Source: Radio New Zealand
Eighty five percent of wines sold at auction are French. 123RF
One of the things former Spice Girl Victoria Beckham’s son Brooklyn made headlines for this week was sharing “the world’s most expensive” wine with his wife, Nicola Peltz.
The details turned out to be a little murkier than that.
Media reported that it was actually unclear which wine they were drinking, but the restaurant in Montecito had a 1811 Château d’Yquem in its cellar, which last sold at auction in 2012 for about £75,000 (NZ$170,000).
This may have prompted questions from readers – including (but probably not limited to) how does a wine become worth such a lot of money? And might my bottle of Oyster Bay sauvignon blanc in my wine rack reach such lofty heights?
University of Auckland senior lecturer in finance Gertjan Verdickt studies wine investment and is also on the board of WineFi, a syndicate that lets people invest in a portfolio of wines.
He said there were a few reasons why wine could be a good investment.
For investment-grade wine, there was a fixed supply, he said, and increasing demand.
“Interestingly, if the Beckhams drink these expensive wines, the supply drops – while the demand generally does not. In economics, we also call this a Veblen good: as products become more exclusive, prices go up.”
Brooklyn Peltz-Beckham and wife Nicola Peltz-Beckham arrive at the Los Angeles Premiere Of Vertical Entertainment’s ‘Lola’ held at the Regency Bruin Theatre on February 3, 2024. IMAGE PRESS AGENCY
He said there was also a convenience yield of about 2 to 3 percent a year that came from having investments that were real and tangible. This could also apply to art investments and things like handbags.
There was also a social aspect to wine investing, he said.
“You can show off the bottles you have to people. The most expensive one is called DRC, it’s about €20,000 (NZ$45,500) per bottle. The fact that you can say that you own this gives pleasure, and people are willing to pay for this.”
He said over the last 100 years the return on investment-grade wine had been about 6 to 7 percent.
“Over the short-term – the last 20 years – wine’s return is around 8 percent. On a risk-adjusted basis, it outperforms other asset classes, such as bonds. It produces a return just below equities, but with interesting correlations from a diversification perspective. In other words: adding it to your overall portfolio can decrease the risk of your overall portfolio.”
But he said there could be issues with it. Selling wine could be a slow process compared to selling shares on the share market.
“As such, investors ask for compensation – a liquidity risk premium – which drives up prices. So this means that wine investment should be a long-term investment.
“As such, investment-grade wine is wine that is more liquid than others: buying wine is easy, selling is the name of the game. In my dataset of 6 million observations, I have 175 labels that I consider sufficiently liquid to include in this category.”
He said people could invest in wine in a few ways. The auction house Webbs buys and sells a lot of wine.
“They generally focus on New Zealand labels, but also have some important French ones – mainly Bordeaux and Burgundy, some Champagne.”
Champagne is a French sparkling wine, produced only from grapes grown in the Champagne region. Unsplash
In Australia, he said, Langton’s was probably the most active wine auction house in the world.
“They have everything, although the home bias is also very large there.”
People who bought their own wine to invest could store it at home or in a bonded warehouse, he said, but there would be some costs associated with that.
He said the average investment grade bottle of wine was about NZ$500, so people would need some capital to get started.
“In the fund space, it is depending on the kind of fund. You have private equity structures, where you need NZ$250,000, or WineFi, where you need, depending on the product, between £3000-£5000 (NZ$6800-NZ$11,300).
“Now, I see wine investing is on the rise, if someone creates a tokenised version of this, this will be the next big thing. Then you don’t need to buy the DRC anymore, but you buy a part of it. If you want to sell, you sell your token, not the bottle. So liquidity goes up, storage/insurance costs go dow,… I see lots of advantages.”
And as for that bottle of wine in your wine rack? Verdickt said whether it was likely to improve in value would depend on how cheap it was.
“Do you consider €150 (NZ$295) for a bottle a lot? Given that there are many stocks worth more, I don’t consider them expensive, although I don’t drink them on the regular.
“Tignanello, which is an Italian supertuscan, is priced at around €100-€150 (NZ$197-$NZ295) for a new bottle. This is also something I consider to be of investment-grade level. So yes, that will also improve in value.”
University of Auckland senior lecturer in finance Gertjan Verdickt. University of Auckland
He said Felton Road had multiple wines that resold on the secondary market, although not often. “That’s why I don’t consider them of investment-grade level… Other wines you see often on Langton’s are Cloudy Bay and Ata Rangi… Again, I wouldn’t call them expensive from an investment perspective.”
He said it was not just about what you might like but also what would improve.
“I won’t go too deep into wine biology, but wine generally needs alcohol, tannins, acidity, body and taste to age well. That’s why you generally see more red wines on the market than white. So, if what you like ticks all of these boxes and will likely improve with age, then it can be an investment.
“Most wines, however, are consume-now wines – drink within two years – so that’s not very appealing. Also, most wines are mass consumption, which are also not very appealing. That’s why you don’t see a lot of non-vintage sparkling wines on the secondary market, but only vintage, because of that supply argument.”
He said Australia and New Zealand were lagging other markets when it came to wine. Eighty five percent of wines at auction were French.
He said the drinking window was important when determining how a wine’s value would change. Wines at the cheaper end of the investment scale tended to offer a higher investment return on average than the most expensive investment wines, he said.
Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.
– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
