Sunday Telegraph journalist Emma Wall wrote last week on the choices available to retail investors wishing to enter the fine wine market and on the dangers of investing in wine. Ms Wall was prompted to take a detailed look at the alternative investment class after being asked by one of her readers about a wine investment scheme which claimed to be good for an annual return of 13 percent.
The scheme had been presented to Chris Unwin, a Surrey pensioner, by a London-based company,DS Vintners. Impressed by the high returns being offered, Mr Unwin immediately called his bank looking to free up the 5,000 minimum deposit to begin investing in wine. When the cashier at Lloyds cautioned him to delve a little deeper before signing up, Mr Unwin decided to contact the Sunday Telegraph.
Ms Wall was at pains to point out that there was no fraud involved DS Vintners is a legitimate company which could, potentially at any rate, deliver a return of 13 percent on a wine investment. On its website the company explains that it uses the Liv-ex wine trading platform and points out that the Liv-ex 100 Index has kept pace with gold’s blistering run in recent years.
But not being a scam doesn’t immediately turn the DS Vintners or any other wine-buying scheme into a wise investment choice. As Ms Walls observes, an investment with DS Vintners may return 13 percent annually but that will be received only on maturity,after the recommended investment period of five to ten years has passed. Meantime, investors must shoulder significant storage and insurance costs.
Rick Ealing, head of investment solutions at Sanlam UK, provided this take on investing in wine:
“Investments are supposed to earn you money, and yet wine pays no dividends, interest or rent. In fact, it has heavy storage costs. People invest in businesses expecting them to grow over time, yet all wine eventually peaks and decays. You’re at risk of counterfeiting, theft and fire. You will enjoy few, if any, of the protections offered to investors in regulated funds.
Amongst the touted advantages of investing in wine is the assertion that the asset is not strongly correlated with financial assets, which should mean that prices won’t automatically plummet in the event of a stock market crash. Additionally, the stocks of a given vintage invariably dwindle over time, as the wine is consumed, pushing up prices of the remaining quantity on the market. But according to the Sunday Telegraph’s Wall, only a few investment-grade Bordeaux wines see their values jump, and they are usually not accessible with the funds available to the average retail investor.
Ms Wall concludes that the best course of action for wine-lovers interested in investing in wine may be to use the services of wine merchants such as Bordeaux Index (bordeauxindex.com) or Berry Bros & Rudd (bbr.com), which create portfolios for their clients based on their budgets, time preferences and risk tolerance.