Investing in wine...a profitable diversification?

Thursday, 7th August 2008 11:18 - by Resident IFA

Carrying on with the theme of my last 2 blogs – asset allocation and free financial guides via lse.co.uk – I noticed that 11 visitors to the site requested a free guide about Wine investing in July. For most of us, this kind of investment is well outside our scope of knowledge or expertise, although it appears to offer an interesting way to diversify investments after the ‘usual’ asset class culprits i.e. Fixed Interest, Gilts, Corporate Bonds, Equities, and Property. To get to know this a little better, I had a trawl through liv-ex.com, which is responsible for the ‘Liv-ex 100 Fine Wine index’. A quote they have on their home page seems to sum it up quite well – “The wine world’s version of the S&P500”. According to their website, the Liv-ex 100 has grown by 9.5% year-to-date, and 6% over the last 12 months. These are undoubtedly nice returns over the past ‘rocky’ year for markets and financial products, but what does the Liv-ex actually consist of and how can I invest in it? The Liv-ex 100 Fine wines Index consists of 100 (the clue was in the title!) of the most well-regarded and sought-after fine wines being sold and bought today. The index is re-calculated monthly, weighted to reflect the original production level of each wine and the increasing scarcity of different types as time passes by and the wine ages. There is also a Liv-ex 500 index and a new Live-ex Claret Chip (More investable and transparent, based on Bordeaux wines) index. ODL markets are now offering spread-betting on the Liv-ex 100, but the standard ways to invest in the wine are through a third party or to buy a case yourself. To buy a good quality case could easily cost in excess of £12,000, but James Miles of Liv-ex said “The minimum you can invest is £500. Below that amount, it becomes very difficult to access a wine that is likely to rise in value”. The company ‘Wine Asset Managers’ require a minimum investment of £50,000 for entry into their Fine Wine fund, charging an annual management charge (AMC) of 2% and 15% of the fund’s annual growth. You can invest for lower than this, however, via Vinum Investments. They require a minimum investment level of £1,500 as a one-off or £100 monthly. The great advantage of this seems to be that they store the plonk (hardly!) for around £10 per annum, per case, helping to prove that the wine has been stored in the right manner and conditions. This potentially aids the chance of selling the wine on, and may increase the price it fetches to boot. All told, I suppose that investing £12,000 or so in fine wine is pretty good value compared to a Picasso or something similarly ‘high-end’. One of the key dangers I can see is the temptation to drink your profits! Until next time...