A Vintage Investment Vehicle Print
Wednesday, 04 February 2009 11:06
Fine Wine Investment Houses have overnight jumped back into the forefront of investors’ minds in the current unstable global market. They offer truly independent advice, the flexibility of choice and an opportunity to take advantage of a tax free asset class during uncertain economic times. Wine has demonstrable advantages, particularly in a market where traditional investment products have failed to perform.
Stock market volatility brought on by the current economic climate has pulled the rug from under investors’ feet. The ‘crunch’ is gaining momentum. The global banking system is wobbling. The stock market is on a grim rollercoaster ride, and even bigger threats to the economy loom on the horizon. Confidence is at an all time low. We are, as George Soros puts it, heading into the worst financial storm in 60 years.

Whilst the situation flickers from one crisis to the next, many investors are beginning to seek out alternative methods of spreading their portfolio risk to ensure minimum exposure to the myriad of macroeconomic problems. Alternative investment management companies are capitalising on this period of uncertainty by differentiating their investment product offering to traditional investment products such as equities. In comparison to other alternative investments, Fine Wine has clear advantages over the likes of art or property. This ‘asset’ is easily stored and generally increases in quality the longer it is left, and is not the subject of what’s fashionable and what’s not. Investing in either art or property requires expensive maintenance and care, while Fine Wine needs no such attention. Decreasing availability increases rarity and hence can produce excellent investment opportunities.

Fine Wine has consistently outperformed all other forms of recognised investment. It has remained the steadiest form of investment, generally unaffected by recession, interest rate changes and stock market fluctuations. It benefits from being stable, tax free, easily realisable, consumable, low risk and portable.

Diversifying domains


A core benefit to our hands-on investment strategy is the flexibility and tax effectiveness on offer to clients. Until recently, investing in the Fine Wine market has been considered a wine expert’s domain only. Wine investment houses are here to fill the void by offering specialist advice to individuals with little or no knowledge of wine, enabling everyone to get involved in this thriving market. By no means are we advising individuals to withdraw from their current investments, but to balance their portfolios through broadening their range, enabling risk to be more evenly spread.

Fine Wine investment is by no means a new concept. It is largely uncorrelated to the stock markets, and has demonstrated a long history of steady growth. It has carried an average annual compound growth rate of 17.64% over the past 18 years.

In 1855 Napoleon III effectively started the “Fine Wine Index” when he classified the wines in Bordeaux on a scale from one to five. He based his decisions on the quality and prices realised of each Châteaux wine over the previous 100 years or so. Apart from one change in 1973 when Château Mouton-Rothschild was promoted from a 2nd growth to a 1st growth wine, the process remains unchanged. Today, however, the market has The London International Vintners Exchange (Liv-ex) - the leading exchange for fine wine. Founded in 1999, Liv-ex runs an internet and phone based information, trading and settlement platform for fine wine merchants. They also provide valuation services and sell data to both professional traders and wine collectors.

The asset class has shown greater and steadier growth than gold and less volatility than oil. Following the 2001 attacks on September 11 when markets tumbled, Fine Wine continued to hold its value. The same can be demonstrated more recently. For example a case of Chateau Margaux 2000 purchased in September 2005 cost £3,100. Today’s value lies at £7,400 - 138.71% growth – a price which remained largely unaffected in the last few months of banking and insurance sector turmoil.

One could argue, given the economy, that an investment class such as Fine Wine has never had a better opportunity to make its mark. After all, with the most significant insurance houses actually owning Bordeaux chateaux, this could be viewed as a reasonable safe haven that merely needs to be better explained to the masses. As people’s perception of this form of investment grows, so will its popularity and demand. People do not like to discuss their pension premiums amongst friends around the dinner table, but they do like to talk about the value of their wine.
And why not, when you look at these type of returns?

