How worthwhile is it to invest in wines? How long before we can cash in? And when wine becomes an asset, can we drink it? These and more questions about wine investment are answered by Mr Keegen Lee, regional sales director of Assets Wine Management.

What are the advantages of investing in wines?

Investing in fine wines is an activity that has been around for centuries. Do you know that for the past 25 years, fine wines have proven to be one of the most consistently stable, high-yielding, and low-risk investments in the world?

With capital growth of over 300 per cent since 1992, wine as a commodity has outperformed the FTSE 100 index, Victorian art and gold.

In fact, fine wine as an investment has many advantages over other structured investments - such as unit trusts, bonds and equities - as it benefits from the following attributes:

• Tax free
• World-wide demand
• Increasing rarity
• Decreasing availability
• Low risk
• Customised portfolios
• Easily realisable
• Personal ownership of tangible asset
• No annual management fees

Once bottled, fine wines mature and improve with age. A limited amount is produced every year. Hence, investment-grade wine is an improving asset. As fine wines mature and come into their drinking window, some are consumed - making the remaining supply even more rare, which in turn adds yet more upward pressure to their prices.

Also consider these favourable factors:

• Firstly, fine wine has benefited from a dramatic increase in popularity and there is an established and thriving fine wine auction market. Therefore, it is quite unlikely that demand will diminish.
• Secondly, wine is a transferable asset - a liquid legacy.
• Thirdly, there is no limit to the amount you can invest in wine and as, technically, wine is a 'perishable' item, it is not subject to capital gains tax.
• Lastly, returns aside, a good glass wine is a pleasure to the senses, a fine toast to your good taste.

So, just as the early bird gets the worm, early purchase of a good vintage will yield good returns as supply dwindles over time.

For those new to this form of investment, how should they get started?

Smart investing is only possible when you are armed with the right information. To help you, there are trained professionals who can thoroughly study your wine portfolio and create for you the best exit strategy to maximise the returns for your investment.

As an investor in fine wines, there are some basic guidelines you should note in order to secure better benefits and gains.

For instance, less than one per cent of all the wines worldwide are of investment grade. In all fine wines, price is considered the principal gauge of quality.

However, prices are affected by more than just the quality of a wine. Scarcity usually increases the value of the wine as well. As wines age, they may increase in quality, or in scarcity, thus increasing its value either way.

These basic pointers should put you on the right path towards investment success:

1. Focus on the top wines from the best vintages. Only a fraction of the wines produced worldwide will increase with value if kept.
2. Store the wine correctly and, preferably, in professional temperature-controlled cellars.
3. If purchasing in Europe, buy and store wines 'under bond' so sales taxes do not become payable.
4. Take advice from established and reputable retailers and importers.

In the wine business, you also need to consider these areas of influence:

'Buying and selling fine wine has become a pleasurable, profit-making activity, all without consuming a drop. Purchasing wine purely for personal consumption is all fine and dandy but, in recent times, the investment potential of a good vintage has become too attractive to ignore.' -Keegen Lee, regional sales director of Assets Wine Management

Wines score
Scores assigned to vintages by prominent wine writers have always set the trend in influencing buyer preferences and market swings. These scores serve as a yardstick for wine buyers and drinkers, potential investors and traders to take a position and affect the market without necessarily knowing anything about the wine. Invest in wines that have received at least 90 pointers and above by Robert Parker as he is still undeniably the most influential wine critic in the world.

Wine futures
Wine futures (also known as "En Primeur") refers to buying wine after it is made, but before it is bottled. Cask samples of wines are made available for tasting to wine journalists and the large wholesale buyers in the spring following the vintage. The wine is generally bottled and shipped around two years later.

In good vintages, wine futures can offer the investor the greatest return; the initial release prices are usually the lowest. However, when buying wine futures, it is strongly recommended that you deal only with established and reputable retailers and importers.

Wine storage
No matter how good the wine or how great its maturing potential, if stored incorrectly, it will never realise its full potential. You may think that a cool spot in the garage or the back of the basement is ideal, but in reality, very few locations possess the features suitable for storing wines.

Ideal storage conditions are cool (around 13 deg C/55 deg F), not subject to dramatic fluctuations in temperature, not too dry (otherwise the corks may dry out) and not too damp. A relative humidity of around 70% is generally thought to keep corks damp and labels free from mould. Wines should also be stored free from light and vibration.
With these conditions necessary, many wine collectors entrust their cellar to a professional wine storage operator.

For storage firms charging on a per case basis, ensure that your wines are identified individually by the case. As an investor, it is recommended that you purchase wines in their original wooden cases - an important factor when you decide to sell.

Wine Insurance
Serious wine collectors should consider insuring their wine. You wouldn't want that newly purchased case to accidentally hit the cellar floor and be an investment down the gutter.

