How to Invest in Wine?

How to Invest in Wine?

Collecting wine is no longer a privilege of the super rich people.

Now, due to the search for investment opportunities in assets that are alternative to traditional stocks and bonds, people resort to a specific investment fund focused on trade in wine. This tendency, however, may take away the pleasure of drinking.

Investing in wines has been stimulated by the creation of the London International Wine Exchange (Liv-ex) in 1999, working as an informational and trading platform for traders of high quality wines. Now Liv-ex works with 270 merchants from 22 countries who trade anonymously.

How to invest in wine

“Mainly private investors and investment funds invest in wine”, says Justin Gibbs of Liv-ex.

“In the UK only private investors hold high quality wines for over $ 2 billion in bonds,” said the expert, adding that the market for quality wines reported $ 3 billion annually and the number is still growing.

In spite of Liv-ex, there are more work sites for wine trade all over the world, and they also reported growth these days.

According to the Wine Asset Managers LLP – WAM there are high expectations for long-term demand not only on the traditional markets but also on new markets such as China and the Far East. The supply of wine is specified as the growing areas are defined by law, and reserves reported decrease each time a bottle of wine was drunk.

While investors and specialized markets enjoy the growth, some winemakers complain that their wines become too expensive and connoisseurs can no longer afford to drink good wine. According to Gibbs, however, trade in wine may allow some people to accumulate enough profits to finance their hobby and sometimes to enjoy a bottle of quality wine.

Wine is a unique asset. Unlike other luxury goods like Rolex watches or cars Aston Martin, the supply of fine wine is fixed. If demand for Rolex or Aston Martin rises, than more cars can be produced. But excellent wines have a predetermined volume of production – when the vintage time is over, there cannot be planted more vineyards, and geographic regions are controlled by law.

For fine wines with investment grade are considered only the first 50 to 100 traded wines, although some experts included in the group only wines from wine-cellars in the Bordeaux area. Anyway, wine production is controlled and it cannot be increased on demand.

How to invest in wines

The supply of these top wines was unchanged for 200 years. But now their volume is smaller because of the quality control. Two centuries ago, “Rothschild” has produced 27 thousand cases a year, and now their production is 19 thousand cases.

Moreover, not every year the crops is suitable for wine with investment grade – only three or four of every 10 years give a rich harvest.

Unlike other alternative investments, the supply of past vintages invariably decreases. While the wine is in the bottle, the investment is constantly improving and the stock is continually decreasing because of the consumption.

Tight supply goes hand-in-hand with the constant demand. There have always been a strong appetite for fine wines in Europe and North America, but in the last five years came the Asian market appeared.

For beginners in wine investing the most reasonable thing would be to rely on the choice of experts. There are companies that produce portfolios depending on the money allocated to investment; they assess risk and timing of investment. Most wine merchants store and insure their wine and the annual fees for these services are depending on the size of the investment.

Another option for enthusiasts is to invest in trusts that hold fine wines instead of securities.

These are Wine Investment Fund or The Fine Wine Fund.