Investing in Wine?
You don’t have to be an ardent investor to make a significant return in 2010, but you do need an adviser who can advise on the best wines to fill your stockings with and most importantly when to sell out at the best price.
Fine wine was not immune to last year’s downturn; however, since the downturn sparked in October 2008, the market for quality wine has enjoyed a rapid turnaround with an average upswing of 12% across the board and leading wines returning in excess of 20%.
Prices have risen significantly, with the cost of Chateau Lafite Rothschild, a favourite among Asian consumers, climbing by about 30-50 per cent over the last year. Another vintage increasingly finding favour among Asian buyers is Chateau Mouton Rothschild, a top performer over October.
While there certainly is an enticing argument to be made for physical investing, especially for those in the know who can back their individual knowledge, there are significant downfalls. Firstly, you can’t just put a Chateau Lafite in your kitchen wine-rack; fine wine demands careful storage and most homes do not have the right conditions. An alternative is to ask a fine wine investment house to put together a portfolio and keep the wines ‘in bond’ which means that duty and VAT do not need to be paid and the wine can be kept in good storage conditions. That said, an attractive tax advantage attached to investing in wine is that under UK tax rules, fine wine has generally been treated as a ‘wasting asset’, which means it is expected to have a life of less than 50 years and any capital gains generated do not attract capital gains tax.
Clients old and new are becoming further disheartened with low interest bearing bank savings, talk of further unrest in the stock markets and the risk of rising inflation.
There are alternatives, and the one Banner prefers, over wine funds, is a managed ownership scheme. In this set-up, there is a fund adviser, who buys and sells wine on your behalf, always through a bonded warehouse, thus avoiding the payment of duty and VAT. The adviser will manage on a discretionary basis if instructed, trying to enhance portfolio value by selling wines after steep price appreciation and replacing the stock sold with younger, cheaper vintages (the optimum holding period is 4-5 years but it does vary with vintage and the vagaries of market behavior). The adviser will also manage the portfolio according to a stated risk profile: cautious, investing in older, established vintages, through to aggressive, investing in new, promising vintages. Or the adviser will purchase specified wines for you on a bespoke basis—as long as they are high-end red Bordeaux, or Chateau Yquem.
The main difference between this scheme and a wine fund is that the wines are in your name. Were the adviser to go out of business, you would be minus an adviser but not minus the wine. Your wine is kept under a private trust account in a government bonded warehouse and traded from there. This is a secure state-of-the-art facility, holding wine to the value of approximately £1 billion, including the stored holdings of HMR the Queen, and the UK Government. Temperature and humidity are kept within fine parameters, 100ft below ground, in vaults of natural stone, light and vibration-free. And just in case, your wine is insured at replacement value.
As the custodian is a large industry player, it is able to deal through the wholesale network and thus the costs of trading—buy:sell spread, transportation to and from the warehouse where necessary, and turnover administration—are met from the retail:wholesale spread, with no doubt a bit left over for the custodian, but you as a retail player would never get the wholesale price anyway. To that extent trading is free. In addition you get an annual valuation showing what stock you own, what you paid for it, its current price, and also all you have bought and sold historically and at what price, so you can question the honesty of the system and indeed whether you are being ‘churned’ through excess trading activity. In other words, there is transparency.
The other intriguing aspect of this scheme is that as the wines are yours, they can be delivered to you anywhere you instruct (and they are only deliverable against your signature). They will deliver to your door in Japan, which does have its shipping cost (yes you pay the shipping for delivery) but if you think about tax payable in Japan versus £19.32 per case and VAT of 17.5% of purchase price avoided in the UK, may be an efficient way of obtaining aged Bordeaux for Japan from the UK market.
Click on to see the returns; Premier Cru -5year-March 2010
Talk to Banner today on how you can invest in wine. 03 -5724 5100
