Put down the wine glass and raise your investment portfolio
Fine wines bring cheer to investors, as other asset classes suffer a bad hangover. By
When markets crash, it often signals it is time to buy, because then you get cheaply priced assets. However, investors are often wary of what looks like a risky environment.
They might be keener to invest in fine wines, which, unlike traditional financial assets that tend to move with stock prices and sentiment, have little to zero correlation to other markets. An alternative asset class, fine wine is typically less volatile and can even increase in value when equities fall.
Johan Malan, head of brokerage and investments at Wine Cellar, says key factors to consider when buying wine include track record (of both producer and merchant), brand equity, vintage, region, provenance and critical review.
If a winery has been producing a certain wine for an extended period and the quality is consistently high, there is confidence to invest and hold the wine long-term.
“Globally, the investment outlook is not incredibly exciting. To find any asset class that offers reasonable returns, and stability, is a major win. While many sectors have been crushed over the last couple of years, South African and international fine wine has proven very stable. During Covid it has, in fact, shown good growth.”
Demand for and supply of fine wine is increasing, particularly with older and rare vintages. A weak rand adds cost pressure and demand, so prices are set to rise further.
“There are more producers each year making world-class wines, often at a fraction of the price of their international counterparts,” notes Malan. “So, whether investing to drink later or ver the past few months I have received several specific questions that may be of interest to others. for monetary growth, these wines are going to be harder to get.
“As quality has boomed over the last 10 to 15 years, more leading international wine publications are sending their critics to taste South African wines. Independent critic reviews, especially from multiple sources, essentially determine quality and therefore ultimately investment potential,” he says.
Names Malan calls investment-worthy range from the traditional to rising stars. They include Kanonkop, Tokara, Rust en Vrede and Reyneke in Stellenbosch, and Mullineux, Porseleinberg and the Sadie family in Swartland. Other go-tos are Boekenhoutskloof’s Syrah and straw wines; Klein Constantia’s famous dessert wine, Vin de Constance; Alheit Vineyards Cartology; and young winemakers like Lukas van Loggerenberg, Duncan Savage and Donavan Rall.
Pricing is key and wines that build value the surviving spouse? If so, what would the price be?
It is not necessary to sell the deceased’s share of the house to the surviving spouse. You may bequeath this to your spouse. Any estate duty and CGT will only become payable upon the death of the surviving spouse. over time are priced accordingly. Wines at R200 and less are not produced or bought for ageing. However, you shouldn’t spend thousands of rands on bottles of wine either.
“Buying at super-premium levels, above R1,000 per bottle, creates a very high base for price appreciation. Investment wines are generally traded in six-bottle cases, and we believe the greatest potential lies between the R2,000 to R3,000 per case level,” he says. That works out at R330-R500 a bottle.
As with shares, diversification is important. Investors are advised to buy from different regions, various producers and varieties. Malan says red wine is a big part of the market as vintage white has less appeal – though there is a resurgence in sweet wines.
A Cult Wine Investments report notes the relentless rally of champagne makes a compelling investment case. Although the wider fine wine rally eased over the past year, champagne bubbled higher. The Liv-ex Champagne 50 index had a 76.6% surge from 2020 to the end of October this year.
Champagne is an icon of not just fine wine but also of the wider fashion and luxury world. These markets saw rising prices in 2021, according to Knight Frank’s Wealth Report 2022, and the trend continued into 2022, and luxury brand LVMH (owner of Moët & Chandon, Krug, Dom Pérignon, Ruinart and Veuve Clicquot) reported strong results in the first three quarters of the year, with champagne and wine a key driver with 32% growth.
Not everyone has a wine cellar at home and storage is critical in a wine’s life cycle. It is vulnerable to heat fluctuation and needs to be kept at the correct temperature with bottles lying on their sides. Companies such as Wine Cellar offer a storage solution, helping to guarantee provenance, which is key when liquidating wine assets – which means selling them on to other investors, not drinking them.
Last but not least, insurance is needed. Tarina Vlok, managing director of Elite Risk Acceptances, notes that wine must be stored on its side to keep the cork moist, ensuring it does not dry out and degrade. Sunlight must be avoided at all costs.
“Insurance policies will not pay for gradual deterioration, like the deterioration of the cork or evaporation,” she cautions.