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Is It Time to Toast or Roast Rising Wine Prices?

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Wine prices have been on a tear for 14 months, as measured by the Liv-ex 100 Fine Wine Index.

In fact, they are at their highest levels since October 2011, and the Live-ex index rose about 25% in 2016.

How much higher could the index go? Possibly another 18%, which would put the benchmark at its mid-2011 peak, according to Chris Smith, an investment manager, who recently spoke with Bloomberg News about wine prices.

With the drop in the British pound over Brexit and other concerns, shares in sterling-based wine contracts have become less expensive for overseas investors. In addition, some Chinese investors have moved back into the wine market.

Buyer Beware

Investing in wine indexes and interests can (ironically) be difficult due to limited liquidity in these investments.

The Vintage Wine Fund, for instance, had under $120 million in assets when it shut down in 2013 after weak results.

This was followed in 2014 by the closure of the Noble Crus Wine Fund and later Bordeaux Fine Wines.

While these investments were based outside the U.S., Premier Cru — a California-based wine investment operation — shut down in 2016 after some 4,000 investors lost as much as $70 million.

What’s Ahead

Wine analysts, of course, are watching price indexes and movements closely, with the market’s drop-off in 2011 top of mind.

David Jackson of Amphora Portfolio Management in London sees a similar correction in 2017 as unlikely.

Back in 2010, prices rose 42% (vs. 25% in 2016), Jackson says in a recent blog. Furthermore, the market is no longer dominated by a limited number of Bordeaux wines.

Live-ex says some 4,400 different wines are trading today, a jump of more than 150% from 2010.

The wine market is “much like a mini stock market, with many producers in multiple geographical locations, offering a unique proposition each year,” Jackson says.

“At Amphora we view this much like stocks and shares, and just like any stock market, risk is managed by way of diversification. It is this trend away from the polarized markets of ‘09 and ‘10 which affords us additional confidence,” he explained.

Thus, future corrections are likely to be more limited, Jackson concludes.

— Check out Wine Fund Investing Without the Hangover on ThinkAdvisor.


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