Encarta Fine Wines - Press 12

Wine is now fine for investment too
11 Oct 2009, 0347 hrs IST,Sanjeev Sinha,ET Bureau

Wine
With investors across the world scrambling to find safer opportunities in the wake of the financial meltdown, wine has started to figure more prominently in investment portfolios, particularly of HNIs. More and more people who have grown to love wine as part of their lifestyle have begun to think of their favourite tipple as a safe haven for their savings and investments.

And why not? With the world’s top100 wines showing remarkably consistent returns over the last 25 years and also remaining exempt of capital gains tax in many developed countries, wine is slowly but surely being regarded as one of the leading alternative asset classes and, therefore, ideal for diversification. Also, because for most of the current year, the wine investment market not only remained largely immune from the credit crunch, but in an unexpected development also continued to outperform stock indices in both the UK and the US.

“Although it is often said that the market for wines is the last to feel the impact of any economic upheaval and the first to show recovery, there is no substitute for seeing this principal put to the test as indeed we have over the last 10 months,” says Wilson Douglas, UK’s leading alternative investment company.

It, however, shouldn’t be assumed that all wines are ideal for investment. On the contrary, only the world’s very best wines, ie fine wines (which enjoy a constant global demand) are advised by market experts to be purchased. According to experts, the main reason why some fine wines rise in value can be explained via the economics of supply and demand.

“Wine by its very nature is made to be consumed and so, of course, will become less available as this happens over time. The increase in wealth creation taking place now in places such as India and China, along with the scrapping of import duties in Hong Kong, brings an increase in demand with it as there are more and more people who want (and are able to afford) to drink these wines. Yet, there can only ever be a fixed amount produced each year,” says Adrian Lenagan, managing director of Provenance Fine Wines, London, ( www.provenancefinewines.co.uk ), which specializes in fine wine investment.

A notable trend being witnessed is that fine wine investment is no longer considered a niche market today like it was just a few years ago. “Fine wine used to be considered a fairly exotic way of trying to achieve capital growth. But these days, with the advent of the internet and the growing market transparency, fine wine buying and selling is more structured and has become a more mainstream way of achieving the aims of investors,” says Lenagan.

Fine wine investment, in fact, has long been thought of by various economic experts as a way of more cautious investors diversifying within their overall portfolio, which is especially the case in times of recession. And good returns have seldom been a problem. Although wines can be sold within a year of purchase, ideally investors should look at them as a long-term asset.

“If guidelines are followed and one is prepared to hold on for at least the medium term (over 5 years), then it’s not unreasonable to expect returns of around 12% per annum,” says Lenagan.

Prices of wines can be monitored on wine indices such as the London International Vintners Exchange’s Liv-ex 100 Index, that is the industry’s leading benchmark and is composed of the premier 100 most sought-after fine wines, as well as the Australian Wine Index, among others.

There is, in fact, a huge market for wine funds abroad coupled with the authorised auction houses and wine indices for trading. “As of now there is no such facility available in India, but the demand for various international brands of wine is catching up here and Indian investors keen to diversify their portfolio can do so by investing abroad,” says Ashish Kapur, CEO, Invest Shoppe India.