Johannesburg - A global rally in stocks is driving some
investors to drink, but not in the way you might think.
Prices for fine wines have climbed to their highest
levels since October 2011 on speculation that equities near record highs are
poised to drop. Wines and the funds that buy them are being viewed much like
gold - as a store of value in uncertain times - after the UK voted to leave the
European Union and the US elected Donald Trump as president.
“Favourable macroeconomic conditions, constrained supply
and robust demand will continue to drive the market,” said Chris Smith, an
investment manager at the London-based Wine Investment Fund. The fund returned
17 percent in 2016, boosting its net asset value to 248 million pounds ($310
million). “Prices to most buyers still look cheap in historical terms.”
A weaker pound is helping to make sterling-based wine
contracts cheaper for overseas investors and boosting the value of indexes,
which are denominated in the British currency and track the value of the
most sought-after wines. Chinese investors have also returned to the market
after overstocking when prices were rallying in 2010, only to be followed by
five years of losses.
The Live-ex 100 Benchmark Fine Wine Index has gained in
each of the past 14 months, its longest winning streak since June 2010. The
gauge returned 25 percent last year, beating the 19 percent made on the FTSE
100 Index of the largest companies on the London Stock Exchange. It has room to
rally another 18 percent before hitting its mid-2011 peak, according to Smith.
Experienced investors
To be sure, wine funds aren’t for everyone and not
typically the type of products generally open to retail investors because of
the risks associated with them, said Charles Boulton, UK market head of HSBC
Holdings’ private-bank unit, which has about $315 billion under management. The
funds are targeted at experienced investors, he said.
“A lot of the wine funds are small and you may run into
liquidity issues,” Boulton said. “The time horizon for suitable returns on
these investments is relatively long and it can be a volatile asset class.”
They are not without their risks either. The Cayman
Islands-based Vintage Wine Fund, which in 2008 held 110 million euros ($117
million) of assets, closed in 2013 after a poor performance prompted investors
to pull their investments. A year later, Luxembourg-based Noble Crus Wine
Fund was shut down. So was Bordeaux Fine Wines Ltd., which had one of its
directors banned by the British government from running a company after money
meant to buy wine was spent on race horses, sports cars and private jets.
China demand
Demand from China is rising after a crackdown on excess
and bribery dissuaded investors in the world’s second-largest economy from
making purchases. Bottled wine imports to China jumped 21 percent to $1.66
billion in the first nine months of 2016, according to the China
Association for Imports & Export of Wines & Spirits.
The 10 million-euro Malta-based WSF Sicav’s Wine Source
Fund, which also invests in whisky, has gained 32 percent in net asset value
since it started in 2012, according to CEO Philippe Kalmbach. He is also the
founder of Wine Source Group, which buys wines from among the top producers in
the world for distribution to restaurants and hotels.
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The fund attracts investors with a service that offers
reservations on private jets and yachts, sommeliers on demand for your dinner
party and last-minute seats at more than 500 of the world’s best restaurants.
It buys 60 percent of its wines on the open market and the rest directly from
producers, then stores them in bonded warehouses to age in optimal conditions,
he said, adding that it trades about one third of its portfolio a year to
ensure it remains liquid and meets all its redemptions.
If not for wine
Wine Owners, a London-based company that builds
individual wine portfolios for investors as opposed to a wine fund, saw trading
increase to 662,000 pounds in the fourth quarter of 2016, from 263 000
pounds a year earlier, manager James Sowden said.
Kim Carter, 63, wants to increase his allocation to
the Wine Investment Fund to about 5 percent of a portfolio he owns, declining
to give details on his current holdings. He started his investment pool by
selling a brass-fittings manufacturer to Hanson in 1989 and also invests in
private equity in the UK and Canada and co-founded Wishing Step Pictures, a
documentary film company in Toronto and Hamilton, Bermuda.
“I like wine, but I’m in it for the investing,” he said
by phone from Contadora Island in the Gulf of Panama. “It’s always done
incredibly well for me.”