TWIF predicts further growth

The Wine Investment Fund has maintained its payouts in double digits as its second tranche of 2005 has matured. There is also hope for further growth throughout the year, driven by continuing Asian demand.

The fund sees China as the current key influence on the fine wine market. China’s demand for the finest Bordeaux, TWIF reported, is still growing rapidly and likely accounted for around half of the 40% increase in prices last year.

Looking ahead, Chris Smith, an investment manager at TWIF, told the drinks business: “Our central forecast for 2011 is for price rises of 21% on the main index, the Liv-ex 100, with a ‘bear’ scenario (involving a slowing down in China) of 0-5% and a bull scenario of 30-40%.

“We believe the last of these is possible as inflation concerns rise around the world and people look to physical assets as a hedge against rising prices.”

If the new Asian demand slows down TWIF are confident that some wines will be affected much more than others and take account of this in their investment approach.

Smith explained: “Those which will be affected the most are wines such as Carruades de Lafite, other second wines, certain other brands, and lesser vintages of all wines.

“At TWIF we actively manage risk and therefore have no, or very small, holdings in these wines.”

Smith singled out China’s propensity for buying on châteaux name and reputation, regardless of supposed vintage quality, as the main reason for caution when trying to push other labels.

Nonetheless, although lesser vintages – even those of great houses – would not do as well among UK and US buyers, in Asia the situation is slightly different.

Smith explained: “To spend the least amount of money while still displaying the appropriate brand, it makes sense to buy the lesser vintages. Hence, in 2010, lesser vintages in price rose by around 50% more than stronger vintages.

“These weaker vintages – including 2007 – would not find support at existing price levels amongst traditional European and North American consumers.”

Over the last five years investors in fine wine have received returns equivalent to 13.25% per annum. TWIF said over the same period the FTSE 100 rose just 1.9% or 0.4% per a year.

Andrew della Casa, director of TWIF, told The Financial Times: "We are delighted to confirm that on a £10,000 investment, the 2005 second payout has returned over £18,630.”

The fund said fine wine has again shown itself to be low risk when compared to equities, oil or even gold. TWIF pointed out that their investors also benefit from the fact that its wine portfolios do not attract duty or VAT or, for UK investors, capital gains tax.

Laura Pullman, 13.01.2011