| June 15
June 15 If the secret to investing is buy low
and sell high, the steep drop in fine wine prices - down between
25 percent and 40 percent from a year ago - could be an
opportunity to diversify a portfolio - or not.
"I think there's plenty of air left in this bubble. There's
more of this drop to come," economist and author Robin Goldstein
said on the sidelines of the American Association of Wine
Economists' (AAWE) annual conference at Princeton University
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 suggest it make up no more than 5 percent or 10
percent of a portfolio.
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.
Minimum investments at 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 10,000
pounds ($15,525) to 100,000 euros ($126,400).
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.
For example, a case of the legendary 1982 vintage Bordeaux
from Chateau Lafite Rothschild, which auction house Acker
Merrall & Condit sold in May 2011 for about $64,000, could be
had for a mere $39,900 at its sale last month - a 39 percent
Also at this year's en primeur, the Bordeaux futures market
that runs from April to June each year, prices are down an
average of 40 percent from their 2010 highs.
When it comes to collecting wines for investment - as
opposed to drinking at some happy occasion, "you're really only
talking about the top growths from Bordeaux," said William Grey,
the investment manager for The Wine Investment Fund, a limited
partnership based in the United Kingdom.
Grey buys bottles of Bordeaux that are never drunk, but
instead remain in bonded warehouses to avoid the duties and
taxes that can add at least 20 percent to the cost of the wine.
The fund, which is also registered as a mutual fund in the
Bahamas, concentrates on collecting bottled wines that are
between five and 20 years old; wines that are either ready to
drink or nearly so.
"That's when the prices (on bottles) go up. The wines are
being drunk, so supply is down," said Grey.
The fund's returns, directly linked to the prices of fine
wines, are also down this year.
"Look, we've gone through a correction. The market is down
20-25 percent, which means we think it's a very good time for
people to invest," he said.
But Grey notes that wine investments should be a way to
diversify one's risk and make up no more than 5 to 10 percent of
a portfolio. His fund requires a minimum investment of 10,000
pounds, or $15,525.
The market for such top wines "is very narrow and in the
vogue. So it may be subject to strong speculative movements,"
Francis DeClerck, a professor of finance at ESSEC business
school in Paris, noted in a paper presented at the AAWE
Christian Moueix, co-owner of Chateau Petrus - a case of
Petrus sold at auction for $62,200 in November - told Reuters on
a recent trip to New York that "wine is for drinking.
"The idea of collecting and speculating is insane in some
way. As my father used to say, 'Another vintage is coming next