Investigating the Investment Potential of Fine Wine
Gary begins by explaining how Bordeaux Index was born in 1997; from a frustration at the wine selling process - with merchants who would refuse to buy back, poor service and little to no transparency. Bordeaux Index prides itself on bringing scale, liquidity and expertise to the wine market.
Its LiveTrade platform, which is now the largest of its kind for trading wines and growing at around 25-30%, is unique in providing transparency (and, in turn, confidence) to clients by showing narrow bid/ask spreads.
In recent decades, there has been a huge surge in wine investment as an alternative asset, particularly post-pandemic where the fine wine secondary market has outperformed both gold and the FTSE 100!
The demographic of wine buyers is becoming younger, with the current average age of a person buying wine at auction being 40, compared to 60 previously. Therefore, this episode of the podcast comes at the perfect time to give listeners an insight into wine investment in 2022.
As Gary points out, the supply-demand aspect is an essential part of the wine market for a couple of reasons. Firstly, the world is getting richer and there is only a finite amount of wine (for example, they are making 5000 fewer cases of Château Latour annually, relative to 25 years ago). Secondly, fine wine is one of the only assets that gets destroyed as it is getting better; when people start to drink it, the prices jump!
Wine investment has had annualised returns of 13.6% over the last 15 years and is less volatile than other types of investment such as real estate. There are several ways to invest in wine; buying and selling bottles yourself, investing ‘en primeur’ (while wine is still in the barrel), investing in wine stocks or stocks in wine merchants or producers, or investing through a dedicated platform.
There is no capital gains tax on wines unless you are a wine trader as wine is considered a ‘wasting asset’ across a number of jurisdictions (including the UK, Austria, Germany, France and Hong Kong).
One of the most important things in wine collecting, especially on the secondary market, is a wine’s provenance - the bottle’s origin, details of its storage conditions and proof of ownership. Careful storage is paramount to the development of flavours in a fine wine. Factors such as overexposure to light, sudden temperature fluctuations, too much humidity and movement can all alter the wine’s chemical reactions and end up ruining it. Hence, it is preferable to have a clear trail of where a wine has been acquired from and how it has been stored (e.g. in a bonded warehouse facility).
Problems such as wine scams and counterfeiting are on the rise, which makes some potential investors think twice about entering the market. Nonetheless, Gary suggests that there is not too much of a cause for concern in this respect, describing how most counterfeit wine is very obviously fraudulent. For example, misspelled brand names are a common occurrence, and suspect wine can be authenticated via the system of rotation numbers. There are also multiple new initiatives being put into practice to prevent these issues, such as scannable chips which can be inserted into the cases.
The episode also reflects on climate change and global wine production. Whilst weather extremities such as heatwaves and flooding are not good for any type of agriculture, Gary has already noticed how global warming has to some extent benefitted Burgundy, which he claims has not had a bad vintage since 2005. He predicts that Champagne will also see advantages from higher temperatures, but places like Bordeaux and warmer regions (such as the Napa Valley) are likely to encounter problems, noting that there are no new sites going up in these areas.
According to Stacker, some Californian wineries have even switched to raisin production, and face the dilemma of an increased carbon footprint and production costs if they decide to try to cool their vineyards. The risk of destruction by wildfires is also mounting. On the other hand, rising temperatures are enabling new regions, which were previously too cold, to give viticulture a go (as seen in Southern England).
Gary describes wine as one of the best non-linear assets. However, there are several things to take into account before investing. Some risks to consider are damage during storage/transit and scams. Moreover, wine is, in many cases, considered a long-term investment (you need to be prepared to commit for at least 5-10 years) and it's often recommended that one should aim to limit exposure to alternative assets to no more than 20% of your total investment portfolio. However, if you are looking for another illiquid yet drinkable asset, whiskey is also an option with attractive returns!
By Rosanna Bassett, part of the Money Maze Podcast Ambassador Programme. Rosanna graduated from the University of Exeter with a B.A. in Mandarin and Spanish. She currently works at the Nature-based Solutions Initiative, a platform which provides information on climate change adaptation.
This content does not constitute any form of advice, recommendation, representation, endorsement or arrangement, and should not be used to make any investment decisions.
This article has been supported by LiveTrade, from Bordeaux Index. LiveTrade kindly sponsors the podcast to ensure we can bring you great content for free!
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In this episode Gary Boom, Founder and CEO of Bordeaux Index starts by explaining how the poorly organised, past its sell-by- date old model of wine trading has been revolutionised by Bordeaux Index over the last 25 years, with the introduction of scale, liquidity and expertise underscoring the investment attributes of fine wines and whiskies.
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