Wine Investment in South Africa - Cape Wine Academy

( just over R2m ) of some two dozen wines ( not all shown ) showing an increase of
56.8% in prices over the year. Of course, this does not mean a return of 56.8% for the
investor as costs have to be deducted and the wine has to be sold to realise income.
Investment companies see wines as offering various risk levels. First Growth Bordeaux
would be lowest risk; top Burgundy, Champagne and Old World classics such as
Sassicaia and Vega Sicilia of medium risk and New World California and Australia, such
as Screaming Eagle, Harlan and Penfold’s Grange as high risk. Their investment would
reflect this and be part of their risk-return analysis.
Wine does not typically suit a risk-return analysis, though, as it can be drunk and enjoyed
( but at the same time destroyed ) and is a ‘wasting chattel’. This is why wine does not
attract Capital Gains Tax in the UK as its ageing implies its ultimate demise. The investor
would expect frequent trading by the investment fund to avoid owning wines past their
useful life and of little value. Such constant monitoring of portfolios takes a good deal of
knowledge and effort from the investor and is an important consideration in weighing
return values. Investment companies will also be able to source rare wines more easily
than the individual could because of their increased spending power and access to the
market. Nonetheless, investment companies might not offer the market buffer expected;
‘We advise against entering the wine market through investment funds. Such funds
have large positions in highly illiquid assets. As such, if they had to get out of the
market and to sell their positions quickly, they might incur large losses’ ( Masset and
Henderson, 2009 ).
2f) Buying and trading through the secondary trade such as auction houses. There are
numerous auction houses offering wine sales throughout Europe, the US and Asia.
Sotheby’s worldwide totalled sales of $45m (R317m) in 2008 and Christie’s, also
worldwide, totalled sales of $70m (R495m) in 2010. Buying through an auction house
means bidding on wines which have already attracted tranche fees, broker’s fees,
négociant’s fees and the premium paid by the seller when they purchased the wine.
The wine is put on sale with a guideline price – usually based on Liv-ex’s Mid Price -
which reflects its standing in the market and the bidder is unlikely to achieve anything
near its release price. An example of a catalogue entry from a past sale at Sotheby’s is
shown in Figure 1 below. Note the brief provenance assurance, the guideline price and
the detailed description of the wine’s condition. An explanation of bottle ullage is given in
6.1.6.
Of course, poorer vintages, economic downturns or falling out of fashion can drastically
reduce the asking price of wines and canny investors might well acquire wines at
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