Laffite 1996 – Paid £2,687 in Nov 2005. Now valued at £6,800 = 152.98%
Laffite 2003 – Paid £2,397 in Nov 2005. Now valued at £7,000 = 192.03%
La Mission Haut Brion 2000 – Paid £2500 in Nov 2005. Now valued at £5,700 = 128%


Homeowners can now choose to use fine wine to repay their mortgages, using wine as an investment vehicle alongside an interest only mortgage. As an example of growth over the last three years, £29,798 invested in fine wine in November 2005 was worth £56,770 by November 2008. The same sum invested in the FTSE All-Share Index would be worth only £27,040.

Relocating risk


Many investors may be nervous of entering a market in which they have no prior knowledge or expertise. By receiving professional advice in this field, investors can receive a full service which includes tailor-made investment portfolios to suit specific needs, full management of a private investment cellar, and storage and insurance of their asset in optimum conditions right through to the eventual sale. Those with investments in bond wrappers or SIPPs can speak with their financial advisers regarding the option of moving a proportion of their investment into a Fine Wine Fund to spread risk and diversify investment and help to hold off the currently diminishing value of their funds. Through our more than 2000 IFAs we can educate investors seeking alternative methods to having their money work harder for them. Removing all the common drawbacks from other investment schemes, fine wine offers what is generally considered to be the most tax efficient and fully flexible range of investment plans on the market today.

Laffite 1996 - Paid £2,687 in Nov 2005. Now valued at £6,800 = 152.98%
Laffite 2003 - paid £2,297 in Nov 2005. Nowvalued at £7,000 = 192.03%
La mission Haut Brion 2000 - Paid £2,500 in Nov 2005.                        Now valued at £5,700 = 128%

So when is the best time to buy? All investments demand knowledge and expertise. Your chosen investment house should carry sufficient knowledge of taxation, market conditions and forces, and the intricate rules of supply and demand. When we structure an investment portfolio, our panel of wine experts will recommend Fine Wines that should show the best returns, coupled with the appropriate level of risk over your chosen period of investment. We are able to structure bespoke portfolios of Fine Wines at the most competitive purchase price. Only the Top 30-60 of the registered 4000 Châteaux in the Bordeaux region reach the standards demanded, for quality, underlying stability, limited availability, historical and forecasted investment growth. Bordeaux on average produces 56,000,000 cases of wine a year, of which investment grade wines make up on average 450,000 of them. 2.3% of the world’s wine comes from Bordeaux, meaning the investment grade wine is less than 0.07% of world stock.

And when is the best time to sell? As with any investment there will be an optimum time when you would like your money to mature, to meet the costs of, for example, a wedding, school fees, mortgage repayment, retirement or perhaps a world cruise. If the market is trading high on a particular wine you own, your chosen investment house will write or telephone to inform you of the increase in value. They may recommend you sell and replace the asset with a younger vintage at a lower price, thereby increasing your stock and protecting your original capital outlay. Unlike almost all other investments, there are no penalty charges for an early encashment. We do however recommend a minimum investment period of three years. You will receive annual valuations and newsletters, keeping you abreast of current market conditions and ongoing prices.

The bottom line is that this form of investment needs more than simply an expert managing your portfolio with a trained eye in wine. An understanding of the investment barriers to entry and exit is crucially important. There has never been a more important time to have your portfolio managers calling the right shots at the right time.

Stock market volatility brought on by the current economic climate has pulled the rug from under investors’ feet. The ‘crunch’ is gaining momentum. The global banking system is wobbling. The stock market is on a grim rollercoaster ride, and even bigger threats to the economy loom on the horizon. Confidence is at an all time low. We are, as George Soros puts it, heading into the worst financial storm in 60 years.

