Wine Investment in South Africa - Cape Wine Academy

Indices
Level MOM YTD 1yr 5yr
Liv-ex Fine Wine 50 439 0.0% 9.4% 31.4% 240.6%
Liv-ex Fine Wine 100 359 0.0% 6.7% 21.2% 153.8%
FTSE 100 5,990 -1.3% 1.5% 15.5% 4.6%
S&P 500 1,345 -1.4% 6.9% 23.5% 5.9%
Gold 934 0.2% 2.6% 11.6% 173.1%
Table 8. Liv-ex June 2011 market report showing no monthly growth of top portfolios.
role of wine assets in diversifying risk, ‘even if the return to wine is lower than standard
financial assets and the risk higher, if including wine in an investment portfolio reduces
portfolio risk, wine should be considered a worthwhile investment class’ ( Fogarty, 2006 ).
The relatively high interest rates on savings offered in South Africa, anywhere between 4%
and 6% currently on quick access accounts and anything up to 9% on longer term accounts,
bonds or Managed Funds ( March 2011 ) means that investors don’t have to take risks to
achieve satisfactory returns. The blog page of Boschendal Estate’s web site sums it up thus;
‘SA also has other relative safer investments with decent ROI’s like government
bonds, interest on positive accounts and money market investments. These lower
risk investments also make it more viable for investors to go for the safer investment
options’ ( Boschendal blogmaster, 2009 ).
This might explain why investment in an alternative asset like wine is more active in Europe
and the US where returns on savings are currently much lower, around 0.5% net on most
Building Society savings accounts in the UK for example. If similar rates were offered in SA
the pursuit of alternative, high risk ( high return ) investments might be much more in
evidence.
With such low everyday saving rates and the worldwide severe recession starting in 2008
fine wine achieved a 5.6% return according to Bordeaux Index ( Annual Report 2010 ),
making wine investment an attractive option in Europe. The bounce back in 2010 was
remarkable; by December, the Bordeaux Index had returned 32.4% on the year making it by
some way the best performing asset class of 2010. Stephen Williams of The Antique Wine
Company explains why,
‘In tough and challenging economic times, money flows into wine because unlike
paper assets, investors regard it as safe haven. Rather like gold, wine is a tangible
commodity which has historically shown good solid returns through thick and thin.
Because of this demand remains solid and cushions the lack of consumption.
The result is that, even in the severest of downturns, wine doesn’t crash in the way
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