Tuesday 30 August 2016

Fancy a sip of wine investment?

With the global equity market in turmoil & sluggish local property market, alternative forms of investment have become increasingly popular in Singapore and wine investment is definitely one of the most attractive options now. With correct application of the basic fundamentals, investors could enjoy steady returns at minimum risk levels.

So what should a potential investor look for when investing in wine?

Wine Selection
Investment grade wines are the acknowledged and prestigious ‘blue chip’ wines that generate steady investment returns for investors. These wines have to be produced in limited quantity, be highly sought after worldwide and improve in quality over time. Demand for these wines will always remain high as the total number of bottles available will reduce as they are consumed, resulting in a rise in its price. Invest in wines that have received at least 90 pointers and above by influential wine critic Robert Parker, who is undeniably the most influential wine critic in the world. Buy only in unmixed sealed original wooden case (OWC), as these will be worth the most and can be traded internationally.

Trusted through the years for its premium quality, Bordeaux wine prides on its established resale history and is still the primary investment medium. Fine Bordeaux wines are produced in limited quantities, which is the primary factor for the supply & demand theory to work on wine investment. Less than 1% of all the wines worldwide are investment grade and Bordeaux makes up 80% of these wines. Prices of fine Bordeaux wines can be tracked from their day of release “En Primeur” (or wine futures) till their auction sale, offering investors total transparency in prices.

Refrain from investing in wines that do not have a strong global market presence and demand as they are definitely high-risk & purely speculative. Avoid allocating too much of your wine portfolio in New World wines as they generally have a much shorter ageing potential and their vineyards do not practice Bordeaux’s limited production output to ensure the best return on investment.

Wine Futures
Wine Futures, or “En Primeur”, is a method of purchasing wine early. Essentially, the wines are offered for sale while they’re still ageing in oak barrels, 2 to 5 years before they are bottled. Once the wines are ready for delivery, buyers have the choice of either paying duty and taxes or having the wines stored in a bonded warehouse until it is delivered or sold on.
There are a number of rewards in purchasing wines this way. These include securing highly sought-after wines which are difficult to obtain from great labels & great vintages, as well as securing the wines at a lower price than otherwise anticipated when they are out in the consumer market.

Brokerage House & Merchants
Buy and trade only with reputable merchants or brokerage house with proven track records. A reputable brokerage house should include the management, the storage and the insurance in their portfolio and they should guide you through the exit strategy. You should shop around for advice & prices and you should be able to obtain third party verification on the validity of the documentation for wines they have purchased, especially the“En Primeur” wines.

Storage & Insurance
The “provenance”, or travel history, greatly affects the prices of the wines. Bordeaux wines stored in France usually give the highest resale value. Ensure that your wines are stored in a temperature & humidity-controlled warehouse and that your investment can only be moved with your written approval. While many modes of commodity investments in the market would involve the investor being charged taxes at one point or another (for duties and excises etc.), Wine-Investment is an exception. There would be no costs incurred in taxes as wines bought for investment are usually stored in bonded warehouses (i.e. warehouses in which goods with unpaid duties are stored under bond and in joint custody of the importer, or his agent, and the customs office). You should also ensure that your wines are insured at full replacement value. If you buy via a wine brokerage company, this should be included in your wine portfolio.

Wine should be regarded as a medium to long-term investment, with a minimum 3-year holding period and the best returns over a 5 to 8-year period. But should your investment depreciate, you could always open a bottle to drown your sorrows!

Article contributed by Premium Liquid AssetsFor more information, please email contact.sg@premiumliquidassets

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