How to start a wine investment portfolio
There is a Latin phrase that says “in vino veritas”, which translates into “in wine truth”. It was coined in a different time and place but if it had been done so today, there could have been an extension to it – “in wine truth and profit”.
Indeed, on top of the tangible pleasures that vino offers, people are increasingly turning to it as an investment tool to help diversify their portfolio. And why not?
According to Cult Wines, between August 2015 and 2016, it saw an increase in value of close to 18% across all its portfolios. The firm is one of Europe’s largest wine investment companies and will be celebrating its 10th anniversary in 2017. Its experience means it is equipped to deal with all types of investors.
Aarash Ghatineh is Cult’s Global Head of Sales and recommends that ahead of starting a wine investment portfolio, it is essential to carry out due diligence.
“As an investor, you must understand the market and its specifics. For instance, how will the wine investment benefit you? Explore these benefits and if they align with your investment goals, you can then begin to explore the possibilities of how to get involved."
Start with £25,000
The sweet spot for an investor, he recommends, is to begin with a portfolio valued at £25,000. But be prepared to give up an element of liquidity.
While fine wine is more accessible and liquid than other passion investment alternatives such as art and classic cars, recognise that you are dealing with a tangible asset and therefore an exit may take between eight and 12 weeks.
With that amount, it is possible to build a well-balanced, diversified portfolio that offers exposure to key areas of the wine market.
A decade ago, most wine portfolios solely focused on Bordeaux and Burgundy. With significant improvements to agriculture methods and technology, greater awareness and appreciation, the market has broadened and the world of fine wine is exploding.
Today, the typical portfolio composition is Bordeaux (60%), Burgundy (20%), Italy (10%) with the remainder made up of wines from the New World (predominantly the US), Rhone Valley and Champagne.
Dollars aside, it is equally important to work with a reputable wine investment company.
Given the specialist nature of the industry, this is crucial to the success of your investment.
“In the last 10 years, it has been shown that wine does not appreciate in a linear fashion. If you do not choose to work with a wine investment specialist, it will be harder to attain the desired returns.’’
Companies like Cult Wines allow the investor to own the wine, but the storage and responsibility of what and when to buy and sell them becomes the responsibility of the firm.
DIY vs wine merchant route
This is an important differentiation from creating your own physical collection of wine, or going through the more traditional wine merchant route. Going the DIY direction tends to limit the investment exit routes, especially if the ultimate goal is capital appreciation.
In addition, the question of proper wine storage to prevent minimal damage to the wines is answered. With Cult Wines, their clients’ inventory is professionally stocked in the UK.
If you are wondering how fine wine stacks up against other passion investment options, Aarash points to the globally recognised exchange Liv-ex. “It offers price transparency and reliable data.”
Other advantages include its relative accessibility and higher liquidity.
Brand names and fresh opportunities
There is also of course the issue of wine being a highly subjective product. What is good to one person, might not work for the next.
Aarash is quick to reassure that the market has brands that have consistently done well and can be relied upon to stay on top of the game. These include some of the most celebrated producers from Bordeaux, Burgundy and Tuscany.
Brand names aside, fresh opportunities are still emerging from the industry in the new world regions.
He cites as an example the producers in the Napa Valley who are producing Bordeaux-style wines but at more affordable prices. “Our US wine index was up 43% over the past three years. It is always interesting and exciting to see new labels and trends emerge.”
So what happens when a client prefers to take delivery of the wine and drink or gift it to friends? Aarash says he will be the last person to stop them from doing so.
“It is after all still a passion investment. Those who love wines can always consume and enjoy it when they want to.
“However, we always advise them that if their objective is to make money, to try not to remove the bottles from storage. It is an education process.”
- Putting aside £25,000 to pour into your wine investment portfolio is a good figure to start.
- Work with a reputable wine investment company to ensure you have a sound enter-and-exit strategy.
- Focus on the Old World but don’t neglect the New World wines – the latter have more than a few hidden gems that yield good returns.
If you look at fine wines over a long-term period,
you can really see why this is becoming such an
attractive market for investors looking to diversify
away from mainstream market volatility.
Passion investment is a medium to long-term one.
We recommend to hold it for at least five years.
Global Head of Sales, Cult Wines