WINE INVESTMENT MARKET
Twaites & Jones believes it vital that anyone looking to speculate in the wine investment market must be made aware of exactly how it works. Like any investment product, there is a cost. Remember – NOTHING IN LIFE IS FREE! (Even storage fees!). Therefore we believe it absolutely necessary to share this valuable insight to the structure of wine investments.
Despite our personal affection for Bordeaux and the historical returns our clients have benefited from, T&J continues to identify new areas for investment. Burgundy wines such as ‘DRC’ (Domaine Romani Conti) as well as Super Tuscans (Italian) and the elite wines of Australian producer Penfold’s Grange, have all been recommended to our clients over recent years. It is important to keep one step ahead of market conditions so that our clients can achieve their expectations. T&J will continue to monitor new avenues for rewarding opportunities. (Graph – Source: Liv-ex)
It is only since 1999, and the inception of Liv-ex (London International Vintners Exchange), that the wine investor has been offered a true and transparent picture of the structure within this market. It is the pricing data offered by Liv-ex that today constitutes the ‘benchmark’ for wine investment and valuations. Despite this, companies continue to paint their own impression often with their own analytic methodology – often including unnecessary costs for the investor.
Twaites & Jones firmly believes in the old adage; “Why fix it if it ain’t broken?”
In principle, the wine investment arena encompasses two sectors; the Primary and Secondary markets.
The Primary Market
Activity between trade – the merchant, broker and fund environment. It is within this sector that the ‘real value’ of a wine is identified – however even here there are often marginal price differences companies are willing to buy at (this is down to the profit margin a company works to). Typically, reputable companies peg this figure to include a 15-20% margin. The majority of activity within this sector is either through Negociants – brokers acting solely for the Chateaux; Merchant to Merchant/Broker/Funds or via the various trading platforms – including Liv-ex (London International Vintners Exchange).
The Secondary Market
This sector encompasses consumer and collector. Through websites such as Wine-Searcher, one can identify where to purchase wines at the most competitive level available to them. Whilst this is an excellent tool for ‘price-checking’, one can immediately note the disparity of prices from one merchant to the next. This understandably creates some confusion for those who are new to this market and therefore will raise questions on the ‘real’ value of a certain wine. Of course this becomes more relevant once the owner wishes to sell their stock. It is within the ‘Primary’ market that the real value of a wine can be achieved — through sale to a merchant or broker.
REGULATION IN THE WINE INVESTMENT MARKET
In today’s age of technology and information it seems incredible that so many acts of fraudulent activity and mis-selling with all kinds of unscrupulous behavior hit the headlines week after week within the financial markets. And yes these are within so-called regulated arenas; the Libor scandal is typical of how even global companies fall into the trap of greed.
The wine market is no exception to this exposure. One might blame this on the fact that the wine market is not regulated by governing bodies such as the FSA – but as we know, even within the ebb and flow of regulated environments we constantly hear of such activity. Recently the FSA have voiced their concerns with the role of the independent advisers within the UCIS (Unregulated Collective Investment Schemes) field where focus on wine funds dominate.
The majority of companies in the UK offer good levels of service to their customer, however it is quite obvious that not all hold their clients’ best interest at heart! Those that quite literally bleed their clients dry through hard-selling, and indeed in many cases mis-selling, are companies that our market can do without – but how can this be controlled? Quite simply it can’t! Blame it on greed – of the investor or of the individual broker and in most cases the Director of such companies. It will always come back to the fact that the wine market is NOT regulated and such companies can in fact trade as they please! – Within reason one would hope!!!
SELF REGULATION IN THE WINE INVESTMENT MARKET
For us at Twaites & Jones, Self Regulation in the wine investment market is not the answer. We firmly believe that regulation should NOT come from within the market place, but should be implemented via external bodies; the WSTA (Wine & Spirit Trade Association) – which Twaites & Jones are members of – have certainly started the ball rolling with a useful guide to the pitfalls and basic steps to follow; but with limited resources and a desire to remain distant. Another guardian of the investor is Jim Budd and his excellent website, Invest Drinks. Jim also uses his blog on the site to communicate and advise on the activity of companies with questionable (and often concerning) trading behaviour.
The debate on regulation within the wine investment market will no doubt continue for many years to come.
Twaites & Jones Ltd offers simple advice: those wishing to enter the market for the first time, and indeed those who consider themselves experienced investors, should still proceed with strict due diligence. Today’s information and technology is quite literally at your fingertips!
RESEARCH PRICES, RESEARCH COMPANIES. YOU WILL BE SURPRISED WHAT YOU MAY FIND!