How is wine as an investment?
“First Growth Bordeaux of 1990 vintage has beaten the S&P 500 hands down over the last 15 years.” Internationally, arguments like these float around in favour of wine as an investment. With the help of selective facts you can argue that fine wine is a better investment than stocks. Changes in the price of wine has no correlation to stocks and offers diversification of assets. There is even a “pseudo stock exchange” called www.WorldWineXchange.com which offers a secure trading platform in fine wine to international buyers and sellers on a real-time, first-come, first-served basis. Go to their site and you will see a “wine price ticker” running across the bottom of the web page. The commission is a fat 5% of the total transaction, charged from the buyer and seller. The exchange links wine merchants and stockists with wine buyers and arranges settlements between its members transaction-by-transaction.
In early 2002, The International Herald Tribune wrote: “while stock markets around world are struggling with the threat of global recession, wine is emerging as a sort of ‘safe haven’ investment. In the weeks following the September 11 attacks in the United States, some investors had taken big positions in wine, a commodity that has shown a historic tendency to rise in price over time… The Internet has helped to make wine investing more accessible. Investors can compare prices and order online. Wine brokers will then hold the bottles for them in a bonded warehouse until they decided to either sell it, or drink it… Whether they get into it as a hobby or a serious investment - fine wine buyers are betting that their investment will get better with age.” In fact, serious wine investors see a supply of fine wines from good years constantly shrinking, pushing prices ever higher.
Thanks to this widespread global interest, there are offshore funds investing in fine wines. The World Wine Exchange offers a Fine Wine Investment Service called The Wine Portfolio. The Vintage Wine Fund is a Cayman Islands-based investment company, established to invest in fine wine with the objective of steady, high capital growth. It is managed by OWC Asset Management Limited, which is regulated by the Financial Services Authority (FSA) of UK.
Studying the investment strategy of the fund is one of the best ways to learn what to do when you are investing in wine on your own. According to the fund, it “invests in top wines from many different regions. Due to the large size of production, Bordeaux forms a significant proportion of the Fund; however, the top wines from Burgundy and the Rhone valley can show spectacular returns and while not available in the same quantity as Bordeaux, are an important part of the Fund. There are very exciting wines being produced in Tuscany and Piedmont which regularly merit inclusion. Other regions including Champagne, Spain, Portugal, California and Australia are also considered.” How well has the fund done? Since 2003, it has earned 6.22%, 2.12%, 11.18% and 18.92% in 2006 year-to-date. These returns are not bad. But even if they are, you can lift your spirits by opening the collection and drinking it! You cannot do that for any other asset - stocks, bond or gold.
Art offers one of the poorest returns, says a Merrill Lynch study. Why does that not surprise us?
Art buying has reached sensational levels - both at cultural and financial levels. Fresh from earning money by selling commodities (Middle east, Russia and parts of Asia and Latin America) or services (India) to the world, a new generation of businessmen has swooped down on the art market....
When gold prices crossed $600 we had asked whether gold was a great investment option. Gold bulls were sanguine that it would cross the old high of $850, made sometime in early 80s. We were not so sure. After our analysis, gold surged past $700 in a month. But after touching $730, a 26-year high, the yellow metal started softening until on June 13, it posted its steepest one-day decline in 23 years! Gold simply collapsed 8% in one day to almost $550 when a global liquidity crunch forced a selloff of all risky, leveraged assets - from emerging market equities to commodities - and gold. The reason: the strong market opinion that the US Federal Reserve may keep raising rates to contain inflation. This reduces gold's appeal as an investment. This is why we had suggested investors avoid gold at these levels.
The key point about gold is that unlike other financial assets, it does not pay interest or dividend. So, the moment there is a reasonably safe asset class that seems to offer a stream of income - and does seem strong enough to withstand economic risks, money will flow into that asset, deserting gold. This is exactly what happened in mid-June as the dollar re-emerged as a strong competing asset because US interest rates were expected to harden.
Investors embrace gold as an asset when they have no asset to turn to - a period of extreme depression and gloom. This is rare in human history and so, despite periodic appeals, in inflation-adjusted terms gold has been a terrible performer.