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Updated: October 27, 2012 12:56 IST
FINE WINE

Liquid assets

Mukund Padmanabhan
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David Banford
David Banford

Most people who love wine have flirted with the idea of investing in it. After all, price appreciation can be staggering. For instance, a case of Chateau Lafite Rothschild, which went for around Rs. 20,000 at the time of its release in 1983, fetches around Rs. 20 lakh today. Along with such things as art, antiques, coins and stamps, wine has become a focus for those looking for alternative investment avenues, beyond such things as stocks and bonds.

Wine investors fall into two broad categories. There are the genuine wine lovers who do it as a serious hobby; these collectors of fine wine are generally happy to use the profits made on some bottles to consume others with friends. And then, there are the serious investors, some of who make a living out of trading in fine wine and are concerned solely about the bottomline.

David Banford, the Director of the Wine Society of India, falls squarely in the former category. Interestingly, his passion for wine and his entry into investing began around the same time. He was on the QE2 from London to New York in 1976 and dined every evening with someone knowledgeable about wine during the journey. Before he got off, Banford picked up three bottles of Chateau Petrus ($40 a piece) and another three of Chateau d'Yquem ($25 each), purchases that set him on the way to acquiring a collection that now stands at some 200 cases, stored in a facility in London.

Not all the bottles are premier crus or super seconds, Banford hastens to add. There are some which are “mainly for drinking”, though he is not averse to withdrawing a $200 bottle for a “really special occasion”. While he is convinced that wine is a great investment, he advises “caution”, saying he recommends it only for those looking for alternative investment avenues and never for “widows and orphans”. “It's about anticipating the future, a bit like time travel,” he says in explanation of why he enjoys wine investment.

Wine investment is about investment wines — a small bunch of fine wines that appreciate with time. The vast majority of these investment grade vintages are from France, mainly red Bordeaux (some 50 or so brands) and a small number from Burgundy (particularly the staggeringly expensive Romanee-Conti) and from the Rhone. A few iconic wines from Italy, the U.S. and Australia also make the grade.

A recent paper on ‘The Fine Wine Market' by Wine Asset Managers (WAM), a specialist manager of wine-based funds, states that wine has outperformed gold and major equity indices over the last two decades. Using data from the Investables Index from www.live-ex.com, it argues that wine has done so with substantially lower levels of volatility.

The paper is confident about the strength of the wine investment market over the next decade. A good part of optimism is fuelled by a sharp demand for fine wines in emerging economies such as China and Russia. China, for instance, has been singularly responsible for the huge spike in Lafite Rothschild, easily the most favoured Bordeaux brand amongst rich Chinese. The huge increase in prices hasn't deterred them from buying more, demonstrating that fine wine is indeed a Veblen good, a positional commodity for which greater price often generates greater demand. The WAM report does not think “it is fantastical” to imagine that a case of first growth from a super-vintage fetching half a million pound sterling in 40 years time.

Unlike art, antiques, coins and stamps, investment-grade wine is a perishable resource; it needs to be drunk sooner or later. But as wine fund managers will tell you, this is not such a bad thing, because every case consumed means that the value of the remaining cases will increase. In short, somebody's pleasure is someone else's profit.

(mukund@thehindu.co.in)

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