Expert view: Uncork the wine market and prosper

The investment world has witnessed tremendous growth in the demand for alternative investments and asset classes.

This is fuelled by many factors, but principally by the accepted wisdom that diversity, achieved through holding multi-asset portfolio components, can reduce risk, improving returns at the same time.

Esoteric investments are also becoming more familiar as new legislation has ushered in a gamut of new and exotic funds, management philosophies and structures.

The early entrants to this market have mainly been offshore, experienced investor funds. Their performances have been enticing to say the least, notably because of their lack of correlation with traditional assets and their taxation, eschewing dividends that charities can no longer reclaim.

A recent survey showed that the average charity, with a cautious risk profile, holds more than 60 per cent of its investments in equities. However, an actuary's view of asset-allocation techniques would actually ascribe slightly more risk to the average portfolio.

So it is crucial that trustees modulate their risk profiles by blending a far wider range of asset classes - and what better way than by buying fine wine?

This can be done in three ways. First, by purchasing 'physical' wine' - that is, the actual wine itself - but never taking delivery, because the wine itself is stored in a bonded warehouse in the investor's own account.

Second, access can be gained through a retail investor fund. Third, there are 'professional investor' funds, but these have high entry levels and are aimed at a very specific market. The advantage of funds of this nature is that they can provide diversification for a small element of a portfolio while making an appreciable contribution to growth.

Because the value of fine wine is not typically influenced by the stock market or interest rates, it has worldwide appeal, making positive progress while US sub-prime debt pushes equities and bonds down.

To this end, while most mutual funds were heavily down during July and August, a certain fine wine fund was up by more than 5 per cent.

In particular, Bordeaux and Burgundy are produced in limited parcels and are unlikely to meet the demands of the burgeoning middle classes in newer markets such as India and Russia.

Given that there is now a propensity to actually drink fine wine, rather than simply hoard it, the lack of supply is likely to be more acute, which will bolster prices and give trustee portfolios a useful fillip.

  • Markas Gilmartin is adviser director at AWD Chase de Vere 

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