Château Lafite, Pauillac
There are claims that wine consistently out-performs other investment assets classes and that £10,000 invested would provide an annual profit of over £2000 over a ten year period.
'Over 10 years an investment of £10,000 would
earn you on average over £2,000 every year'
Initial capital of £10,000
chart giving average 10yr rtn
showing £16,247.10 after 4 years
showing £16,247.10 after 4 years
It appears that Cult Wines Ltd base their projections on The Liv-ex Fine Wine Investables Index
'From the Liv-ex site: 'About the Index
The Liv-ex Fine Wine Investables Index is designed to track the wines commonly found in a wine investment portfolio. The index consists of Bordeaux red wines from 24 leading chateaux. The component wines date back to the 1982 vintage and are chosen on the basis of their score from Robert Parker. The wines are priced using the Liv-ex Mid Price with various scarcity weightings applied to account for older vintages and wines produced in smaller quantities.
The index dates back to January 1988 and was rebased at 100 in January 2004. Liv-ex has been calculating Mid Prices for selected wines from 2001 onwards. Component prices prior to that date are the result of an extensive collection of historical price data from leading fine wine merchants.'
The Liv-ex Fine Wine Investables Index is designed to track the wines commonly found in a wine investment portfolio. The index consists of Bordeaux red wines from 24 leading chateaux. The component wines date back to the 1982 vintage and are chosen on the basis of their score from Robert Parker. The wines are priced using the Liv-ex Mid Price with various scarcity weightings applied to account for older vintages and wines produced in smaller quantities.
The index dates back to January 1988 and was rebased at 100 in January 2004. Liv-ex has been calculating Mid Prices for selected wines from 2001 onwards. Component prices prior to that date are the result of an extensive collection of historical price data from leading fine wine merchants.'
I thought it would be interesting to put these claims to a small test. Using wine-searcher I looked at the prices of a case (x12) of 2005 Lafite over the past four years, which could have been bought in June 2010 for £10,000 – the cheapest UK price (We love wines) shown.
2005 Lafite: profit and loss account
Col 3: merchant on wine searcher offering lowest price
Col 4: annual increase or decrease on price
Col 5: net profit or loss on year
Col 6: loss over 4 years
The investor's Lafite that cost £10,000 in June 2010 could be bought on 9th August 2014 for £5750 from Cavex – down by £4250. This loss is compounded by £60 for annual storage and insurance charges (figure taken from Cult Wines Ltd' charges as stated by Premier Cru in their 31.7.14 letter to their clients). Loss climbs to £4310. If the case had been with a wine investment management company and assuming an annual management charge of 1.75% (as charged by Premier Cru Fine Wine Investments Ltd) on the value of the portfolio, then a further £588 must be factored in. This brings the total loss over the four years and two months to £4898 or £1224.5 a year some distance away from an annual profit of 'over £2000 a year'. Even the worst performing Cash ISA would have performed better.
Obviously there are some caveats here. The Lafite's performance is charted over 4 years and not ten. 2011 to 2014 has seen the worst wine bear market for many years. I have looked at just one wine and not a balanced portfolio albeit that Lafite, especially a vintage like 2005, is a popular choice for wine investment.
••
Cult Wines Ltd: projection £10,000 could
on average become £23,380.70 in 7 years
2005 Lafite European auction prices: Jan 2007 - July 2014
Col 2: auction prices 2007-2014
Col 3: prices including Buyers Premium and sellers commission
+ net
Col 4: storage at £15 a case per year
Col 5: management fee of 1.5%
assumes that wine is held through investment
company that charges a fee
Taking a longer view (7 years) using auction figures on 2005 Lafite (January 2007- July 2014) from wine-searcher makes this for the moment a better investment, although still far from an average profit of over £2000 a year.
The wine-searcher figures show that the 2005 Lafite bought at auction in January 2007 for £3700 (£4329 with buyers premium of 17%) could have been sold at auction in July 2014 at £8784 (£7905 with seller's commission deducted – calculated at 11%). This gives a gross profit of £3576. Take away the cost of seven years storage (£15 a case as charged by Cult Wines Ltd = £105) – profit is reduced to £3471 (£496 a year). This is still a very decent profit over the seven years but nowhere close to £2000 a year.
Had the investors entrusted their case of 2005 Lafite with a company charging an annual management fee at 1.75% (like Premier Cru Fine Wine Investments or Cult Wines Ltd) the net profit would be reduced by a further £1327.69 to £2143 (£306 a year). Still far better than a Cash ISA but the investor will be offering prayers that the wine bear market ends soon, otherwise their profit will be further eroded.
The wine-searcher figures show that the 2005 Lafite bought at auction in January 2007 for £3700 (£4329 with buyers premium of 17%) could have been sold at auction in July 2014 at £8784 (£7905 with seller's commission deducted – calculated at 11%). This gives a gross profit of £3576. Take away the cost of seven years storage (£15 a case as charged by Cult Wines Ltd = £105) – profit is reduced to £3471 (£496 a year). This is still a very decent profit over the seven years but nowhere close to £2000 a year.
Had the investors entrusted their case of 2005 Lafite with a company charging an annual management fee at 1.75% (like Premier Cru Fine Wine Investments or Cult Wines Ltd) the net profit would be reduced by a further £1327.69 to £2143 (£306 a year). Still far better than a Cash ISA but the investor will be offering prayers that the wine bear market ends soon, otherwise their profit will be further eroded.
