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THE ALTERNATIVE INVESTOR
   
In vino veritas
  
Over the last two decades, fine wine has proved to be one of the best-performing asset classes, with returns of 8–10% a year or more being by no means unusual. Of course, there is a great deal of difference between an average return and the return of any given individual portfolio. So, how can you reduce the risk and optimise your profits?

To begin with, I think it is important to remember that wine is a class of asset that requires a relatively high minimum investment. Personally, I wouldn’t consider investing at all with less than £10,000 and I would actually say a figure of two or three times this amount would be wiser. Also, being an alternative asset it is obviously important not to invest with money you may need in the short to medium term. Ironically, wine is not a highly liquid asset!

Traditionally, advisers have suggested that investors stick to the main chateaux of Bordeaux and it is certainly true that Bordeaux grand cru classes account for the greater part of the investment grade market for fine wine. However, as I will explain in a moment, there are other market sectors where larger gains may be possible. I think there is much to be said for looking at fine Italian wines – especially the so-called Super Tuscans. You should buy the best that you can afford, since this will produce the highest gains.

Another important point to remember is that the price of investment-grade wines can vary substantially. Indeed, a spread of up to 20% is not unusual. If you are buying for investment, it is absolutely vital to shop around. Personally, I use a website called Wine-Searcher.com and I refer regularly to Liv-ex (the global market indices for fine wine) when buying.

What other things should you remember? When compared with global equities, fine wine has outperformed virtually 100% of the time over any given five-year period. Therefore, I would see five years as the minimum holding period with 10 years or even longer being more sensible. What about storage? You should hold your wine investments in a government-licensed bonded warehouse. Such facilities offer the perfect environment in terms of temperature, humidity and other microclimatic factors. I am assuming, incidentally, that you’ll have no truck with en primeur wines. En primeur is the process of purchasing wine while it is still in the barrel, with bottling and physical delivery likely to occur two or three years later. To my mind, this is a much higher risk since until the wine has been blended and aged one can never really be certain what its quality will be.

Finally, fine-wine investment can, if arranged properly, offer tax-free gains. This is because wine is deemed a wasting asset whose predicable life does not exceed more than 50 years. If you are making a major investment and the tax benefits are important to you (and they should be), it is best to take professional advice before you proceed. Our editor, Alan, who is not adverse to a drop of wine himself, will, I am sure, be delighted to offer his expert opinion.

As I mentioned above, risk-averse, fine-wine investors stick to certain French wines and never look further afield. But if you are a little bit more adventurous, I believe there are some other fantastic, long-term possibilities. In particular, I would consider:
  • High-end Italian wines. In particular, I would look at top names such as Brunello and Barolo, which have slowly been knocking the long-established estates of Bordeaux or hard-to-find burgundies out of the top-performing charts. Take, for example, the 2010 Brunello di Montalcinos, which have been very highly rated by experts. The Financial Times, for instance, recommended: Luce della Vite, Livio Sassetti, Siro Pacenti, Le Ragnaie VV, San Polino ‘Helichrysum’, Casanova di Neri Cerretalto, Assunto Reserva and Valdicava ‘Madonna del Piano’ Reserva.
        
  • Super Tuscan wines, such as Sassicaia Masseto, Ornellaia, Tignanello and Solaia, all have a history of excellent price appreciation. Anthony Maxwell, director of Live-Ex, was recently quoted as saying: “Super Tuscan wine growers are producing large volumes – similar to Bordeaux classified growths – and while Bordeaux has been out of favour, they have looked attractive.” The Financial Times also suggested that Barolo wines from the Piedmont region should not be overlooked, as Piedmont is “the Burgundy of Italy”.
  • If you want to follow even more of a high-risk/high-return strategy then you could consider Chile. The country offers an ideal climate for grape growing and has the further advantage that its isolated location means it has managed to avoid invading pests (such as phylloxera). In the last five years, vineyards have extended the areas under cultivation by 25%. And because of the country’s natural protection from pests, the organic sector is doing especially well.
  • You could also start your own vineyard. English wines have proved to be increasingly successful, and recently a pioneering vineyard owner, Christopher Trotter, began making wine in Scotland. As global climate change could give Scotland the same climate as France’s Loire Valley within a couple of decades, the idea of Scottish wine may not be as bizarre as it sounds.
The Liv-Ex 50, which tracks the most-traded Bordeaux wines, shot up a staggering 66% or so between January 2010 and June 2011. Since then there has been a decline but, nevertheless, the very long-term returns remain on a par with stock-market returns, with the added advantage that wine tastes better than share certificates.

You can’t lick stamps

Thanks to growing demand from the Chinese and other emerging economies, it has been estimated that there are now 60 million stamp collectors in the world. That’s right: 60 million! With such a massive market, it isn’t surprising that stamps remain one of the best-ever alternative investments. Indeed, the Stanley Gibbons Investment GB250 index has grown by close to 200% in the last 10 years. The biggest buyers, incidentally, are the Chinese, with the result that there is growing demand for Hong Kong and Chinese stamps (Chairman Mao forbade stamp collecting as a hobby, which may go some way towards explaining its more recent popularity).

It is also to be remembered that stamps are easy to store and transport. You can slip several hundred thousand pounds (even several million pounds) of stamps into your briefcase and take them across international borders with no questions asked. Since so many countries are suffering from political turmoil it is thought that at the top end this may have contributed to rising prices.

As with wine, I would always recommend a minimum investment of at least £10,000 and I would also suggest going for quality rather than quantity. The rarer the stamp, the greater the growth you are likely to see. Stanley Gibbons, incidentally, offers a guarantee. If you buy a portfolio of stamps from the company and it doesn’t grow in value for the agreed period (between five and ten years), it will buy it back from you at cost.

If you are interested in this area, I recommend visiting ukphilately.org.uk, the National Philatelic Society’s website. I would also always recommend that you buy a collection rather than individual stamps. There are two great international stamp fairs held in the UK: Stampex and Philatex. You should also keep an eye on all the various auction houses. Finally, Stanley Gibbons actually offers a rare stamp fund, which may also be worth considering.