Wine Investment in South Africa - Cape Wine Academy

Other vintages should be considered as the high prices caused by a great vintage makes
slightly less good vintages, such as 2001 in Bordeaux, better value. A portfolio with a mix of
vintages including a number of top older wines would be sensible.
6.1.5 Return Risk Volatility
Large investment returns from wine cannot be guaranteed. Every investment house with
integrity carries very clear ‘caveat emptor’ warnings. The legally prescribed wording
appearing on investment company pages in the UK reads;
‘Please note that past performance is no guarantee of future performance, that the value of
investments may fall as well as rise and that you may not get back the amount originally
invested.’
Wine is a commodity like any other, controlled by market forces and susceptible to economic
pressures, vintage conditions and fashion. Risks arise partly because output prices cannot
be determined prior to production and can vary widely ( Krasker, 1979 ). This is because
producers are vulnerable to the forces mentioned above and because there is some
international variation between wine prices and consequently wine’s attractiveness as an
investment around the globe. In a recent paper it is argued that such price variations, rather
than increase investment risk, offer,
..‘significant international diversification benefits for investors in Italian, Australian and
Portuguese fine wines’ ( Kourtis, Markellos and Psychoyios, 2010 ).
Kourtis, Markellos and Psychoyios apply several price index ratios and conclude that
diversification is vital and that areas outside classic Bordeaux and Burgundy offer the
greatest risk protection. It might be surmised that South Africa offers similar wine quality and
market potential to the countries studied. Author Apostolos Kourtis agrees that including SA
‘seems like a good idea for future extension... it is certainly an interesting direction’ ( Kourtis,
2011 ). Diversification in only French wines seems to offer little protection, and since the ‘risk
profile of wine as an alternative investment remains largely unknown’ ( Kourtis, Markellos,
and Psychoyios, 2010 ) it seems sensible to include wines from other than traditional
regions. Any benefits, however, are largely unproven and the authors warn of the lack of
risk-management tools available for wine investment.
Liv-ex has traced the returns made on fine wine since 1982 and though there have been
periods of very low or even negative returns such as 1997 and 1999 when profits failed to
make the 5% ‘cash hurdle rate’ ( the cost of money over time similar to getting interest from
a Savings Society at 5% ) overall the progress has been steady. Table 7 tracks this
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