 was auctioned off during the Carnival du Vin auction in New Orleans. It’s thought to be among the highest prices ever paid for a bottle of wine at auction.
While the auction was for good causes, and the bottle itself unique, the record price achieved is reflective of increasing interest from investors in a broad range of wine. Despite an increasingly crowded field of alternative asset classes – including new arrivals such as cryptocurrency – the appeal of wine continues to grow.
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In part, that reflects the attractive investment returns that wine has consistently delivered. In the year to 30 June, wine as an asset class delivered gains of 13% according to the latest report from the Knight Frank Luxury Investment Index. That was more than double the return achieved by any other asset class included in the index, from works of art to classic cars.
Nor was this a flash in the pan. Over 10 years to 30 June, wine delivered a total return of 119% according to Knight Frank. To put that figure into context, the UK stock market, as measured by the blue-chip FTSE 100 Index, returned around 22% over the same period. “The Covid-19 pandemic has underscored the resiliency of fine wine, which has enjoyed strong returns while displaying low volatility relative to most financial markets,” says Tom Gearing, CEO of Cult Wines, which he co-founded in 2007 to introduce fine wine as an asset class to investors.
Demand for investment quality wine has been boosted in recent years by growing interest from buyers in markets such as Russia and China, where wealthier investors are looking for international opportunities to deploy their savings. Supply, moreover, is limited; the most prestigious vineyards are already fully planted, and weather conditions can limit production in some years.
Investors tend to focus on the best wines from France – Bordeaux wines in particular, but also wines from Burgundy and Champagne. Italian wines are also attracting growing investor interest, and the investment market in the wine’s “new world” – including Australia and the US – is picking up.
Looking beyond the potential for strong returns, investment in wine has other benefits. Most importantly, investing in wine is enjoyable. Indeed, in many cases, wine investors start out almost by accident; their portfolios develop as a natural extension of their interest. They enjoy drinking wine, gain pleasure from exploring new wines and broadening their knowledge, become increasingly interested in collecting wine, and eventually begin investing more seriously.
Many investors also like wine for its physicality – it is a tangible asset unlike, for example, bonds or digital financial assets. Diversification is another benefit – the returns generated by wine investment have very little correlation to the performance of both traditional investments and to some rather more volatile alternative assets, such as cryptocurrencies.
Wine is also – pardon the pun – relatively liquid compared to other assets often grouped under the “alternative” category, some of which can be difficult to buy and sell quickly, potentially locking you in at times when you might want to do something else with your money. By contrast, there is an increasingly strong secondary market for wine trading; investors are typically able to buy and sell at the time of their choosing.
“At Cult Wine Investment, we passionately believe that an investment in wine benefits you more richly than traditional – or even other alternative – investments,” says Gearing. “By working closely with vineyards to support and champion their pedigree, we are able to deliver unprecedented access to rare, highly sought-after investment-grade wines. Connecting wine lovers with respected experts via exclusive events and bespoke experiences, while actively managing clients’ portfolios provides clients with an enriching experience.”
Cult Wine Investment works with investors to help them construct bespoke portfolios of wine according to their investment objectives and attitude to risk. It buys and sells the wine on investors’ behalf, and, importantly, it also takes care of issues such as storage and insurance. Investors have access to an online portal so they can monitor the value of their portfolios.
Investors are required to begin with a minimum stake of £10,000 for the business’s Cru Classe service. This minimum investment allows for the creation of a diverse portfolio of wines from different regions, producers, and vintages at a range of price points. A healthy wine portfolio will likely contain a mix of top vintages from iconic names from Bordeaux and Burgundy as well as new releases and wines from up-and-coming producers. For navigating these opportunities, Cult Wine Investment charges an annual management fee of 2.95%, though fees are lower on larger portfolios (2% for investment portfolios over £1m) invested with the company, with investors also benefitting from tastings and vineyard visits.
Finally, one word of warning. It is important that investors in wine deal only with reputable companies with a track record in the sector. Investment in wine is an unregulated investment – and there have been several high-profile scams - so unhappy investors have little recourse to financial watchdogs.
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Disclaimer: Past performance is not indicative of future results. Returns calculated in GBP and may vary depending on exchange rates.
This content was provided by Cult Wines. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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