Whilst the situation flickers from one crisis to the next, many investors are beginning to seek out alternative methods of spreading their portfolio risk to ensure minimum exposure to the myriad of macroeconomic problems. Alternative investment management companies are capitalising on this period of uncertainty by differentiating their investment product offering to traditional investment products such as equities. In comparison to other alternative investments, Fine Wine has clear advantages over the likes of art or property. This ‘asset’ is easily stored and generally increases in quality the longer it is left, and is not the subject of what’s fashionable and what’s not. Investing in either art or property requires expensive maintenance and care, while Fine Wine needs no such attention. Decreasing availability increases rarity and hence can produce excellent investment opportunities.
Fine Wine has consistently outperformed all other forms of recognised investment. It has remained the steadiest form of investment, generally unaffected by recession, interest rate changes and stock market fluctuations. It benefits from being stable, tax free, easily realisable, consumable, low risk and portable.

For further information go to www.premiercru.com – Telephone: 020 8905 4495 Premier Cru Fine Wine Investments Ltd was formed with the specific intention of offering structured and managed investments to people with little or no knowledge of wine. The company is unique, in that it provides tailor-made portfolios with no lock-in periods, thus enabling investors to add or subtract at will to pay off a wedding, children's school fees, a mortgage or even create an income to supplement their pension. It does not charge upfront or exit fees, nor early redemption penalties, and investors' profits are free from capital gains and income tax. Unlike ISAs there are no upper limits, and Premier Cru’s minimum investment is the lowest in the market, at £5,000 and/or £175 per month.

Peter was formerly Chief Investment Officer for the Wine Investment Fund, which he co-founded. From 2003 to 2008 the fund returned an increase of 108% net of all fees. Peter launched Lunzer Wine Investments on 1 November 2008.

Outlook for Wine Investment in 2009

“There are a number of key areas to consider regarding the prospect of predictable returns from investment grade wines. These can be defined as:

*Assessing demand.
*Any significant changes to supply.
*Key developments in the market.
*Looking for signs of an overheated market.

“But the most important factor to bear in mind is that there is a finite supply for a global demand.”

Assessing demand

There is a constant and growing global demand for a finite and diminishing supply, notes Peter.
“Wine features very humbly among all the extravagances enjoyed by wealthy individuals.

For example, a Lear Jet 60XR could cost £12,500,000, and a Sunseeker Yacht 105 in the region of £4,900,000.
“By way of contrast, Chateau Petrus 1990 costs approximately £28,500 per case, and Chateau Lynch Bages 1990 would be in the region of £1,500 per case.

“There is a consistent demand for wines that have a brand. Consumers are looking to impress others as much as enjoy the content of the bottle. Brands such as Chateau Lafite are powerful and growing in popularity.”

How much wine is there in the market place and how is the supply changing?

The current estimate is that there is between £6bn and £8bn globally of investment grade wine stock. The annual contribution from a high quality harvest is estimated to be between £1.5bn and £2bn.

The biggest single change to the market in the past six years has been the Chateau keeping back a higher than ever percentage of production, notes Peter. This has especially been the case since the 2005 vintage which was in such short supply that prices rose steeply for longer than normal.

There are a number of developments which will influence the future of wine pricing and availability.

Emergence of new wine funds.

“Bordeaux will remain of prime importance compared to Burgundy, Champagne and wine from the New World.” Why is this? Surely Burgundy and Champagne are equally well established brands?
“Bordeaux production levels are sufficiently high to create a truly global secondary market,” explains Peter. “Burgundy by contrast is produced in very small quantities with traditional buyers tending to buy for consumption rather than resale. There are some exceptions but for large scale investment Burgundy is too scarce. Champagne qualifies in terms of quality and production volume but the problem for me is that houses can increase production to match demand – something impossible from a Bordeaux Chateau.”   

