Investor pour into liquid assets

By Ellen Kelleher
Financial Time. July 17 2009

The returns on Château Lafite and Château Latour have outpaced the FTSE 100 over the past 12 months, prompting wine aficionados to add more bottles to their cellars instead of buying shares.

With just an estimated $3bn invested either directly or through listed and unlisted funds, fine wine remains a niche play. But it is attracting considerable attention from wealthy investors in Singapore, Hong Kong and Shanghai as well as the UK.

Since May, the price of 2008 Château Lafite – a Bordeaux fine wine – has jumped 56 per cent from January, according to Stacy-Lea Golding, investments director with Premier Cru, a wine investment company.“I think it’s a prime opportunity to buy in,” she says. “Prices have been affected by the financial crisis – and we’re seeing sharp adjustments over short periods of time.”

Between January and June, Liv-ex, the index of the top 100 investable wines, rose 3.3 per cent while the FTSE 100 returned 1.6 per cent. Long-term returns are even more impressive, with Liv-ex gaining 115.5 per cent over the past five years compared with a 1.9 per cent return by the UK’s largest 100 companies.

“Demand from Asia has been sustaining the wine market,” reports Justin Gibbs, a director with Liv-ex. Wine funds appeal to novice investors who are more comfortable investing with the help of managers. The “unit trust” model also helps investors to spread their risks.

Last month, Beijing saw its first fine wine auction, where two bottles of Château Lafite were sold for four times their estimate – at a 70 per cent premium to many UK merchants’ prices.

The size of the wine market has ballooned from $1bn to $3bn over the last decade, says Gibbs, with 20 funds springing up in response to growing demand.
Buying largely in Bordeaux, fund managers store investment-grade wine in bonded warehouses. The recent rise of sterling against the euro has helped funds based in London to buy at favourable prices.

Joss Fowler, a fine wine specialist with Berry Bros & Rudd, the London merchant, says investors should focus on two factors when buying wine: quality and the label.
“You have to aim at the top and buy the very best,” he says. “In the past five years or so, we’ve seen this market open up and certain bottles are improving as they are aging and becoming scarcer, which makes them more valuable.” A case of Château Latour or Château Lafite could yield 10 to 15 per cent in a year, by Fowler’s estimates

“You can build more yachts and Rolls-Royces and dig more swimming pools, but it’s difficult to bottle certain Bordeaux vintages,” he says.