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Delhi Wine Club
Wine Investments in sticky territory

Posted: Monday, 18 June 2012 17:36

Wine Investments in Sticky Territory

June 18 : The steep drop of up to 40 percent in prices of fine wines last year could be an opportunity to diversify a wine portfolio or invest in a wine fund but economist and author Robin Goldstein suggested caution and conservatism as a more drop is still likely, according to him.

Talking on the sidelines of the American Association of Wine Economists' (AAWE) annual conference at Princeton University last week, Goldstein reportedly said, "I think there's plenty of air left in this bubble. There's more of this drop to come."

Some investors are hoping alternative assets like fine wines will net them better returns than those found in the stock and bond markets these days. Studies show that few wines will indeed outperform the S&P 500 over the long term, but the asset class also has great volatility.

Experts and academic studies recommend investors approach fine wine as they would gold, though wine is much harder to buy and sell. They generally agree that no more than 5-10 percent of a portfolio should be dedicated to wine.

Meenu Kohli, an Indian expat who has been running Winetage Fund in Paris for the last 3-4 years is not fazed.  She believes that wine is more of a long term investment. ‘With more cash pumped into wine in 2008-09, the wine market had gone heady and recent economic shock has made short term punters disappear with whatever money they could make, thereby leading to recent dips. But despite this the 5 yr. return still looks reasonable compared to most equity indices. Clearly gold has had an exceptional run,’ she says.

Meenu also opines that "the premise of the wine investments is that the drinking stock needs to dwindle before the prices start going up. This automatically rules out recent vintages to grow in value soon as it may take a decade before the wines are ready to drink. Most of the speculative investment has unfortunately happened in recent vintages, so unless you knew what to buy when, you might have been standing ‘burnt' ". Her two closed portfolios are still yielding positive returns of +131% and +24% respectively.

There are at least two other requirements to consider: the minimum investment should be at least three cases worth (roughly $30,000 for an investment grade Bordeaux) if taking possession of the wines and a very long-term time horizon, according to the news report in Reuter.

Minimum investments in wine funds - financial companies that act as asset managers and mutual funds that buy cases without any intention of drinking them - range from a low of around €10,000 to €100,000. One could invest in Kohli’s fund for as low as £5000.

Prices for fine wines sky-rocketed during 2009 and 2010, but seem to have peaked about a year ago, according to the Liv-ex 100, an industry benchmark, or composite price index.
It has become more critical than ever to have a careful strategy for investment. ‘I would not suggest you invest in the 2011 vintage  though there’s some value to be found in some good rated wines which have declared quite cheap prices. I would recommend some older vintages like 2000s & 2005s. And if you have the holding capacity for 7-10 years, 2009s, 2010s and even some 2008s would be a good investment,’ recommends Meenu.


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