Fine-wine fund rises to the top amid global turmoil

LONDON Wed Dec 15, 2010 8:53am EST

Glasses and bottles of Chateau Belcier red wine (Saint Emilion label) are seen in a testing room in Saint Emilion, southwestern France, November 6, 2007. REUTERS/Regis Duvignau

Glasses and bottles of Chateau Belcier red wine (Saint Emilion label) are seen in a testing room in Saint Emilion, southwestern France, November 6, 2007.

Credit: Reuters/Regis Duvignau

LONDON (Reuters) - A fund investing in fine wines is outpacing other asset classes as Asian drinkers develop a taste for the finest vintages and compete for supplies with aficionados in Europe and the United States.

The Wine Investment Fund buys up fine wines from the Bordeaux region of France where there are only 35 producers of "investment grade" wine.

Such a narrow pool of eligible assets translates into a permanent supply constraint and keeps prices high, the managers said.

On the demand side, traditional connoisseurs in Europe and North America now have to compete for supplies with new drinkers as fine claret emerges as a status symbol among the nouveau riche of Asia, the fund's director Andrew della Casa told Reuters.

"They do not even like the taste in a lot of cases. They just like to be seen to be buying the wine or drinking the wine ... Nevertheless, from our point of view as investors they are still taking stock out of circulation," he said.

While true wine lovers might once have been dismayed at the finest tipples in the world being drunk by the uninitiated, the new consumers are learning to appreciate what they are drinking, della Casa said.

"In some cases, famously they will mix 7UP or Coca Cola with it. (But) that is changing. I have not seen that happen now for a few years," he said.

Investors in the Wine Investment Fund, mainly rich individuals and families, as well as an increasing number of institutions, have enjoyed impressive returns since it launched in 2003.

According to a statement released on Monday, a five-year investment made in 2005 has yielded an average annual return of 17 percent. In contrast, the blue-chip FTSE 100 British equity index averaged a 0.3 percent annual loss over the period, which was dominated by the credit crisis.

Wines held by the fund during the past five years, include a Lafite 1986, bought in October 2005 at 2,754 pounds ($4,371) per case, and sold in September for 16,000 pounds.

Looking ahead, the fund has on its buy list the Latour 1996, which is "approaching a drinking window," della Casa said.

Also appealing to the fund managers is the Haut Brion 1990, beginning to hit full maturity, and likely to see increasing demand against diminishing supply as more people drink their stocks.

Among wines on the sell list is the Lafite 2004, which has risen almost fourfold in the past two years to nearly 8,000 pounds per case, beyond the point at which demand is underpinned by European and U.S. drinkers.

The managers themselves keep cool heads when dealing with assets coveted by the world's connoisseurs, viewing wine as any other commodity.

"We come from the finance world, not from the wine world. In a sense we do not care that it is wine," della Casa said.

(Reporting by Chris Vellacott; Editing by Sinead Cruise, Sharon Lindores)

($1=.6301 Pound)

FILED UNDER: