The Case For Wine Investment

The predominant element of concern for investors may be the stability of their holdings. Is an unpleasant surprise over which they have no control waiting just around the corner?

Wine as an investment combines a number of unique features with a long-term history of

Consistent investment returns
Greater stability than most asset classes

Key issues that all potential investors should consider are

Taxation - and its effect on them and their investment
Availability - of the investment and its rarity is a driver for value
Timescale - the ability to have a variable time frame
Substantiated past performance - has the investment performed consistently?
Realisation - how quickly/easily can your investment be sold
Charges & penalties - can seriously erode and inhibit perfrormance
Financial stability of the provider - always an important consideration

The unique features of investment wines are as follows.

Tax status

Gains are free of both income and capital gains tax. This is because the Inland Revenue and Capital Taxes Office consider wine to be a wasting asset. Therefore, for private investors this constitutes a significant benefit.

Tax will only arise if one is buying and selling significant volumes of wine. In these circumstances the buyer would be classed as a trader.

Availability

There is strictly controlled, limited production. The French government department - Appellation Contrôlée - ensures that the vineyards and châteaux do not exceed their permitted production, measured in "litres per hectolitre". A market is created for the best rated wine due to limited availability and therefore they enjoy a premium, increasing their value.

This is crucial as firstly, the limited production in itself will create rarity.

Secondly, it is critical for investors to work with organisations who have a significant allocation of both En Primeur and old, fine and rare wines with investment potential.

The supply, coupled with knowledge and experience, is then used to construct a portfolio that meets the investor’s objectives. These objectives take account of budget and timeframe as well as expectation.

Current and future consumption ensures a diminishing supply. Once in the bottle – an average from En Primeur release is 24 months for investment-grade wine – consumption commences. Although it may be some years until a fine wine reaches its optimum drinking age, as wine is consumed, so the remaining supply enjoys an even greater premium. Therefore, its potential as an investment is enhanced.

At no time in the future can you make, or recreate further supplies of a wine from an earlier year.

This is unlike other investment forms where new units or a rights / scrip issue can generate new investment by diluting holdings for those original investors.

Timescale

Increasingly in the current environment it is essential that flexibility is maintained with regard to access to invested funds. Life is embodied by ever faster change thus potentially inhibiting certain investment opportunities. A key benefit of wine investment is that it has demonstrated excellent investment returns over short, medium and long-term periods. Ideally one should be in a position to establish the appropriate timeframe for investing. The significant advantage of wine is that investments can be realised in part or full at any time without incurring penalties or clawbacks normally associated with other forms of investment. Of course, early encashment may not provide the optimum returns, however, there are no restrictions as to when investments can be encashed. The time horizon is, however, important when advising on and constructing the portfolio. For those looking at the longer term, we would include a number of larger format bottles as these have a distinct investment advantage when your investment horizon is 8-10 years plus.

Substantiated past performance

There is a universally accepted rating system for evaluating wine. In the mid 1980’s Robert Parker introduced a point scoring system to assist the consumer in evaluating the quality of wine. This 100 point system was adopted by many, including the well known wine journalist James Suckling. The advent of this approach revolutionised wine assessment and effectively created a single dominant standard for comparing and pricing wine.

The system operates from a perfect 100 points on a downward scale. The score is then accompanied by comment.

We believe that wines will not be chosen as investment-grade, unless in exceptional circumstances, if they carry a score below 90.

Vinum Investments Limited also imparts their own expertise and tasting notes to those of Robert Parker, and other wine tasters and writers.

Please note that a number of wine experts and writers use a 20 point scoring system which operates in a similar fashion.

Appendices provide the actual purchase prices and current sale values of portfolios previously purchased by our parent company. These are not our own assessments but open market prices.

We are sure that you will find this information clearly demonstrates that, with expert, qualified advice, wine can deliver exceptionally competitive returns over short, medium & long-term periods thus creating an extremely flexible and competitive investment alternative.

Realisation

Wine is a readily and easily realisable asset, and also an internationally traded commodity. It can be sold at the open market price at any time without penalty for the investor. There is worldwide interest in vintage wine with a ready market, not susceptible to the normal fluctuations experienced by stock markets and interest rates.

This does not necessarily mean that the wine physically moves. Indeed much of the greatest wine will change hands many times and never leave the bonded warehouses of Bordeaux.

Crucially, for the investor, there is no set time period for investing in wine. Therefore, a very flexible approach can be taken with regard to disposal. Wine may be sold by the case (if your requirements are smaller), or your cellar may be disposed of in full.

Another important factor is the uncomplicated charging structure – see below.

Please also refer to ‘How do I capitalise on my investment?’

Charges and penalties

The charges for Vinum Investments Limited and that of your adviser are included in the invoiced acquisition price for your recommended wine portfolio. The only charge levied by Vinum Investments Limited at the time of disposal, or delivery to you, will be the cost of storage and insurance, currently £7.60 per annum per case.

Financial stability of the provider

Please refer to ‘How secure is my investment’ and ‘Who are Vinum Investments Limited’