The Fine Wine Fund is one of three London-based funds started in the past few years to generate returns for investors by buying, holding and selling fine wine. Analysing the performance of 50 investment-grade wines from 1983 to 2002, Mahesh Kumar, author of Wine Investment for Portfolio Diversification, found that wine outperformed the Dow Jones Industrial Average, the FTSE 100 Index and a UK government bonds index, with lower volatility.
Not just any old wine qualifies as investment grade. The best returns are mostly for top-tier red Bordeaux from the finest vintages: 1982, `86, `89, `90, `96 and 2000. That`s because these wines come with long track records of quality and high prices, have the ability to improve with age and carry brands that are instantly recognised worldwide. They`re also made in sufficient quantities to be traded regularly; top Burgundies like Domaine de la Romanee-Conti are also highly investment-worthy, but they aren`t available in the volume most funds require.
As with any commodity, the law of supply and demand rules in pushing prices up or down. Fine wine is produced in finite quantities, and every time someone pulls a cork, the number of bottles of a particular label dwindles. Rapid worldwide wealth creation is driving demand, as is the entry of new players from Russia, China and the rest of Asia who want the best, regardless of cost
