Colin McClelland of Bloomberg features Wine Source Group's Wine Fund in his analysis of wine investment markets. The full story was published on 17th February 2017.
A global rally in stocks is driving some investors to drink, but not in the way you might think.
Prices for fine wines have climbed to their highest levels since October 2011 on speculation that equities near record highs are poised to drop. Wines and the funds that buy them are being viewed much like gold -- as a store of value in uncertain times -- after the U.K. voted to leave the European Union and the U.S. elected Donald Trump as president.
“Favorable macroeconomic conditions, constrained supply and robust demand will continue to drive the market,” said Chris Smith, an investment manager at the London-based Wine Investment Fund Ltd. The fund returned 17 percent in 2016, boosting its net asset value to 248 million pounds ($310 million). “Prices to most buyers still look cheap in historical terms.”
A weaker pound is helping to make sterling-based wine contracts cheaper for overseas investors and boosting the value of indexes, which are denominated in the British currency and track the value of the most sought-after wines. Chinese investors have also returned to the market after overstocking when prices were rallying in 2010, only to be followed by five years of losses.
The Live-ex 100 Benchmark Fine Wine Index has gained in each of the past 14 months, its longest winning streak since June 2010. The gauge returned 25 percent last year, beating the 19 percent made on the FTSE 100 Index of the largest companies on the London Stock Exchange. The wine index has room to rally another 18 percent before hitting its mid-2011 peak, according to Smith.
U.S. stocks fell from record highs on Thursday, with Dow Jones Industrial Index snapping its longest win streak since September 2013. Gold is heading for its seventh weekly gain in eight after prices for the metal last week hit their highest levels since November.
The wine index has room to rally another 18 percent before hitting its mid-2011 peak, according to Smith.
To be sure, wine funds aren’t for everyone and not typically the type of products generally open to retail investors because of the risks associated with them, said Charles Boulton, U.K. market head of HSBC Holdings Plc’s private-bank unit, which has about $315 billion under management. The funds are targeted at experienced investors, he said.
“A lot of the wine funds are small and you may run into liquidity issues,” Boulton said. “The time horizon for suitable returns on these investments is relatively long and it can be a volatile asset class.”
They are not without their risks either. The Cayman Islands-based Vintage Wine Fund, which in 2008 held 110 million euros ($117 million) of assets, closed in 2013 after a poor performance prompted investors to pull their investments. A year later, Luxembourg-based Noble Crus Wine Fund was shut down. So was Bordeaux Fine Wines Ltd., which had one of its directors banned by the British government from running a company after money meant to buy wine was spent on race horses, sports cars and private jets.
Demand from China is rising after a crackdown on excess and bribery dissuaded investors in the world’s second-largest economy from making purchases. Bottled wine imports to China jumped 21 percent to $1.66 billion in the first nine months of 2016, according to the China Association for Imports & Export of Wines & Spirits.
The 10 million-euro Malta-based WSF Sicav Plc’s Wine Source Fund, which also invests in whisky, has gained 32 percent in net asset value since it started in 2012, according to Chief Executive Officer Philippe Kalmbach. He is also the founder of Wine Source Group, which buys wines from among the top producers in the world for distribution to restaurants and hotels.
The fund attracts investors with a service that offers reservations on private jets and yachts, sommeliers on demand for your dinner party and last-minute seats at more than 500 of the world’s best restaurants. It buys 60 percent of its wines on the open market and the rest directly from producers, then stores them in bonded warehouses to age in optimal conditions, he said, adding that it trades about one third of its portfolio a year to ensure it remains liquid and meets all its redemptions.
Wine Owners Ltd., a London-based company that builds individual wine portfolios for investors as opposed to a wine fund, saw trading increase to 662,000 pounds in the fourth quarter of 2016, from 263,000 pounds a year earlier, manager James Sowden said.
Kim Carter, 63, wants to increase his allocation to the Wine Investment Fund to about 5 percent of a portfolio he owns, declining to give details on his current holdings. He started his investment pool by selling a brass-fittings manufacturer to Hanson Plc in 1989 and also invests in private equity in the U.K and Canada and co-founded Wishing Step Pictures Ltd., a documentary film company in Toronto and Hamilton, Bermuda.
“I like wine, but I’m in it for the investing,” he said by phone from Contadora Island in the Gulf of Panama. “It’s always done incredibly well for me.”