A taste for the finer things: the growing thirst for wine
Fine wine is the leading ‘passion asset’, with a recent survey reporting that 96 per cent of UK wealth managers expect demand for fine wine to increase, outperforming other prominent luxury assets.1 But what’s trending, when should you drink it, and when does your collection become an investment?
Top 5 Takeaways
- Investor appetite for wine is growing driven by a long-term buoyant market and outperformance over traditional stocks
- Even the most novice of wine collectors can build a strong collection if they have the right guide and the passion
- Italy offers some of the world’s most exciting wines with collectors favouring Barolo, Brunello and the Super Tuscans
- Climate change is creating winners and losers in the wine world as production moves to cooler countries
- The UK market now offers sparkling wines that rival those from the finest Champagne houses
White, red, and… orange?
More than 40 per cent of the surveyed wealth managers’ high net worth clients already invest in fine wine, with an average portfolio allocation of 10 per cent, investors are demonstrating a healthy thirst for wine.2
But in such a huge and rapidly changing industry, how can collectors and investors find the best opportunities?
We spoke to Tom Harrow, Wine Director at Honest Grapes, and former wine columnist for FT’s ‘How to Spend It’, who seeks to connect growers and drinkers for pleasure and investment.
He notes that certain regions and producers within those regions are trending high, with some brands becoming most sought-after. “At the moment, Burgundy shows no signs of slowing down and Champagne is really booming. Although the very top end of both markets seems to be adjusting to more realistic pricing ideas.
“Italy continues to become more and more exciting: Barolo, Brunello, and Super Tuscans, as well as cool climate high-altitude regions like Etna.”
Current stand out Italian wines include Sassicaia and Tignanello, which retain “huge purchasing power”.
“Recently, there’s been the launch of perhaps the most sought-after Tuscan wine, Masseto – there’s no shortage of demand for this. As well as for Opus One (US),” explains Harrow.
“However, I think it’s interesting, both from a collector’s perspective, and potentially an investor's perspective, to look at the new wineries coming up - when they're still a little bit under the radar.”
Harrow adds that there is also rising demand for wines from the cooler high-altitude regions of Italy, and in South America, specifically the Uco Valley in Argentina’s Mendoza.
Outside of the more conventional red and white wines, Harrow notes a growing interest in self-proclaimed natural wines, including orange wines, which are a type of white wine made by leaving the grape skins in contact with the juice, to create a deep orange-hued finished product.
“Natural wines are more on the periphery of the wine world, but they are generating a buzz, especially amongst the next generation of wine lovers. They can be a little bit more touch and go when it comes to how long they are going to last, and how they evolve in the bottle, meaning they may not be ones to pass to the next generation, but they certainly have a place in today’s cellars.”
Ironically because wine has been a good, stable performer, a lot of people have been choosing to sell from their collections rather than selling their shares, which has depressed prices. Of course, this means fine wine has never been such excellent value. So, if you are cash rich, it's a perfect time to be buying.
Keep it, drink it or sell it?
For beginners in the world of wine, having a guide can be invaluable. Harrow believes there are a few ways to get started and navigate through the range of wines on offer.
“When I started in the wine trade, there were really only a handful of influential voices, and I would base my own purchasing decisions on the two major critics of the day – who had very different tastes,” he explains. “If they agreed on a wine – it had to be good!
“As I progressed in my own career, I grew a lot more confident in my choices. Now I'm very interested in this broader spectrum of different regional specialist critics: If you enjoy the wines of a particular country or region look for experts in those; it’s about finding specialists in the wines that you really care about.”
And when it comes to how to store your wine, then the most solid lesson to know is avoiding fluctuation: “You can’t be keeping it above the Aga or boiler! People can also go the other way and get terribly concerned if their wine fridge is one degree off,” says Harrow. “Wines should be cool, in stable humidity and not too dry or too damp. Bright lights should also be avoided – it should remain fixed.”
