‘The view from The chaTeau’

NovemBer 2009

Contact UsHolding up well

In thIs Issue

Protect your investment

New competition for the old world

How to avoid a nasty hangover

Some ThiNgS chaNge, Some STay The Same

Look east for opportunity

Bank on Bordeaux

The wine market today is very different compared with 20 years ago. Then the world was much smaller. Now we are operating in a market that is much more sophisticated and which has never been more international. It is a world of multiple languages and currencies, not just varieties and producers.

Since we now live in an information-intensive, real-time age, consumers and investors sometimes have unrealistic expectations. Even with modern technology and new innovations, it takes time to produce unique wines of remarkable quality (and value). The consolation is that the wait is usually worthwhile. Of course, quick returns are possible and some vintages mature more quickly than others. Which just goes to show the importance of having access to the kind of reliable information that FINBOW can provide.

The wine industry faces continued shake-up and consolidation. Large wine companies are making their presence felt. But unlike other beverage markets, no one company, either listed or private, has more than one percent of the market. There is still plenty of diversity and long may it last.

We are going though a fascinating period of structural adjustment. Who knows what the outcome will be? Yet even though ownership of the top vineyards may change – collectible wines will continue to be produced and demand will always exceed supply, of that we can be sure. So for those that can obtain them, whether to drink in time for pleasure or as an asset to appreciate, success is virtually guaranteed.

The globalisation of the wine market, which has been particularly pronounced during the past 10 years, has broadened participation and created some interesting new markets, notably in the Far East. This first became apparent during the 1990s, with the boom in the very best Bordeaux wines. The Asian economic collapse in 1998 had a corresponding effect on Bordeaux prices. Like financial markets, wine markets are now inter-connected as never before.

Even so, the general trend in wine prices has been consistently positive. Although conclusive long-range data is scarce, it is fair to say that prices for the very best wines have risen by an average of around 15% per year over the past 25 years. There have been quieter periods, such as between 1998 and 2002, but for most of this time the market has been busy or, as in 2005 to 2009, very busy indeed. Since the wine index (Liv-ex 100) was introduced

in 2005, the returns have increased year-on-year by 22.5% on average per annum.

As a long-term investment, fine wine will diversify and add stability to any investment portfolio. Volatility is usually low but prices are not immune to wider economic trends and the global financial crisis did finally bite in October 2008 when prices, notably those of the top 2005s, began to decline from their early 2007 peaks.

However the correlation between the financial markets and fine wine markets is small. Whilst prices for a few of the top wines have dropped, the market as a whole still looks very firm when compared with more traditional investment markets. As a tangible asset, fine wine has a reassuring solidity that more abstract financial products lack.

holdiNg up well

As a long-term investment, fine wine will diversify and add stability to any investment portfolio

|

Experience suggests that a minimum five-year term is a good benchmark for investment. But one should bear in mind that for the most part one will be buying wines with a lifespan of at least 10 and more likely 20 years or more and that financial maturity is linked to drinking maturity: 1996 First Growths are still young wines, for example.

So the correct storage of investment grade wines is crucial to protect and preserve the value of your investment. First, wines should be stored under bond to avoid paying excise duty and VAT that cannot be reclaimed. Second, provenance is key to a wine’s future value: fine wine has to be stored in quite specific conditions. Third, don’t forget about security: many wines are irreplaceable or the replacement cost will be much higher than the original purchase price and the real returns will be much lower as a result.

We can arrange storage for you through our network of professional cellaring companies, all of which specialise in the storage and security of fine wines. FINBOW Premier Account holders receive free storage and insurance cover for the first three years.

To avoid the high costs and risks involved with shipping, wine bought for investment should generally be stored where it is purchased. Since tax laws are subject to change, it is advisable to get independent professional advice.

proTecT your iNveSTmeNT

|

Wines from the ‘new world’ were until recently frowned upon. However, favourable weather and soil conditions have enabled California (which produces 90% of all US wines), Chile, Argentina, Australia, South Africa and New Zealand to compete on equal terms with the old world of Europe.

Wine has played an important role in developing the self-image of new world nations, bringing international status and contributing to economic growth.

Many new world producers now find their wine sold in European supermarkets. The globalisation of the supply chain is evident in the current popularity of robust and unusually strong new world Merlots, Cabernet Sauvignons and Chardonnays.

But as well as producing large quantities of everyday wines, New World vintners are producing genuine alternatives to specialist European wines. Australian sparkling wines and New Zealand Pinot Noirs are raising eyebrows (and glasses) among connoisseurs and consumers across Europe.

