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Saturday 11 October 2008

Opportunities for vintage growth

Christopher Silvester says you don’t have to be rich to invest in fine wine, and the rewards can be handsome

Wine as an investment asset class intimidates most people, who mistakenly assume it is a rich man’s game when in actuality it is open to anyone who is prepared to commit a few thousand quid and wait for a few years. In the distant past the only game in town was to buy through wine merchants, but in the last quarter of a century a new breed of wine investment company has emerged. These are much the same as advisory stockbrokers, in that they choose a portfolio for you and trade it on your behalf. In the last ten years a handful of wine investment funds, operating on a similar basis to long-only equity funds, has joined the party. These buy or sell memberships, a bit like unit trusts, and co-own the cellar with their clients.

Whichever path you choose, returns for investors can be enormous, but two additional factors should be borne in mind. Historically, prices of investment-grade wines have shown steady growth regardless of stock-market volatility or economic recession. There has been only one major blip in the last 30 years and that was during the Asian financial crisis of 1998. The fine wine market went down by 15 to 20 per cent, because investors sold in a panic to pay for losses on the stock market, but the downturn was brief. Also, there is a tax break available to UK residents who invest in wine, because wine is treated as a wasting asset by the Inland Revenue and is therefore not subject to capital gains tax.

London’s dominance as global capital of the wine-investment industry is assured for the time being, but other territories are beginning to catch on. In February the Hong Kong government decided to abolish its 40 per cent import duty on wine — it had been 80 per cent until the start of 2007 — as part of a plan to turn the city into Asia’s centre for trading, storing and shipping wine. This is likely to lead to a surge in wine shipments to the Far East, a decline in stocks held in Europe, and a 30 per cent increase in wholesale prices going into Hong Kong — a perfect storm of upward price momentum.

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