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‘The view from the chateau’

NOVEMBER 2009

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Some things change, some stay the same The wine market today is very different compared with 20 years

The wine industry faces continued shake-up and consolidation.

ago. Then the world was much smaller. Now we are operating in

Large wine companies are making their presence felt. But

a market that is much more sophisticated and which has never

unlike other beverage markets, no one company, either listed or

been more international. It is a world of multiple languages and

private, has more than one percent of the market. There is still

currencies, not just varieties and producers.

plenty of diversity and long may it last.

Since we now live in an information-intensive, real-time

We are going though a fascinating period of structural

age, consumers and investors sometimes have unrealistic

adjustment. Who knows what the outcome will be? Yet even

expectations. Even with modern technology and new

though ownership of the top vineyards may change – collectible

innovations, it takes time to produce unique wines of

wines will continue to be produced and demand will always

remarkable quality (and value). The consolation is that the wait

exceed supply, of that we can be sure. So for those that can

is usually worthwhile. Of course, quick returns are possible and

obtain them, whether to drink in time for pleasure or as an

some vintages mature more quickly than others. Which just

asset to appreciate, success is virtually guaranteed.

goes to show the importance of having access to the kind of reliable information that FINBOW can provide.

In this issue

Holding up well

Protect your investment

New competition for the old world

Bank on Bordeaux

Look east for opportunity

How to avoid a nasty hangover

Contact Us


Holding up well The globalisation of the wine market, which has been

in 2005, the returns have increased year-on-year by 22.5% on

particularly pronounced during the past 10 years, has broadened

average per annum.

participation and created some interesting new markets, notably in the Far East. This first became apparent during the

As a long-term investment, fine wine will diversify and add

1990s, with the boom in the very best Bordeaux wines. The

stability to any investment portfolio. Volatility is usually low but

Asian economic collapse in 1998 had a corresponding effect on

prices are not immune to wider economic trends and the global

Bordeaux prices. Like financial markets, wine markets are now

financial crisis did finally bite in October 2008 when prices,

inter-connected as never before.

notably those of the top 2005s, began to decline from their early 2007 peaks.

Even so, the general trend in wine prices has been consistently positive. Although conclusive long-range data is scarce, it is fair

However the correlation between the financial markets and

to say that prices for the very best wines have risen by an average

fine wine markets is small. Whilst prices for a few of the top

of around 15% per year over the past 25 years. There have been

wines have dropped, the market as a whole still looks very firm

quieter periods, such as between 1998 and 2002, but for most of

when compared with more traditional investment markets. As

this time the market has been busy or, as in 2005 to 2009, very

a tangible asset, fine wine has a reassuring solidity that more

busy indeed. Since the wine index (Liv-ex 100) was introduced

abstract financial products lack.

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


Protect your investment 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.

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New competition for the old world Wines from the ‘new world’ were until recently frowned upon.

Many new world producers now find their wine sold in European

However, favourable weather and soil conditions have enabled

supermarkets. The globalisation of the supply chain is evident in

California (which produces 90% of all US wines), Chile, Argentina,

the current popularity of robust and unusually strong new world

Australia, South Africa and New Zealand to compete on equal

Merlots, Cabernet Sauvignons and Chardonnays.

terms with the old world of Europe. But as well as producing large quantities of everyday wines, New Wine has played an important role in developing the self-image of

World vintners are producing genuine alternatives to specialist

new world nations, bringing international status and contributing

European wines. Australian sparkling wines and New Zealand

to economic growth.

Pinot Noirs are raising eyebrows (and glasses) among connoisseurs and consumers across Europe.

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Wine has played an important role in developing the selfimage of new world nations


Bank on Bordeaux 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. Liv-ex 100 and 500 Fine Wine Index vs FTSE 100 Index 280 260 240 220 200 180 160 140 120 100

M

ar -0 Ju 5 nSe 06 pD 05 ec -0 M 5 ar -0 Ju 6 nSe 06 p0 D 5 ec -0 M 5 ar Ju 05 n0 Se 6 p0 D 5 ec M 05 ar -0 Ju 5 nSe 06 p0 D 5 ec -0 M 5 ar -0 5

80

Liv-ex 100

Liv-ex 500

FTSE 100

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

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Look east for opportunity 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.

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How to avoid a nasty hangover There can be tax advantages to investing in wine but it is important

generally exempt from Capital Gains Tax under Section

The advice that FINBOW provides is limited to the quality of

to have a clear understanding on the rules that apply. It is also

45(1) Taxation of Chargeable Gains Act 1992 (TCGA). TCGA

wine, its potential longevity and suitability for inclusion in a cellar.

advisable to seek independent professional advice, particularly for

Section 44(1) defines a wasting asset as one whose predictable

Drawing on our experience and market history, we can offer

those with more complex circumstances.

life, from the point of view of the person acquiring it, does not

informed professional opinion on whether we believe a particular

exceed 50 years.

wine will appreciate over a period of time, on the understanding that price growth is subject to many factors and that the value of

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

Tips for tax-free investing:

art, shares or goodwill in a business.

• Avoid trading status

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

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wine can fall as well as rise.

• Use the wasting asset or chattels exemptions

Using recent market activity as a guide, we can also estimate the

• Keep records to justify your self-assessment and make full

current market value of certain wines and vintages, though actual

disclosure on your tax return.

prices may differ.


For investors and connoisseurs 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 wellstocked 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 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 9037

www.fin-bow.com

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