I’d been curious about this, so I did a little poking around on the web and found some info on returns. The figures are pathetic.
Here’s The Wine Investment Fund, which has had significant gains in only two years of the last 11 years (2010 and 2016). Every other year since 2008 it was down (often significantly) or was up just fractionally.
Moreover, more than half the 150% gain since 2004 occurred in 2004-06. And that does not include the 5% subscription fee – what you pay to get into the fund.
For comparison, the S&P 500 is up 125% since 2004, with no 5% haircut up front.
Then there’s the auspiciously named Vinculum Fund, which also saw a pop in 2010 and a slight move up in 2016. But its shares are down more than 20% from its peak in 2011. (I gather this is a closed end fund. Hence they quote the share price, while The Wine Investment Fund quotes net asset value [NAV].)
These wine returns are better than I thought. I must be missing something as above it seems to show wine returns are 150% which is better than what is said to be the SnP return of 125 so am not following the logic the returns are bad as compared to broad equity. Maybe I am seeing something wrong.
I think the equity returns are more like 225 or 250 percent when one reinvest dividends over that time period.
Which makes more sense. Also wine is much more risky and under most investment approaches that should require higher returns.
As you note the large pop for fine wine prices was a while ago.
I think most people on this forum or other similar ones would have enough innate knowledge to beat these funds easily. The issue is accessing the right wines at release or cellar price. Presumably these funds are not able to do so either.
Sorry, I wasn’t clear. I was just trying to poke a hole in their boast that this asset glass boasts super-high returns. For instance, on The Wine Investment Fund’s website, they have this chart:
That chart is extremely misleading because, while the wine fund beat the S&P in the span since 2004, 150% versus 125% is not a huge gap given the difference in liquidity of the underlying assets.
More importantly, if you compare The Wine Investment Fund to the S&P 500 since January 2009, it’s a 16% for the wine fund versus 194%. Ouch. That just highlights that ~90% of the 150% gain since 2004 occurred in the fund’s first three years.
No liquidity:
5 years, locked for 2 years and subject to a redemption fee of 5% before the 5th anniversary of the date of subscription.
Written notice must be received at least 90 days prior to the applicable redemption date.
Placement Fee (taken off the top, before any money is invested):
7.5% of subscription amount
Management Fee:
2% (0.5% payable on the last business day of each calendar quarter).
Performance Fee (management’s share of profits):
20% of net returns above the high-water mark
On top of that, “The Fund employs Wine-Searcher as an independent valuation agent. Other agencies may be employed to verify results.” So if there are absurd asking prices on W-S, that could result in inflated values (and hence management fees).
How are you sure. I understand it’s not possible in Bordeaux (for ‘investment grade’ wines) and I don’t see many top Burgundy producers kicking out long-standing customers for them.
I want to know how they are doing their valuations. Wine is a far more liquid asset than it used to be, but still on another planet as compared with stocks, bonds, options etc. This is basically a Level III investment at best.
For a few years now, I’ve been a frequent observer on WB and its undeniably given me some invaluable information and viewpoints of the global wine community.
I work for Liv-ex, the London International Vintners Exchange, and figured this may be a good opportunity to introduce myself on a conversation linked to valuing wine.
(Todd, I hope I’m not violating anything here? If this needs to be moved, please feel free)
Whilst I’m not going to comment on the individual performance of various wine funds or the viability of wine as an investment; I’d like to respond to Tom’s question above and explain a bit about what we at Liv-ex do in reporting price movements on the fine wine, the Liv-ex indices which many wine funds benchmark their performance against and indeed the independent fund valuations we provide.
Our data is based on the activity of over 440 fine wine businesses based in 41 countries worldwide – we estimate their activity to account for 85% of fine wine turnover globally; trades, price updates, bids and offers are standardised, verified and published on our website as tens of millions of historic lines of independent, reliable and trusted data. Unlike Wine Searcher pricing, our data is based on real merchant transactions via our exchange.
Using this data together with our mid price methodology (which is based around contractually firm bids and offers from members of the fine wine trade) we produce and publish a number of fine wine indices that track the prices for given groups of wines: for example the Liv-ex 50; 100 and 1000 as well as regional indices for Burgundy, Champagne, Italy, Rhone, California and Port – these are regularly quoted by media outlets including Bloomberg and Reuters. Using this same mid price methodology, we are employed by many fine wine funds globally to independently value their stock holdings.
Many thanks to all of you for contributing in this fantastic community – I look forward to more interaction in the future.
I don’t see how there could be the market depth in specific wine/vintage pairings of e.g. back vintage Burgundy to value directly off actual transactions in a way that wouldn’t be extremely susceptible to manipulation (i.e. a few auction purchases having a big effect on the index). At best you would have to model it with recent transactions as one input – like Tom Reddick said, Level III asset style. First growth Bordeaux, maybe, but even there…five first growth Bordeaux and say 15-20 vintages in play, that’s 75 to 100 prices which is a lot!
Howard’s question about buying and selling prices is very interesting too. Retail collectors like us face huge spreads of like 10-40% in selling wines, which is a big reason that pure investment as a motivation for collecting doesn’t make a ton of sense unless you get very lucky with huge once in a lifetime price runups. What is the spread for wine funds when they sell?
Hi Howard - Liv-ex operates a b2b fine wine exchange - in order to be a member you must be a fine wine business (retailer, wholesaler, importer, merchant, negociant, fund), the prices are therefore wholesale trade prices and thus there are no middlemen. Like any exchange, Liv-ex operates as the central counterparty.
You cannot buy Bordeaux from the property, they will all buy from negociants, which is still a savings from their mark-up. As wine prices rise for new releases, it is a tricky investment.
If the investor buys older, high-end wines, purchasing a pool of wines is probably not a bad idea, if you are buying the top 1% of wines based on price, brand and ratings.
As a guess, for a 10-year hold, 2009 and 2010 Bordeaux will probably pay off. That being said, even though the wines in my cellar have probably out-performed all the major indices, it is not where I would place funds needed for my retirement.
