Wine funds in biggest rally since 2011

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 EU 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 (R4 billion). “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.

A weaker pound is helping to make sterling-based wine contracts cheaper.

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.

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’s private-bank unit, which has about $315 billion (R4.01 trillion) 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. – Bloomberg