Investors can see big returns in wine, but it’s not a sure thing

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Posted: Thursday, December 26, 2013 12:00 am

When Ken Bleifer started collecting wine 50 years ago, he didn’t think of it as an investment.

He simply loved wine and, like many connoisseurs, ended up buying much more than he could ever drink. So about 10 years ago, he began selling some of the 4,000 bottles in his wine cellar.

Bleifer, a Los Angeles-area nephrologist, unloaded a few cases at a time. Two bottles of Burgundy purchased for $80 in 1983 fetched $4,700 in 2006.

Bleifer won’t disclose his total profit other than to estimate it at several hundred thousand dollars.

“Had I known what I know now, I never would have bought a stock in my life,” Bleifer said. “I would only have bought the finest wines of the finest years, stored and aged them properly, and sold them. I’d be way ahead of where the stock market is today.”

For those with the money to pour in, wine can be a lucrative investment. An index measuring the value of 100 top wines has risen 130 percent since the end of 2005, double the total return of the Standard & Poor’s 500 stock index.

Optimists expect the wine market to grow as the wealthy become even wealthier, especially in China and the rest of Asia.

The number of millionaire households in major countries will top 65 million by 2020, up from 38 million in 2011, according to the Deloitte Center for Financial Services. Their wealth is expected to more than double in that period to $202trillion from $92 trillion.

“Wine is a play on the fortunes of the very richest in society,” said James Miles, co-founder of Liv-Ex, an electronic wine exchange based in London. “Right now, that’s probably a good place to be. The rich don’t seem to be getting poorer.”

The idea behind wine investing is simple enough: Buy prestigious labels, such as from France’s Bordeaux region, and hold for years. Wines can be acquired through brokers or auctions.

In addition to the presumed rise in demand from restaurants and oenophiles, there’s the scarcity factor.

Every bottle that’s uncorked lifts the value of remaining bottles. And French regulations bar vineyards from expanding production, said Alexander Westgarth, head of Westgarth Wine Investment Brokers in Los Angeles.

As with all markets, however, wine investing is not a sure thing. The Liv-Ex 100, which measures the monthly value of 100 fine wines, nearly doubled from 2009 to mid-2011. It has slid 27 percent since then.

The market became overheated — especially for rarefied names such as Chateau Lafite Rothschild — as buying exploded in China, experts say.

“The market just got ahead of itself,” Westgarth said. “The last decade saw a colossal price rise, and it’s just a market correction.”

Investors need to understand the nuances of wine, experts say, and buy the right vintages at the right time. That has become more difficult over the years as newcomers have crowded in, including wine-oriented investment funds.

There are about 15 wine-oriented hedge funds, most having started in the past five to 10 years, according to HFR, a provider of hedge fund industry data. Assets total less than $500 million, but that’s up from $150 million in 2011.

“If the public is thinking they’re going to buy some wine not knowing what they’re doing, then they can lose money,” said Scott Asbill, an orthodontist from Redding, Calif., who has invested in wine since 1995. “It’s not an easy thing.”

And wine, of course, is the ultimate illiquid asset. Investors must hold bottles for a minimum of five years.

“This is not a get-rich-quick play,” said Andrew della Casa, manager of the London-based Wine Investment Fund.

His portfolio is similar to a mutual fund, except that della Casa buys cases of wine rather than stocks or bonds. The wine is insured and stored in a special warehouse.

The 10-year-old fund has returned an average of 10.3 percent annually after fees, della Casa said. But it doesn’t come cheap.

The minimum investment is about $16,000, and newcomers pay an upfront charge of 5 percent just to get in. There’s also a 1.5 percent annual management fee. And the fund keeps 20percent of profits.

The weakness in the wine market since mid-2011 hasn’t dissuaded some newcomers.

Cliff Lee doesn’t know much about wine but nevertheless shelled out $10,000 on 2½ cases of Bordeaux.

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