line chart

Funds created by Lunzer Wine Investments are set up to deal with only one asset class – the finest wines of Bordeaux. Wines from the great Bordeaux Chateaux have been proven to generate and deliver sustainable investment returns in excess of many other more traditional asset classes such as equities and bonds.
The Lunzer Wine Investment philosophy is to buy predominantly world famous wines from Grand Cru Classé and Pomerol Chateaux. These are wines of exceptional reputation that are traded on a truly global secondary market and increase in value over time as the wine is drunk and the levels of stock available worldwide is reduced.
These great wines have become traded on a frequent basis and the analysis of prices and price patterns has become increasingly transparent. Moreover, using Peter Lunzer’s unique Wine Price Ratio, the firm’s fund managers believe it is possible to know when to buy and sell individual vintages for optimum capital growth.
Investors buy into Funds on a unitised basis. There is a five year investment horizon, with tax-efficient open- and closed-end offerings. This is not a wine club – investors never get to drink or even see the wines which are stored in secure Government Licenced, Bonded Warehouses. The Funds are open to both corporate and individual investors.

Steady and predictable growth
All wines held by Lunzer Wine Investments Funds will be actively traded on Liv-ex - The London International Vintners Exchange. Founded in 1999, Liv-ex is the leading exchange for fine wine running a trading and settlement platform for fine wine merchants, collectors and investors. It also provides valuation services and sells data to both professional traders and wine collectors.
Historical data taken from Liv-ex shows that the finest vintages of Bordeaux consistently appreciate in value over time. Combining this with real time bid-offer data has allowed the development of the Wine Price Ratio, the basis on which Lunzer Wine Investments makes its stock picks.

Comment from Robert Lench, Managing Director, Vinu, Fine Wine Fund.

Fund overview

This is a wine investment Fund that aims to achieve above average investment returns over the medium to long term. Medium term is defined as between three and five years.
The Fund trades in a diverse portfolio of fine and rare Bordeaux wines. The managers seek to strike a balance of holding stock long term and taking gains for re-investment/additional diversification. The managers’ network of specific buying opportunities will be identified for the benefit of the Fund.

Market commentary

“Opportunities are never lost. Someone will take the one you miss.” Unknown Author
The continuing problems in all areas of the UK economy and that of the world generally are now a regular and continuing feature for everyone. There seems little prospect of any early resolution to these problems.

For investment advisors, this creates a huge issue of uncertainty and doubt in the minds of investors. With this in mind, defensive strategies for investment tend to be the current trend of activities.

In such uncertain times and with many areas in uncharted territory, such as the current sterling/euro exchange rate, seeking areas of stability and minimising investment losses is the order of the day.

We have long espoused the view that wine will not be immune to the general financial issues affecting all asset classes. We do, however, contend that historically wine has been less volatile and the rate of decline is comparably less rapid compared to other asset areas. This is demonstrated by the figures for October:

Liv-ex 100: -12.4%
FTSE 100: -10.7%
DOW: -14.1%
CAC 40: -14%

The Vinum Fine Wine Fund recorded a fall of only 1.55% in October. This comparative performance reflects the range of wines and vintages held by the Fund. This demonstrates the benefits of a managed portfolio of wine in terms of outperforming other collections of wine, such as the Liv-ex index. As stated, wine as an investment is not immune to the general problems of the wider investment world. However, with good management and selection of rare and fine wines, we can significantly minimise any decline in values. This is obviously an important aspect for advisors as maintenance of value and minimising downside is crucial. Further, with the anticipated limited falls in value, we would expect this asset class to rebound quickly when the markets and economy generally turn positive.

Given the current lower prices, the Specialist Wine Advisor now has opportunities to purchase excellent wines at very competitive prices, therefore benefitting the Fund further in the medium to longer term.

Investment rationale

The largest exposure to one chateau in vintages is 13. The single largest financial stake in one Chateau represents £225,000 spread across 13 vintages.
We have taken a strategic stake in wines where we can perceive both demand and shortage of stock. This will ensure that gains can be taken from the holdings.
The objective of the managers is to hold long term and not be a regular trader, other than to purchase as new monies flow in. Where appropriate, profits will be taken to create liquidity and allow other opportunities to be accessed.