An explosion in fine wine at premium prices has spawned great excitement over the past decade. The Knight Frank Wealth Index shows that fine wine has appreciated in value by 127% over the past decade and according to Vinovest, wine has outperformed the S&P 500 by 1000% over the last 20 years.
The value of investment wines increases over time because of scarcity, improvement through maturation and growth in global demand.
Wine is primarily purchased for two reasons: for consumption and to generate a financial return. Wealthy individuals often combine both as fine wine can make an excellent addition to any investment portfolio.
With many fine wine auctions being held at well-known auction houses, the atmosphere can be intimidating to newcomers. However, thanks to technological advances, fine wine auctions have become more accessible and investing in blue-chip wines is no longer reserved for the world’s one per cent.
The most expensive wines in the world like Domaine de la Romanée-Conti and Château Lafite Rothschild that can gain enormous value over time can now be swept up by anyone without spending years on the waiting list for an allocation.
On this side of the pond, South African fine wines are the most cost-effective in the world and, continuing to move north in the world hierarchy, offer growth potential of consequence.
That said, snagging up a few bottles or cases of fine wine is only the first step in wine investment. Fine wines must be stored under the right conditions to mature and show a return on investment – whether financial or for personal enjoyment.
Wine Cellaring and maturation
The three key variables in wine maturation are temperature, humidity and light. Optimal maturation conditions start with a constant temperature of 12 to 16 degrees Celsius. Fluctuating temperatures can be detrimental to wine, even within an acceptable temperature range, so effective temperature management is key.
Optimal humidity of between 65 and 70% must be maintained. If the humidity is too low the cork can dry out and if the humidity is too high, mould can damage the labels.
Direct light, especially UV is especially bad for wine over the longer term and should be avoided at all costs.
Using a service like Vinoteque Wine Bank to safely store investment wine is a great option, but when it comes to wine storage or cellaring at home, there are only two options for getting it right: a high-end wine fridge or a cellar at home. A normal fridge, beverage cooler or air conditioner removes moisture from the air and requires the use of a humidifier to put moisture back into the air.
In sunny South Africa, a high-end wine fridge is the most reliable option for maintaining optimal cellaring conditions. The ideal wine fridge is able to maintain consistent temperature and humidity and is equipped with a low vibration compressor to reduce disturbance of the sediment in the wine, as well as tempered glass doors to keep harmful UV rays from prematurely ageing the wine.
What to look for in investment wines
Distell Vinoteque Manager, Michael Van Deventer says collectable wines are very good quality from a good vintage and have an excellent track record when it comes to long-term maturation.
“You cannot turn a mediocre wine into a great wine by maturing it; you have to start with a great wine.”
The type of wine, the region where it comes from, quality and provenance are the most important elements. Most investment-grade wines come from France, specifically Bordeaux, followed by Burgundy. Although some Champagnes and a few Spanish and Italian, as well as new world wines, have shown good returns, their prices have proven to be more volatile.
While most investment-grade wines come from Bordeaux, not every wine from Bordeaux is investment-grade. Other factors like scores by famous critics such as Robert Parker and the traditional Bordeaux classification system play a role.
Provenance, or where a wine comes from and where it has travelled is perhaps one of the more tricky elements to consider. If wine was not stored correctly in a wine cellar, it could spoil the taste or if it is not clear where it came from, it could be fake. It is therefore very important to only buy from a trusted, reputable source.
Van Deventer says although fortified and sweet dessert wines often have better long-term maturation prospects than even red, collectors mostly focus on red wine.
“In general magnums age better (or take longer to age) than 750ml bottles but unfortunately the market for magnums is a lot smaller than for 750ml.”
Van Deventer says although there is definitely money to be made, they are advising their maturation members to for now primarily invest for personal enjoyment until the South African secondary market has matured a bit more.
“It is difficult to track investment growth at the moment as the secondary market where private collectors can sell wine from their collections is still in its infancy. Strauss Online Auctions is one example.”
However, the Wine Cellar investment team reports growth on various investment portfolios. Wine prices within their VIP 2015 portfolio, for example, have shown annualised growth of 24% since release while a similar portfolio of 2009’s would have realised annualised growth of 18.1%.
When all is said and done, whether you invest in a managed wine portfolio or buy your own wines, proper storage in a high-end wine fridge or cellar is what gets your investment across the line over the long term and is just as important as buying wines that are genuinely collectable.