The insider’s guide to fine-wine investing

The power of fine wine to illicit an emotion is what makes it a passion asset, much like the pull of captured moments and ideas in fine art or the craftsmanship and nostalgia of classic cars. More than that, wine’s depth and emotional value speak to cultural histories, philosophies, terroir, and pedigree, making it a nuanced and layered investment intersecting agriculture and luxury. What sets it apart from some other asset classes is its dual purpose — the choice to invest purely for financial returns or for personal enjoyment, where you get to open a bottle of fine wine for moments of shared joy.

Paarl’s Grande Roche Hotel, overlooking the Western Cape’s vineyards and mountains, was the setting for Investec’s Trophy Wine Show judging process from May 12- 15, with the announcement of the results set for June 9. This will be followed by The Great Tasting Cape Town on June 10 and The Great Tasting Sandton on June 12.

The Trophy Wine Show platform features a series of wine-focussed conversations facilitated by Investec. Wine in Focus is the financial company’s vodcast series on SA’s fine-wine industry, hosted by the deal maker for Investec Business and founder of Discover Wine, Lerato Motshologane. On the topic of “Investing in Wine”, industry leaders and experts Michael Ratcliffe (co-founder of SA’s acclaimed luxury wine brand, Vilafonté; chair of Stellenbosch Wine Routes; and co-founder of the Cape Wine Auction), Roy van Eck (Investec’s wealth manager, George office), and Johan Malan (investment and brokerage lead at Wine Cellar, SA’s premier fine-wine merchant) shared insights on the nuances of SA’s wine-investment market and the fundamentals of investing. The conversation was as rich as the local wine industry.

Wine trading can be traced back to ancient Greece, Rome, and Egypt, and there are records of formalised wine auctions in 17th-century England. By the 1980s, London had become the hub of the international wine-auction market. Wine transitioned into an investment asset — with standardised valuation mechanisms and pricing — in early 2000 with the formation of the Liv-ex Fine Wine 1000 index, which is the broadest measure of the fine-wine market, featuring the 1 000 most liquid wines. Liv-ex was founded by two London stockbrokers, James Miles and Justin Gibbs, with the intention of creating an online stock exchange for wine. As it stands, the total trade volume in SA wine on Liv-ex sits at 0.4%.

What this implies, Malan said, is that, “in the world of fine wine, South African wines are not yet traded to any real effect on the secondary market. Various factors contribute — our historical positioning as a low-quality or bulk-wine-producing country, the relatively low volumes of our top-end wines not allowing for secondary-market trade, and the lower values of our wines [historically]. South Africa’s image at the top end is certainly improving as many fine-wine consumers recognise the quality on offer. Internationally recognised critics reporting positively about our wines has also helped to reshape the image of our wines away from their being low quality or bulk only.”

To this effect, Ratcliffe pointed out that the fact that the greatest wines from SA are sold out very quickly — and sold to SA consumers — is both a huge strength and a slight weakness.

“South Africa produces a lot of wines, and only a fraction of them is investable,” Ratcliffe said. “Many of South Africa’s top investable wines are produced in volumes that are too small to reasonably supply Michelin-starred restaurants in Tokyo, Geneva, London, and New York simultaneously. While demand in excess of supply is a positive factor, it would appear that demand is so dramatically in excess of supply that the greatest South African wines are missing a much bigger opportunity.”

Fine wine has become a popular alternative investment owing to its historical stability. It has shown steady growth even during market volatility, providing a compelling opportunity for portfolio diversification and reduced overall risk for investors. Its investment appeal is also linked to its tangibility and tax efficiency. As a “wasting asset” — an asset with a predictable life of 50 years or less — most fine wine is exempted from capital gains tax, although it often appreciates over time. Because production is inherently finite with factors such as vineyard size and vintage quality coming into play, fine-wine investment thrives on limited supply, rarity, and increased demand over time.

As with any other investment, it is vital to get expert advice on how to navigate the market through auctions and reputable wine merchants such as Wine Cellar, which boasts multiple wine portfolios. For its one-of-a-kind international fine-wine investment offering, Wine Cellar has partnered with Shire Capital (FSCA number 52718), Roland Peens of Wine Business Advisors, and Malan to form Bond Wine — a strategic advisor in the selection of fine wines held in bond (with no duties or VAT yet paid) in an actively managed certificate (AMC) structure, traded on the SIX Swiss Exchange.

It’s important to store investible wine in the right way — in a dark, temperature-controlled setting — to protect its value. You can opt for optimal short- or long-term storage through professional cellaring services or specialist bonded warehouses. Getting insurance for your wine is also crucial.

“When you store your wine with a bonded warehouse or storage like a cellar, it’s insured. When it’s at home you have to include it in your personal insurance. And there it gets a bit murky,” Van Eck said.

“When you look at diversification into a wine asset class, consider that wine can age well, but it will peak. And you’d want to experience that peak. If you don’t, it will go down and you will lose that opportunity. As a dynamic person, your palette grows over time. You can’t insure against that. So, you need to have a wide, diversified wine collection to make sure you have a range from different producers.”

According to Ratcliffe, “Successful investments are judged on the timing of the purchase, the value accumulation during the holding period, and the timing of the exit. For South African wines, it is most important to include the selection of very particular highly recognised wines. In investment terms, this would be called stock selection. Over the past two decades, a small selection of barely 5-10 of South Africa’s finest wines have been drawing attention in terms of the significant increase in rarity, and subsequently in price.

“Getting professional advice on wine selection is key because not all wines will appreciate, and not all wines are investable. A carefully curated selection taking producer and vintage into account is usually going to provide the best returns. Brand is primary, vintage secondary — everything else is tangible and practical,” he said.

Ratcliffe’s 5 pillars of fine investible wines:

1. Quality. What are the physical and ethereal attributes of the wine? Quality can be ascertained over time and professionals are able to adjudicate quality.

2. Emotion and passion. The definition of fine wine can often be brought back to the fact that a wine can provoke emotion.

3. Provenance, relating to place and person. A common denominator of great investible wines is that there is a track record of greatness that is often associated with a terroir, provenance, and the winemaker themselves.

4. Sustainability. In the world we live in, doing the right thing and respecting the environment is fundamental. But it’s also about financial sustainability. It’s of no use when, after three years, a winery goes out of business and people lose their jobs.

5. Pedigree and recognition. What is the reputation of a wine as defined by the consumer; in modern times, by social media; in general, by the professional wine industry; and, often most importantly, the media, including professional wine critics? Pedigree and reputation are non-negotiable.