Here’s how to take your wine investment portfolio to the next level

Many investors exploring the world of wine as an asset start with a handful of bottles or a platform account. However, the real challenge (and opportunity) lies in moving the portfolio from the “start-up” phase to the strategic optimization phase.

Investing in wine may not be suitable for the average investor, but for those with the resources, this space can be personally and financially rewarding. Below, we detail some considerations to keep in mind for those looking to take their early-stage wine portfolio to the next level.

Step 1: Diversify beyond Bordeaux

Top-tier wine investors are looking beyond the classic regions of Bordeaux and Burgundy to find lesser-known wines capable of increasing their value. Expanding your wine portfolio also provides protection against poor vintage or shifts in demand.

Opportunities exist in many regions around the world, with some of the best places to look including Tuscany, Napa and Champagne. Emerging regions that wine investors may tend to overlook include Australia, Argentina, India and others.

As in any investment, appropriate diversification in a wine portfolio is key to protecting against risk and providing broad access to potential gains. Fine wine itself is viewed by many investors as a diversifier in a traditional portfolio, given the historically low correlation rates between the wine market and both the S&P 500 as well as the MSCI World Index. However, keep in mind that diversification within the same wine property can protect and increase the value of that property.

Step 2: Upgrade your market information

Many tools and resources exist for advanced wine market monitoring, and it is important that experienced wine investors use them to determine which bottles to buy, when to buy them, and how long to hold them before attempting to sell.

• Liv-ex indices are linked to the London International Wine Exchange. This tool tracks wine performance at a regional and more general level and is useful when monitoring the broader market.
• Wine-Searcher Pro, on the other hand, serves as a platform for individual bottles and shops and can be a useful way to keep track of individual wine prices.
• decanter The magazine is a trusted source for insight into the latest winemakers, bottles and trending regions. Its Decanter World Wine Awards provide an annual snapshot of the industry.

Tom Gearing, CEO of Cult Wines, suggested that investors looking for new wines to buy should conduct a SWOT analysis using platforms like CultX or BBX and tools like Liv-ex. In addition, Gearing has been added to “Follow Auction Results” to follow industry trends.

Step 3: Consider professional vehicles

Do you want to get the benefits of a large-scale investment in fine wine without focusing on the details or worrying about storage, authentication and security? There may be several alternative crafting methods that are attractive instead of (or in addition to) owning the bottles themselves.

Specialty wine boxes

These funds pool capital from several investors to purchase, store and manage a portfolio of fine wines. This allows individual investors to take a hands-off approach and has the benefit of relying on industry professionals to make investment decisions. On the other hand, expect to pay management fees that can be quite hefty (up to 20% of profits, in some cases).

Fine wine guilds and private collections

They operate somewhat similarly to a wine trust, and generally provide investors with partial ownership of the group. Syndicate managers typically handle sales and then distribute the proceeds proportionately to each investor. Like specialty funds, these options reduce each investor’s active work, but fees may reduce returns. Additionally, investors have little say in the group itself and in any transactions.

Vineyard or stock ownership rights

Stocks can be another way to participate indirectly in the fine wine market. While owning a vineyard outright is logistically and financially prohibitive for many, purchasing shares in an existing vineyard may be a more accessible option.

In addition to the potential for a share of revenue from wine sales, this may also provide investors with the benefits of distribution partnerships, wine tourism, and land appreciation. Of course, the success of the vineyard depends on the popularity of the wine, so this approach is somewhat risky.

Step 4: Improve storage, security and security

Upgrading your fine wine collection means taking storage, insurance and security seriously. Professional wine storage can be either self-catering or full-service, with the latter often including everything from authentication and climate control to shipping and security services. The cost of these services may vary greatly depending on your location and the size of your group.

Investors with large or high-value collections will also want to purchase enhanced insurance coverage. Consult an insurance expert for advice on your investment portfolio, but remember that it may be necessary to purchase a standalone policy or schedule high-value bottles individually.

Any collection of fine wine requires adequate security no matter where it is stored. This includes not only protection against theft, but also measures to ensure bottles are properly validated, their provenance is traced and fraud is reduced. Blockchain has proven to be a useful tool for increasing consumer trust and transparency, and will likely continue to play an increasing role for many wine investors in the future.

Gearing suggested that those buying wine for investment should focus on bottles “that have a proven track record of bonded storage” since they came to market (“ask for a photo if you’re not sure,” he adds). This is less important “if purchasing the latest vintages from authorized dealers,” he says, because “the wine will come directly from the winery” in that case.

Step 5: Manage exit and liquidity strategies

Ironically, fine wine is generally considered a highly illiquid asset class. The market for investment-grade bottles is small, price transparency is often non-existent, and the costs associated with transactions are prohibitive, among other reasons.

To maintain the fluidity of your collection, document each bottle, trace its provenance, and store your wine in a way that is most likely to maintain its quality. Understanding market trends is also key, as it enables you to choose bottles that are more likely to attract other investors. Exiting a wine deal successfully requires balancing market trends with bottle maturity.

One of the major hurdles faced by wine investors looking to sell is finding a buyer. Fortunately, there are a growing number of auction services, private sales platforms and other marketplaces that connect wine market participants on a global scale, including WineBid, Vinovest Exchange and many others.

Step 6: Integrate into broader wealth planning

The percentage allocation to wine in a broader investment portfolio depends on many factors, including investor interest, assets, risk tolerance, and investment objectives. JPMorgan Private Bank, which provides wealth management and other services to high-net-worth individuals, recommends that clients committed to focusing on private markets allocate 15% to 30% of their investable funds to alternative assets. However, these assets can run the gamut from fine wines to private equity, real estate, art, and more, and experts at JPMorgan suggest focusing at least half of your alternative asset allocation on private equity specifically.

A high-net-worth investor “generally has fewer concerns about illiquidity than investors who are actively living off a higher percentage of their portfolio assets,” added Taylor Gang, CFP, AIF, managing director, partner and wealth manager of Evensky & Katz/Foldes Wealth Management — and owner and winemaker of Gang Family Cellars —. For this reason, such an investor may “allocate a higher percentage of his overall portfolio to alternative asset classes,” including fine wines.

Gang noted that wealthy individuals’ portfolios may see 20-25% asset class alternative investments, while high-net-worth individuals may be more likely to fall within the 10-15% range. To achieve an indicative return on investing in fine wine, “an investor must invest over the entire period,” Zhang said, meaning that “those who focus on the long term are likely to see better results.”

Regardless of your wine allocation, consult a professional in your jurisdiction to be fully aware of the tax implications and how to maximize your returns through the most tax-efficient investment approach.

Bottom line

Investing in fine wine is a niche corner of the alternative asset space, but it can nonetheless be a rewarding and profitable opportunity. To take fine wine investing to the next level, you’ll need to develop a deep understanding of the market using tracking tools and other insights, diversify your holdings, and increase your storage, security and insurance coverage. Using professional platforms and alternatives such as vineyard stocks can support this growth.