The practice of fine wine investing, which has appealed to wealthy and sophisticated collectors for ages, is coming out of the cellar and could emerge as a legitimate alternative-asset class.
The practice of fine wine investing, which has appealed to wealthy and sophisticated collectors for ages, is coming out of the cellar and could emerge as a legitimate alternative-asset class.
While some financial advisers still place wine investing in the hobbyist category — comparing it to stamp collecting — there is no denying the performance of the category and its growing appeal.
Through the first six months of this year, the Liv-ex 100 Fine Wine Index gained 9%, while the Standard & Poor's 500 stock index lost 13.7%.
The wine index, which the London International Vintners Exchange (Liv-ex) Ltd. in London established in 2004, gained 42.2% last year, while the S&P 500 gained 3.5%.
The Live-ex index represents the price movement of 100 fine wines for which there is a strong secondary market. It is calculated monthly and consists largely of Bordeaux wines, reflecting the overall market, as well as wines from Burgundy, the Rhone, Champagne and Italy.
"The wine index may have done better than the S&P, but so have a lot of things; and with wine there's a helluva temptation to just drink it," said Barbara Steinmetz, president of Steinmetz Financial Planning, a San Mateo, Calif.-based firm with $35 million under advisement.
Ms. Steinmetz, a wine collector for years, said considering wine as an asset class within a larger portfolio can be tricky.
'SERIOUSLY BURNED'
"If you don't know what you're doing, you could get seriously burned," she said. "The majority of wine collectors have no intention of liquidating, therefore I don't consider it an investment."
Such thinking goes contrary to a growing trend toward wine investing, according to David Sokolin, president of Sokolin LLC, a Bridgehampton, N.Y., retail wine-and-trading business.
"This is no tulip craze," he said. "The wine business could never be like a bubble because there are too many true consumers and there is too much consumption."
Mr. Sokolin, author of "Investing in Liquid Assets: Uncorking Profits in Today's Global Wine Markets" (Simon & Schuster, 2008), said that there are legitimate drivers behind the rising value of what he describes as investment-grade wines.
"If you believe in the increase in global wealth and if you believe there are going to be more wealthy people drinking expensive Bordeaux, then investing in wine is a way to buy into that equation," he said. "With globalization and the expansion of wealth, whether we're in a recession or not, rare wine is in demand all over the world."
As Mr. Sokolin said, the world has entered an era in which a growing appetite for fine wines, much of which is consumed, has led to continually decreasing supply.
"Just imagine what a share of Google would be worth if every night there was less of it," he said, emphasizing the impact of consumption on the value of many fine wines.
"Drinking the wine is absolutely essential, because if no one is drinking, the price will not continue to appreciate," said James Miles, a former investment banker who co-founded the Liv-ex wine exchange.
While even some wine connoisseurs dispute the notion of wine as a legitimate asset class, it is those very consumers and aficionados who are helping investment-grade wines to straddle the line between the collectable and investment categories.
"Wine to me is like jewelry: You buy it because you like it. You don't buy it with an eye toward resale," said Nancy Frank, owner of Frank Financial Services, a New York-based firm that advises on an hourly and retainer fee basis.
Ms. Frank, whose father passed away 15 years ago and left the family with "half a basement full of wine," got a quick education in the wine resale business.
"Unless you know exactly what you're doing, wine as an investment is a crapshoot," she said. "With stocks and bonds, at least you don't have to know how to store them."
Mr. Miles of Liv-ex acknowledged that the settlement and clearing end of the wine-trading industry is "still very inefficient and very old-fashioned."
The global fine-wine-trading market, with a total value estimated at $3.5 billion, still requires that every bottle bought or sold be physically delivered, which introduces new levels of risks associated with product damage and loss.
"It reminds me of stock trading in the 1950s when the certificates had to be delivered to the buyers," Mr. Miles said. "In theory, there's no real reason to move the wine, because it could easily be stored in a central warehouse or series of centralized warehouses, which is the case with other commodities."
Until such a network is developed, wine investors will have to make do by either storing their wine portfolios with merchants like Mr. Sokolin or building and insuring their own wine cellars.
"Increasingly, wine investing is becoming more transparent and more available to everybody," Mr. Miles said. "But, like most things in life, it certainly helps to have a bit more money."
EXCHANGES TAKE OFF
While auction houses still represent the majority of fine-wine trading in the United States, exchanges like Liv-ex and websites are now responsible for 90% of global wine trading.
According to the professionals, the key criteria for any investment-grade wine boils down to a favorable review from a major critic, an ability to age well and a track record of appreciation.
Members of the Liv-ex exchange can enter their wine portfolios to learn the current and historical values, much like a stock or mutual fund.
"From a pure investment standpoint, it's best to buy wine as close to the original source as possible and hold it for three or four years," said Philip Moreau, who describes himself as a "quasi-serious investor" with 150 cases of wine stored in his two cellars.
Mr. Moreau, founder and president of RV Resort Asset Services LLC in Carmel, Calif., has been investing in wine for 20 years.
"Part of the game is finding a good value wine for $50 or $70 a bottle that tastes just as good as a $400 bottle of wine," he said. "As far as drinking it goes, I draw the line at any bottle I could sell for $300 or more; I don't drink that wine."
E-mail Jeff Benjamin at jbenjamin@investmentnews.com.
