Investing in fine wine can help in hedging inflation risk.
A recent report stated that investment in fine wines was more lucrative than ever, highlighting a UK-based company that yielded an index performance of 26% in 2016. Here, Concha y Toro’s Regional Director Guy Nussey weighs in on the topic. Having been in the industry since 2007, Guy has not just been distributing quality wines in Asia; he has also amassed his own collection during this time as a passion project.
With sales in over 140 countries and 12 distribution subsidiaries, Viña Concha y Toro is South America’s single largest exporter of fine wines. It also the second largest vineyard owner in the world and the fifth largest wine company by volume with sales in excess of US1$ billion, with APAC a rapidly growing market that currently makes up around 10% of its annual revenue. Viña Concha y Toro has also been recognised as the World’s Most Powerful Wine Brand by Intangible Business and International Drinks Company of the Year in Drinks Business.
1. How does a beginner go about building their wine collection:
The first thing you should do is to define how much you’re comfortable with spending; and it doesn’t have to be thousands of dollars. You should definitely do your own research; regardless of online, press or peer group. Alternatively, you can look into engaging the services of a fine wine broker. There’s a number of companies, such as Cru, Cult Wines and Sarment, operating in Singapore who can provide advice on what they see as good investment wines, and more importantly, can guarantee availability and quality.
Always make sure of the provenance of the wine you buy and ensure that you store it in optimum conditions. Both variables are very relevant to the future investment potential of your eventual portfolio. Finally, you should always buy something that you personally like or have an interest in.
2. How would you compare wine investment against traditional kinds like property?
Fine wines have come of age as collectable assets. They provide excellent, absolute returns, low correlation with other assets, downside protection in a crisis, healthy market dynamics and low storage costs. Wine, and other investments such as whisky, can be a great way to diversify your investment portfolio. Unlike property, the cost of entry can be very low, and as an asset class over the last 12-18 months, it has outperformed more traditional investment categories such as equities.
Similarly, wine investment can be very trend driven and open to the effects of external policies. The impact of the austerity programme implemented in China had a large effect on Bordeaux values as this market was a key driver of the sales increases. This led in turn to a move towards Burgundy, which has been one of the best performing areas in wine investment.
The other major consideration is that wines by nature, become scarcer as a resource as time goes on, and when bottles are consumed. This is why some of the world’s most expensive wines are those with long ageing potential, have an age of 60 years or more, and.or large formats which the wineries produce small amounts of. Additionally, fine wine can play a role in hedging inflation risk. The returns are +10.3 CAGR since 1988, is negatively correlated to global bonds, and offers much better downside protection than major equity indices. Fine wine only dipped briefly in the Global Financial Crisis (2007-2009).
3. What’re some of the types of wines to look out for? What do you think the next trend in wine investment is going to be?
The area of Burgundy has been the fastest growing over the last 10 years, and if money is no problem, then here you have the ultimate combination of small production, hundreds of
years of history and a huge demand for wines such as DRC.
Bordeaux, first and second growths in particular, are solid performers and should be part of the portfolio. Italy, led by Super Tuscans, continues to see good growth, whilst California’s cult wines
such as Screaming Eagle, have very strong secondary markets as a result of the difficulty of purchasing them upon release.
For value, New World regions such as Australia, Chile and Argentina offer some excellent opportunities for future growth. If you look at the performance of wines like Opus One and Penfold’s Grange, the increase in price since their launch has been outstanding. China is now one of the world’s largest export markets for Australian and Chilean fine wines, and after seeing how this has influenced the Bordeaux market, it can only bode well for wines such as Almaviva and Don Melchor; both of which have the combination of limited availability, exceptional quality, years of history, and the reputation of their producers.
Lastly, the other area of strong growth is in fine champagne, particularly the likes of Cristal and Dom Pérignon. This area has been one of the top performers over recent years, and is attracting a lot of attention from collectors, as consumption of sparkling wine, including champagne, continues at a faster rate globally than still wines.
4. How to detect fraud in wine investment?
It’s difficult, but not impossible. I would recommend that you buy with provenance; ideally direct from the negotiant or chateau, but if not, then from a wine merchant with good history and expertise. Always buy in full, original cases as odd bottles are more likely to be faked, given that they’d be more difficult to compare.
You can also consult an expert to assess wines before or after purchase. Specialists such as Chai Consulting, can help ensure that the risk is eliminated.
5. What’re some of today’s trends in the region?
With High Net Worth individuals having US$1.6 trillion in collectable assets as of 2016, and projected to grow 66% to US$2.7 trillion by 2026, Fine wine will be a major beneficiary of this trend.
This is led by Asia, with both Sotheby’s and Cult Wines seeing an investment boom from Asian clients. Numerous wine appreciation workshops, masterclasses, multitudes of wine dinners, and blind tastings show that it’s clear Singaporeans have a growing thrist for wines.
6. Can you share more on your own investment portfolio and how it’s performing?
I hold a combination of Bordeaux wines dating back to 2003, Rhone wines from top producers such as Clos de Papes, and vintage champagnes such as Cristal and Dom Pérignon. Of course, I also have cases of Don Melchor and Almaviva. Over the last year, champagne has been the star performer with Cristal delivering 33% returns in one year when my equity investment was flat. In fact, at our last meeting, my financial advisor bemoaned the fact that no one was making money over the last year, so I advised him to invest in wine and whisky!
7. What’re some risks related to wine investment?
Like any investment, there are of course, risks that could lose you money. Each vintage can be varied both in terms of quality and quantity, and depending on whether the next vintage turns out to be the best on record; the one that you bought can be reduced in value.
Unfortunately, fraud is a significant issue as well. However, the positive element is that distressed assets are not a big issue; as long as you are buying wines that you enjoy. The worst case here is that you can drink some fantastic wine!
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