Include this liquid asset in portfolios

Long a component of celebration, fine wine is now a source of solace for investors worldwide.

As dreams of double-digit returns sour, many are turning to wine as an investment-worthy asset. That’s because it’s fairly immune to volatility, inflation and poor economic news. Also, it keeps part of the portfolio liquid—literally.

Some numbers for perspective: The first bottle of 1967 vintage Château d’Yquem, the world’s most sought-after dessert wine, cost $17.95 when it came to market in Ontario in 1972. Today that bottle will fetch $2,500.

However, not all wines appreciate as dramatically, says Tony Aspler, who’s written 16 books about the beverage.

“Only buy blue-chip wines: those that collectors or other investors covet.”

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Big names such as First Growth Bordeaux, the top domaine-bottled Burgundies, Super Tuscans and Gara-giste California cabernet sauvignon are considered shoo-ins by wine collectors.

During the last 20 years, fine wine has provided better returns than most equity and fixed-income indices, says Aspler. “If you hold a well-chosen wine portfolio for ten years or longer, you’re likely to see growth of 10%-to-12% per annum. Even in the short term, you can reap rich rewards if you choose wisely.”

But where to buy? Many collectors avoid auctions because “you don’t know the provenance of the wine; that is, how it’s been stored.”

Facts and Figures

• $237,000: Price of a case of 1985 Domaine de la Romanée-Conti sold at a Christie’s auction in 2007
• $88 million: Sotheby’s worldwide wine sales in 2010
• $310,700: Price of the most expensive bottle of wine ever sold at auction: a Château Mouton Rothschild 1945 (Jeroboam) sold by Sotheby’s New York in 2007
• $10,953: Price of a 1990 bottle of Domaine de la Romanée-Conti sold by Sotheby’s in 2010
• $168,000: Price of a bottle of 2004 Block 42 by Penfolds, an Australian winery
• £75,000: Price of a bottle of 1811 Chateau d’Yquem, purchased by Christian Vanneque

Figures in $US unless otherwise indicated. Sources: Tony Aspler; Sotheby’s; Huffington Post

An alternative to buying wine from stores and auctions is the London International Vintners Exchange (www.liv-ex.com), an electronic marketplace.

The Exchange allows investors to follow the market by tracking the price movement of the most sought-after wines. It mainly lists Bordeaux, but also follows wines from Burgundy, the Rhône, Champagne and Italy.

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The wine market is driven by numbers. If U.S. wine critic Robert Parker or Wine Spectator magazine gives a wine 98 points, it becomes an instant collectible. Aspler offers another reason for such exponential increases: “Only a finite supply [exists] of each vintage.”

Patience is key for those pursuing an investing strategy. “You have to hold on to wine for at least five years to realize a decent profit,” says Aspler.

Serious investors often buy wines as futures, before they’ve been assessed by critics whose judgment will move prices.

The other way to play is by investing in wine-based investment products. The Cayman-based Vintage Wine Fund, the Dinghong Fund in China and the Wine Investment Fund Canada all claim to offer exceptional rates of return. That will continue as emerging economies become wealthier and adopt western lifestyle elements.

“There are more collectors and wealthy people around the world, [especially] in Russia and China, who are forcing up prices,” says Aspler. “It might seem extraordinary to pay $1,500 for a bottle of wine today, but that same bottle in five years might be double the price.”

Or, it could go the other way if the product itself is defective or badly stored. A classic case involves the Fairmont Royal York’s losing a $44,000 library of Mouton Rothschild bottles—every label from 1945 to 1994. “They were shipping it from hotel to hotel for display, and [between] Whistler and Montreal in an unheated transport, all the bottles froze and the corks dropped in the wine,” says Aspler.

Heat is a big enemy. Wine stored over 70 degrees Fahrenheit for sustained periods will age prematurely. Vibrations caused by washing machines or drills have similar effects.

Finally, like all portfolios, a collection of wines must be diversified and periodically adjusted. “Know [the] vintages and wines people want,” says Aspler. “You don’t have to be in it just for profit. You can buy five cases of a fine wine today and in a few years sell a couple of cases and then reinvest; it’s a way of keeping your cellar moving.”

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Hassle factor

Wine must be secured in a temperature-controlled cellar.

• Building a cellar costs upwards of $20,000
• A private wine locker that stores 70 bottles can cost $38 per month
• Those with large collections prefer case storage services, which cost $2.60 to $3.20 per case, per month
• Walk-in wine cellars that store 2,400-to-7,200 bottles can cost $650 and up, per cellar, per month
• Stand-alone wine insurance policies cost about 40-to-50 cents for every hundred dollars’ worth of wine
• For a wine collection worth $100,000, the annual insurance premium is around $420
• Specialist wine insurers in Canada include Hunter Keilty Muntz & Beatty and Chubb Insurance

Courtesy: Tony Aspler, finewinereserve.com and wine-searcher.com