Diversifying your investments can help improve the resilience of your portfolio and could also turbocharge your returns if executed cleverly, so see if it’s time for you to consider broadening your horizons.
Investing in fine wine is more popular and accessible than ever, and could be an invaluable way to diversify your portfolio explains Tristan Fletcher.
The entrenched low-yield environment and risk concerns are making investors turn to alternative asset classes for higher returns and, crucially, greater diversification from traditional investments. Over the past decade, we’ve witnessed an explosion in interest in fine wine from drinkers and collectors, but amid heightened appetite for alternatives generally, fine wine seems to be really catching investors’ imaginations now. There has been a huge increase in demand caused by the growing number of affluent individuals in traditional markets such as Europe and the US, but also from emerging markets in the Far East and India. Allied to finite supply, this increases prices.
Yet while much has been written about the diversification benefits and low volatility of wine investments, there has been precious little on how to sensibly go about constructing a portfolio in this asset class.
Wine funds are typically unregulated collective investment schemes. There are several available, but probably the best-known one is The Wine Investment Fund. This launched in early 2004 and has turned an investment of £10,000 into £23,300 over a decade, which equates to annualised returns of 8.9%. However, returns from wine funds are subject to Capital Gains Tax and, in the unlikely scenario of your investment tanking, you will be left with a piece of paper instead of the rather nice case of wine you would have had had if you invested directly.
Direct from brokers
The most popular way to invest in wine is to buy directly from traditional wine merchants or from wine brokers. When investing directly into wine the merchant/broker will advise on wines suitable for investment or in some circumstances can purchase wines on your behalf on a discretionary basis. There are no management or performance charges, although annual storage charges will apply. Any gains are not normally subject to CGT.
Peer-to-peer wine exchanges such as Cavex and BBX are another route to investing in wine and have become increasingly popular over the last five years. Here, you are buying from private sellers and typically no advice will be available. Buyers’ commissions are between 3.5-10%, depending on the exchange, and there will be annual storage charges, but no management charges or performance fees.
Remember to Diversify Within Wine
Although wines are often viewed as being diversifying to a portfolio of traditional investments, the fact that a fine wine collection is a portfolio in its own right is often overlooked by direct investors. Whether buying as a drinker or an investor, keeping one eye on the level of diversification within a portfolio of wine could prove highly beneficial.
About the Author:
Tristan Fletcher is a director of Invin.io, a new website that aims to give investors the tools to construct, keep track of and manage a cellar of wines as an efficiently diversified portfolio. Tristan straddles a career between academia as a researcher in computer science and the financial services industry, where he has worked in senior positions as an algorithmic trader and portfolio manager for some major investment banks and hedge funds.
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