New compeTiTioN for The old world

Wine has played an important role in developing the self-image of new world nations

|

The fine wine market is worth approximately £500 million a year in the UK and a sizeable part of that goes straight into the cellar. And with good reason. Wine can, and often has, outperformed the FSTE 100 and the Dow Jones, offering attractive investment returns without the volatility of the stock market. Historically the best performing wine investments are the top 30 châteaux of Bordeaux. Bordeaux produces some of the best wine in the world and still remains the only wine in the world with a wine classification system which dates back to 1855 and remains in its entirety today.

The chart below shows the performance of wine against the FTSE 100 stock market index from March 2005 to March 2009. As you can see, over this period wine has proved to be a far better bet as an asset class than equities.

Top Bordeaux labels that FINBOW can provide include Petrus, Lafite-Rothschild, Margaux, Latour, Mouton Rothschild, Haut-Brion, Cheval Blanc and d’Yquem. Outstanding Bordeaux vintages include 2005, 2000, 1990 and 1982.

BaNk oN Bordeaux

|

Liv-ex 100 and 500 Fine Wine Index vs FTSE 100 Index

Mar

-05

280

260

240

220

200

180

160

140

120

100

80

Jun-0

6

Sep-0

5

Dec-0

5

Mar

-06

Jun-0

6

Sep-0

5

Dec-0

5

Mar

-05

Jun-0

6

Sep-0

5

Dec-0

5

Mar

-05

Jun-0

6

Sep-0

5

Dec-0

5

Mar

-05

Liv-ex 100 Liv-ex 500 FTSE 100

The US is still the largest consumer and importer of wine in the world but China is no longer far behind. Although it is only relatively recently that China has begun to develop into a significant market for wine, it is expected to consume more than one billion bottles of wine a year by 2011, compared to 494 million in 2007.

Greater affluence and a growing middle class have led to a significant rise in demand for imported wine. This market has more than doubled since 2002. It has been helped by the fact that wine has become a fashionable drink among younger generations in China’s cities, in addition to being a status symbol and sign of sophistication.

It is increasingly common to find foreign wine available in the restaurants and shops of China’s population centres. With more than 600 million young people in China all exploring new types of alcoholic drinks, and an expanding monied class eager to express their buying power and willing to pay extra for the cachet that comes with being able to afford foreign wines, it’s no surprise to find that continued growth is predicted for the Chinese market. In time China could well become the world’s leading wine importer.

FINBOW has made a strategic decision to join Christies and Sotheby’s in establishing a presence in China to take advantage of this opportunity.

look eaST for opporTuNiTy

|

There can be tax advantages to investing in wine but it is important to have a clear understanding on the rules that apply. It is also advisable to seek independent professional advice, particularly for those with more complex circumstances.

Capital Gains Tax is assessed on profits realised from the sale of a capital asset. This can be anything from holiday homes to works of art, shares or goodwill in a business.

Wine is treated as a “chattel” for Capital Gains Tax purposes. Gains on the disposal of chattels which are also “wasting assets” are

generally exempt from Capital Gains Tax under Section 45(1) Taxation of Chargeable Gains Act 1992 (TCGA). TCGA Section 44(1) defines a wasting asset as one whose predictable life, from the point of view of the person acquiring it, does not exceed 50 years.

Tips for tax-free investing: • Avoid trading status • Use the wasting asset or chattels exemptions • Keep records to justify your self-assessment and make full

disclosure on your tax return.

The advice that FINBOW provides is limited to the quality of wine, its potential longevity and suitability for inclusion in a cellar. Drawing on our experience and market history, we can offer informed professional opinion on whether we believe a particular wine will appreciate over a period of time, on the understanding that price growth is subject to many factors and that the value of wine can fall as well as rise.

Using recent market activity as a guide, we can also estimate the current market value of certain wines and vintages, though actual prices may differ.

how To avoid a NaSTy haNgover

|

At FINBOW we combine a passion for the finer things in life with knowledge and expertise in collectible wines. Our international buyers have been carefully selecting from the best vineyards and distilleries in the world for over 20 years.

Whether you are a connoisseur wishing to enhance your collection today or an investor building up a cellar for tomorrow, we can help you buy, sell and invest in cases of the best wine, champagne, port, whisky and cognac the world has to offer.

To speak to a consultant, call +44(0)203 207 9037www.fin-bow.com

for iNveSTorS aNd coNNoiSSeurS

eNd

For me, there can be no better job than searching the world for the best vintage wine, champagne, port, whisky and cognac, and finding something wonderful that our clients can get immediate satisfaction from today or invest in for tomorrow.

I love being able to help clients maintain a well-stocked cellar that will give them lifelong pleasure, or build an investment portfolio that they can watch grow in value and provide a good return

Simon Dempsey, Director