Everything you need to know about Fine Wine Investment

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Investment quality wines are among the top 1 percent of wines produced around the globe. Such wines get better with age as they are made or produced through a renowned winemaker or château. In the recent past, there has been a steady increase in the prices of the best investment quality wines. However, for them to become a tradable asset, they should be available in the market in sufficient quantities. In addition, investment-quality wines should receive a score of at least 95 or more from a highly influential wine critic to become popular with investors. In this article you will learn more about wine as an investment.

Best regions for Fine Wine Investment

Around 80 percent of the world's quality wines are produced by the "Big 8" châteaux in Bordeaux, France. In addition to France, the best wine-growing regions include Tuscany in Italy, Stellenbosch in South Africa, Rioja in Spain and the Barossa Valley in Australia. Apart from these, red grape varieties such as Merlot and Cabernet Sauvignon are very popular in Bordeaux, while Chardonnay and Pinot Noir are grown in Burgundy.

Below, learn more about the best wine growing regions:

Bordeaux: Bordeaux is considered the classic investment region for fine wines. In fact, both the white and red Bordeaux wines that come from the Bordeaux region are among the most sought-after wine varieties in the world. The "Big 8" in Bordeaux are considered the most prestigious wine châteaux in the region with a history of over a century (i.e. since 1855). In fact, the 8 châteaux, including Ausone, Château Haut Brion, Château Lafite Rothschild, Château Latour, Château Margaux, Château Petrus and Château Mouton Rothschild, are the best places where fine quality wines are made and produced.

Burgundy: In Burgundy, the vintages in Château Cheval Blanc are estimated to be at 10,000 euros. The leading Burgundy estates like the Domaine de la Romanée-Conti, estimate their output as per the individual bottles and not cases. Although, the supply is minimal, Burgundy offers some very expensive wines.

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Wine Futures

To purchase the first young Bordeaux wines, you must subscribe en primeur through specialized distributors. This means that the investor buys the wine although it is still in the barrels of the château. He therefore acquires only a certificate of entitlement for later purchase, since the châteaux release their wines only after a period of 3 years. For the early payment as well as the confidence in the quality of the wine, the buyer is rewarded with a favorable price. In stock exchange language, such entitlement certificates are called "futures". They are easily tradable and their value can double when they are eventually delivered. However, it can also fall if the vintage or wine does not meet desired expectations.

Wine Stocks

MGP Ingredients (MGPI): With a market capitalization of $1.602 billion, MGPI is one of the most sought-after wine stocks in the market. MGP Ingredients is based in Kansas and essentially specializes in beverage and food ingredients for the spirits industry. The company's shares are up 30 percent to start 2019.

Truett-Hurst (THST): Based in California, Truett-Hurst is essentially a small wine producer that trades at the penny stock level. Their market cap is currently $2.891 million and they produce mid-priced wines (as a T-H label) in Healdsburg.

Other popular wine stocks include Diageo (DEO) with a market cap of $112.361 billion and Constellation Brands (STZ) with a market cap of $46.066 billion.

Photo by Timur M / Unsplash

The experts' recommendations

Since early buyers of Bordeaux do not usually taste their wines, they rely heavily on the judgment of experts. In the month of April, after the harvest is over, the châteaux of Bordeaux invite both merchants and critics to taste the unfinished wines. The pricing of these wines depends on their judgment. Wines that are rated 99 or 100 points double their price within a day. Any rating below 85 points leads to demolition.

The Wine Exchange

The London International Wine Exchange Liv-ex was founded in 1999 by Justin Gibbs and James Miles. It offers 100 top wines, of which almost 90% are Bordeaux wines and the rest are from Champagne, Burgundy, Rhône and Italy.

The Liv-ex Fine Wine 50 Index keeps track of the daily price movement of the goods that are heavily traded on the market.
The Liv-ex Fine Wine 100 Index, on the other hand, represents the movement of the hundred most popular fine wines on the market.

Source: Liv-ex

Liv-ex Bordeaux 500 is considered the most popular and comprehensive index of Liv-ex for Bordeaux wines. It shows the movement of 500 top Bordeaux wines and is calculated monthly based on Liv-ex's mid-price. This index consists of 6 sub-indices, including Fine Wine 50, Second Wine 50, Right Bank 50, Right Bank 100, Sauternes 50, as well as Left Bank 200.

Similarly, Liv-ex Fine Wine 1000 covers 1,000 top wines from around the world at Liv-ex's median price. It includes 7 sub-indices, including Bordeaux 500, Burgundy 150, Bordeaux Legends 50, Rhone 100, Champagne 50, Italy 100, as well as Rest of the World 50.

Final Thoughts

Also note that for the calculation and compilation of the Liv-ex Wine Index, the rating points of the famous wine critic Robert Parker are taken into account. Also referred to as PP or Parker points, the highest score that wines can receive is 100 points. If you are interested in investing in a wine mutual fund and wine-related investments, it is important to keep in mind both Robert Parker's Vintage Guide and the Liv-ex index. Also, if you follow certain rules, then you can profit from your wine investments. For example, investors need to pay attention to factors such as the wine's shelf life and its appreciation potential before investing in wine.

Besides, there are many alternative assets or investments such as shares of spirits producers and wine merchants, wine basket certificates, innovative winery investment funds such as the Vincent Pretet and the Genuss Schein certificate that offer a lot of scope for profits or higher returns.

Recommended Literature

The website and the information contained therein are not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained on this website do not constitute investment advice.