If you store your wines at wine storage facilities, such places will generally have insurance arrangements in place. If you store in your own cellars, you need to be sure you are adequately covered.

For a small collection, not too expensive and primarily for consumption, insure your wines under your homeowners' policy. Just check to make sure you have enough contents coverage to include your wines.

If you have a large collection, you should probably invest in a stand-alone, 'valuable articles' policy, which enables a broader coverage than your home policy.

'We believe in sharing our passion and cultivating yours. We conduct regular wine-tasting sessions, wine appreciation sessions and investment seminars to help you make the best investment choices, tailored to your individual needs. We are committed to educating our clients with practical and updated wine information. Personalised wine investment advice and guidance is also provided for each client to help them make the most sound and savvy investment choices.' -Keegen Lee

You can insure a collection up to a certain blanket amount (say $25,000). For more valuable collections, it starts to make sense to insure the wine on an itemised basis, bottle by bottle. Stand-alone wine policies cost about 40 to 50 cents for every hundred dollars' worth of wine.

What are the costs and logistics involved?

It depends. Logistics cost is difficult to calculate as it depends on where the wine comes from, or whether you want it to be in Singapore or else where. There are many storages and warehouses in the world to keep wines. If the wine is for investment and profit only, then it is best to keep it near to where the potential buyers are, but if it turns out to be an investment-cum-collection, then many people may prefer to have it stored near them.

Please recommend some reference materials, if any.

Some reference material I would recommend to subscribe or purchase:

• The most sought-after is The Wine Advocate by Robert Parker, Jr. He is the most influential wine critic in the world. His bi-monthly newsletter, The Wine Advocate, was first publishing in 1978 and now has a profound effect both on prices and market demand for fine wines around the world. Parker's tastings are done in peer-group, single-blind conditions, meaning that the same types of wines are tasted at the same time, though the producer of each wine is not disclosed at the time of the tasting.
• For Australian wines, The Wine Companion by James Halliday. Leading wine critic and vigneron James Halliday has a career that spans over 40 years, but he is most widely known for his witty and informative writing about wine.
• For French wines, books by Michael Broadbent are most sought-after. He, quite possibly, knows more about fine, old wines than anyone else alive, and he writes about them with unparalleled expertise. He is one of the most experienced lecturers and writers on wine and has to his credit an unmatched combination of qualifications, international honours and awards.

If I don't drink wine, should I even consider this alternative form of investment? But, when wine becomes an asset, can we drink it?

This investment does not require you to drink, but, if you drink, you can take some and enjoy while keeping the rest for profit. This way you can make money and still be able to enjoy fine wines. There are people who keep their collection as an heirloom for the next generation.

Investment only comes into the picture when supply is limited and demand is high. As the years go by and supplies of certain fine wines dwindle, those who are holding such wines will have the upper hand when calling the prices.

How long should I wait before realising any returns?

The average return from investing in fine wine from good vintages is about 15%. To get the best returns, most wine investments should be regarded in the medium to long-term, with a minimum of five years. The best wine investment returns are to be had over a 10- to 15-year period.

For example, certain vintages of Penfolds Grange that sold for less than A$40 (S$50) in the 1980s now sell for close to A$600. More recently, relatively unknown Australian wines such as Three Rivers Shiraz roared from A$60 per bottle to A$1000 per bottle between 1999 and 2001.

30 years ago, Australia did not even have a wine auction system. If you don't have an auction system, there's no speculation on wine. Now, the country not only has scores of dedicated wine auction houses, but they are booming like never before (it's a A$30-million industry).

More individuals are trading wine than ever before and, with the advent of the Internet, more people are perusing wine catalogues and participating in online wine auctions. And with that has come greater competition for individual wine lots. It's a boom all right.

There's going to be a lot of talk about wine as an investment over the next couple of months. The prompt will be the release of the 1998 vintage Penfolds Grange Shiraz on May 1, a wine from a vintage so hyped that some are calling it the best of the decade.

Very little of this bound-to-be-great wine will be bought to be drunk - the great tragedy of the Grange phenomenon. The wine is now too valuable with the cork still in the bottle, and it could become even more valuable.

Some people will buy the 1998 Grange in the first few days of its release, hold on to it for a month or two, and then sell it (all retail stock having sold out) for, perhaps, a 20- to 30-per-cent profit. It's that easy.

About Assets Wine Management

Assets Wine Management was set up in 2004. It specialises in the investment, retail and distribution of premium grade wines. As part of its investment portfolio management services, the wine investment company helps collectors and investors purchase, store and sell their wine. To date, the firm has over 1000 investors and collectors in the Asia Pacific region, with a stock list of more than $10 million stored at Trident Districentre in Singapore.

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