Fine wine continues to be seen as a safe haven for investors, and a buoyant year for fine wine auctions suggests investors’ cellars are building.
This year international wine collectors have been looking far east to a Hong Kong venue where a wine collection coming under the hammer must rate as one of the great wine auctions of the century.
This is Sotheby’s headline wine auction, ‘The Classic Cellar from a Great American Collector’. This is a sale divided into no fewer than 10 individual sales, so huge is the collection.
If we turn back to March 2012, we can reflect on sale No.9. On this occasion, the 100%-sold total reached a healthy HK$20 million (£1.6 million); and it brought the cumulative total that includes the previous eight sales to HK$353 million (that’s £28 million).
Leading the thousands of lots, choice vintage Champagnes included all of the big names: Veuve Clicquot, Pol Roger, Louis Roederer, Dom Perignon (with a single bottle of the latter, 1959, selling for HK$22,050/£1,750).
Classic clarets were no doubt the stars of this great collection: Petrus ’49, and many from the great 1959 vintage from Haut-Brion, Lafite, Latour, Mouton Rothschild, and Margaux, that included many later vintages, too. Then, by the time we got into lot 5323, we were looking at some delicious Montrachets.
High on the bidders’ lists were also some of the great California wines—Napa Valley’s Dominus, Harlan Estate, and Shafer.
At the end of this sale came one of the noble wines of the Rhône, Châteauneuf du Pape, with the catalogue notes from Serena Sutcliffe MW informing us: ‘The 11 different vineyards that form the Domaine du Pegau are a mosaic of all that is fascinating in Châteauneuf, involving a complicated logistical exercise of blending that gives us the Cuvée Reservée. The decision to create, in some years, Cuvée da Capo is not taken lightly and it delivers a blast of the sun-drenched south to take us through the winter months.’
Oh yes, this wine is for drinking as well as for investing! For the modest wine collector or fine diner, so often wine auction catalogues like Sotheby’s offer a fascinating variety of information about wine growing regions, vintages, and what the smart collectors are collecting.
And as we move into the autumn season, many more great purchase opportunities are presented in the form of wine auction No.10 from the ‘Great American Collector’, courtesy once more of Sotheby’s, with the auction house providing us with no fewer than six great wine sales during October and November.
OK, so here’s a question: in terms of annual investment returns in the years since 2001, what would you put at the lowest and at the highest percentages? Pretty much the lowest is U.S. real estate at just 4.61 per cent while in second place is selected Bordeaux wines at 17.08 per cent (with gold topping the list at 18.28 per cent). These stats from Trellis Fine Wine Investments show a nice return for wine investors who are clearly pitching into some great investment opportunities. Taking a view on this richness of choice is Mark Ricardo of Trellis Fine Wine Investments who has been buying and collecting wine for more than 17 years.
My question to Ricardo is typical of those seeking first-time advice: what are the characteristics that an investor should look for in investment grade wine?
Pedigree – The wine must be produced by a château, domaine or producer whose name is synonymous with quality and prestige
Longevity – The wine must be able to age for at least 25 years with maturity occurring after the 10th year
Price Appreciation – The wine must have a consistent and documented history of substantial price appreciation over a decade or more
Liquidity – The wine must be made in sufficient quantities so that it can be bought and sold on the secondary market
High Critical Acclaim – The wine generally must have been given a score of at least 95 points by one or more of the principal worldwide wine critics
Ricardo says he generally looks for wines that are selling at a relative discount, compared to wines from a similar quality vintage from the same château or producer. He adds that he usually avoids purchasing wines en primeur or via futures. ‘In order to justify the time-value of money and investment risk associated with the futures market, I usually require at least a 40 per cent discount between the futures price and the expected in-bottle price after release.
Unfortunately, since the 2005 vintage, the châteaux have consistently increased their futures price which has in turn eroded the futures discount; thereby making the futures market untenable for professional wine investors like myself.’
As for where to purchase investment grade wine, Ricardo suggests that individual investors purchase their wine through a reputable merchant. ‘Sophisticated collectors and investors may also purchase wine at auction or through one of the worldwide fine wine exchanges such as the London International Vintners Exchange (or Liv-ex).’ However, Ricardo cautions that no matter where wine is purchased, an investor must be sure to verify the wine’s historical ownership and storage condition (provenance) and be sure the wine is authenticated and not counterfeit.
Given the high price for some of the finest Bordeaux, I asked about the minimum amount that a serious investor should commit in order to create a viable fine wine investment portfolio? ‘$25,000 used to be the minimum amount. However, given that some of the 1st Growth Bordeaux, such as Lafite and Latour, are now selling for well over $10,000 per case; in order to create a truly diversified portfolio, the minimum investment amount today is closer to $50,000.’
When asked if he thinks the future returns from the fine wine market are likely to mirror those of the past, Ricardo believes that, ‘Given that the supply of the finest investment grade wines is ever shrinking due to consumption and that no new supply of a particular vintage can be made, the trend in fine wine prices over the long-term will likely continue to increase. This fact, combined with the creation of a new class of wealthy consumers in the emerging markets, suggests that the fine wine market will continue to produce annualised returns of between 10 and 15 per cent per year over the long-term.’
To sum up, then, for those planning 20 or 30 years ahead to retirement, all the signs are that there’s less risk and better returns in art, books, gold and jewellery, and fine wine in particular, than in more traditional investment areas—providing you get expert advice and know what you’re doing.