The case for wine
By Alex Jamieson from AJ Financial Planning - Tue Oct 22, 10:05 pm
Does your investment strategy need some turbo-charging? Did you know there is one asset class that has outperformed shares, property and gold over the past 10 years? In fact, in just four months this year the index is already up 53%.
The interesting part is despite these stellar returns, most investors in Australia would never have heard of this asset class. The main reason is this sector has normally been reserved for the multi-millionaires and billionaires. These wealthy investors have been quietly banking returns as high as 80% in six months or 1,300% in over 10 years without any form of leverage or investing in high-risk investment options. This is not a fly-by-night sector, as it has been around for centuries with an annual trade volume of about $4.65 billion.
What is this asset class? Fine wine.
Similar to other markets there is a Fine Wine Index and similar to shares, this sector has its own stock exchange – the London International Vintners Exchange. Each day there are daily prices on wines that are being bought and sold. The exchange has more than 300 trading members worldwide.
But before you run down to your local bottle shop to buy your favourite $10 bottle of plonk to put under your bed, Australia’s wines don’t come close to the performance of the international competitors. The fine wine index’s best performing wines are from the top performing eight French Bordeaux wineries.
These wines are known as “first growths” and the brands include Chateau Lafite Rothschild, Chateau Latour, Chateau Mouton, Chateau Margauz and Chateau Haut Brion. The index is made up of about 100 different wines with the wines that extend beyond the list provided above and each has its own unique properties and performance history.
Let’s look at one example. If you have purchased a case of Chateaux Lafite Rothschild 1982 in August 2000 for $4,500 by August 2010 it would be worth $58,500. If you decided to buy multiple cases of about $100,000 in value this would be worth today about $1.3 million.
If this does not excite you enough the 2008 Chateaux Lafite Rothschild was released in April 2009 and is already up 812%. So if you invested $100,000 and bought multiple cases, this wine would yield you a cool $812,0000 in less than 12 months. What is driving this extraordinary growth? Is it sustainable?
First and foremost each vintage is rare and unique. There is also a limited supply of each vintage and this is an ever-shrinking stockpile as each bottle is consumed. So benefit number one is its limited supply that becomes scarce year on year.
The second benefit is as the wine matures it gets better. Most of these top-performing wines have a life span that extends up to 20 years plus.
The third benefit is a growing number of consumers. China and India are just discovering wine and brand conscious buyers only want the best. These massive populations of multi-millionaires and billionaires are keen to display their wealth for the world to see and placing increasing pressure on the current market. If you are looking at a life curve, we are really starting out at ground zero for these two countries and they are placing ongoing pressure on these sectors as it starts to take off.
But before you pop the champagne over this discovery, like all investments, you would never want to invest your entire life savings into just one investment option or asset class. It would also be unwise to just invest in just one vintage.
It is also important to seek professional guidance from a financial planner that understands this asset class, as this dynamic sector can be difficult to understand for the new entrant wanting to get a piece of the action.