The alternative investor: wine

o Miles Brignall
o The Guardian,
o Saturday September 15 2007

If investing your spare cash in shares seems rather dull and you are prepared to take a few more risks in return for the possibility of bigger gains, why not put some money into fine wine? According to Justin Gibbs, founder and director of the Liv-ex index (the wine equivalent of the FTSE 100) the fine wine market is up about 40% this year - well above its share-based rival.

"Until 2005, we had several flat years. The market was always due a correction upwards and as a result prices have been on the rise. 2007 has been a really good year. Two things appear to be driving the market - the rise of investment wine clubs and the influx of new investors coming from Asia - particularly China - and Russia," he says.

Before you jump in, you should be aware that investing in wine is like no other market.

Only one man's opinion really counts: the American wine expert Robert Parker. He declares each vintage's quality and thereby sets its value, on a scale of 50-100 points. There's so little tradeable fine wine in existence that the process of buying a mere five cases of the most sought-after wines can send the price up 10%-15%. And every year the wines become a little more scarce, as they are drunk.

The London-based Live-Ex index which tracks the price of the 100 best wines - those that are typically traded on a fairly frequent basis - shows that following a flat 2004, prices started to take off in October 2005.

Between then and July 2007, the index rose from 115 points to just over 245 - a nice profit for those holding the right wines. As always, the overall rise masks some very strong individual performances.

"The Asian market has decided that Lafite Rothschild is the 'brand' they want to have, and the price of certain years have risen sharply as a result," Mr Gibbs says. Despite a slight fall in the index in August, he describes the market as stable and predicts the continued rise of wine investment clubs will keep prices high.

So how do you get started? "Follow quality, and always listen too your wine merchant," says Aidan Bell, fine wine manager at the West Country-based wine company Averys.

He advises buyers to stick to the established wine merchants who have a track record in the industry and will still be in business in years to come. He says serious investors need a minimum of £5,000-£10,000 to spend and must be prepared to wait for at least five years, and more likely 10, before they recoup their investment.

"Given £5,000-£10,000 to invest, I would be concentrating on finding one or two cases of the finest wines possible. In doing so you limit the amount you'll pay in storage charges - Averys charges £8.25 storage a year per case."

He says a case of 1986 Mouton Rothschild, which he describes as "a great wine that will just get better and better" would currently set you back around £8,000 a case in bond. "Every time someone drinks a bottle, the supply decreases, adding rarity value to remaining stocks."

He says the idea of investing "en primeur" - buying direct from the Chateau 18 months ahead of delivery - doesn't necessarily guarantee a quicker and bigger return, although the 2003, 2004 and 2005 "first growths" have delivered spectacular increases.

He says investors need to consider the selling charges, which can be as much as 10%, and to make sure that their wine is stored correctly - with their name on it. It should also be fully insured.

And a recommendation? Justin Gibbs thinks that 1998 Mouton Rothschild at £2,500 a case is currently undervalued. Aidan Bell recommends 1996 Lafite Rothschild at £7,500 a case - a Parker 100 point wine.