For those unsure whether a wine has reached its optimum drinking stage, Harrow recommends listening to critics or using a special app. He explains that critics tend to write about wine when they are barrel samples or just released, and again once bottled (especially in the case of Bordeaux or Burgundy), to test maturity and drinkability.
A CellarTracker account allows you to add your wines in, and other peers post their tasting notes, advising what they tasted and when, giving you a good idea of when to crack open a bottle.
The growing index of wine
The attraction is clear when looking at returns from the Liv-ex Fine Wine 1000 index, which tracks 1,000 wines from across the world. Over the five years to September 2023, the index has returned 23.9 per cent and over the last two years it delivered 12.6 per cent.3
Harrow says: “The wine investment market has been very buoyant for a number of years and very much outperformed traditional asset classes.”
That outperformance includes some of the most turbulent times for investors in recent years. No wonder then that ‘stability during different market environments’ is the reason 40 per cent of investors choose to invest in the asset.4
However, wine has become something of a victim of its own success in recent months with investors opting to sell bottles from their cellar rather than stocks in their portfolio. Since the start of the year the Liv-ex Fine Wine 1000 is down -9.6 per cent against 16.54 per cent from the MSCI World index.5
Harrow says: “Ironically because wine has been a good, stable performer, a lot of people have been choosing to sell from their collections rather than selling their shares, which has depressed prices.”
However, Harrow adds: “Of course, this means fine wine has never been such excellent value. So, if you are cash rich, it's a perfect time to be buying.”
While the financials of investing in wine look attractive, Harrow points out that investing in any collectible or passion asset should come from a genuine interest in owning and - ultimately - drinking it.
“The emotion should never be lost when buying wine. Ideally the fallback position should be that if the wine doesn't achieve the growth in price you hoped for, you’ve still got a cellar of amazing wine to drink. If you adopt that psychology to investing in fine wines, then you can't lose.”
The emotion should never be lost when buying wine. Ideally the fallback position should be that if the wine doesn't achieve the growth in price you hoped for, you’ve still got a cellar of amazing wine to drink. If you adopt that psychology to investing in fine wines, then you can't lose.
The tax implications of tipple
If you’re thinking of getting your collection valued, Harrow notes that there is no simple algorithm to doing so – it requires gathering accurate pictures of cellar worth or engaging a specialist to do the legwork for you.
While the primary market is wine being sold directly to the consumer, the secondary market is where the owner sells the wine to make a return on investment. Harrow recommends keeping wine in bonded warehouses in this instance.
Wine kept in ‘bonded storage’ – a special facility which is considered offshore – is not subject to Duty. While your wine is stored in an HMRC approved warehouse, there is also no payable VAT until it is removed from bond or delivered to your home.
Harrow says the advantages of bond storage go beyond tax breaks, however, adding: “Investors are almost always better off keeping wines in a bonded warehouse rather than having them at home. Not only is it more tax efficient, but you have a paper trail to prove the wine has been stored in optimum conditions – something that is hard to do yourself - making it easier if you want to sell it on the secondary markets.”
Changing flavours and regions
Wine grapes are especially sensitive to changing temperatures and after the record-breaking temperatures of 2022, France’s vintners endured a particularly difficult year as grapes withered on the vine.
Looking further ahead, should the world temperatures increase by two degrees Celsius, scientists predict that the regions suitable for growing wine grapes could shrink by as much as 56 per cent.6
Harrow explains that while climate change is undoubtedly creating severe challenges for established wine producers in southern Europe, it is creating opportunities for the continent’s more northern countries including the UK and Germany.
“They will still make wine in southern Europe, but it might not be from the grapes they use now, and it won't taste the same. Warmer temperatures in the UK mean English sparkling wine is no longer a novelty; it absolutely goes toe to toe with the very best Champagne. Similarly, Germany is producing some amazing pinot noir, that is beginning to challenge Burgundy.”
Building a valuable wine collection is as much about fulfilling personal taste as it can be about adding to portfolio returns, and in the current markets there are ample opportunities to satisfy both objectives.
If you want to learn more about how to manage your portfolio, please speak with your Relationship Manager or connect with us.
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