A case of better returns than the market

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John Cullen is not ashamed to admit he has been driven to drink by the poor performance of the stock market. But rather than drowning his sorrows at the bottom of a bottle, instead he has chosen to invest in cases of fine wines.

Last year, 45-year-old Cullen, who is married with three children, joined the long list of people who were told that their endowment investment policies would underperform their targets by many thousands of pounds.

“On hearing that my policy would fall short I decided that I had very little to lose by cashing it in and investing it in something else,” he says. “And that something else should be wine. That way I can enjoy my investment – what better way to invest money than to put it into something you can actually taste and touch rather than paper share certificates.”

Traditionally the idea of collecting wine as an investment has been shunned by wine lovers who think a good bottle of wine should be enjoyed rather than locked away. But for Cullen, it was different. “The only reason I even thought about wine as an investment was because I love the taste of it so I know how valuable a good quality bottle of wine can be,” he says.

He has spent a small fortune on hundreds of bottles of wine in the past few years. But it is with the money realised from his endowment policy that he plans to take his investing to a more serious level.

As soon as the money from his policy comes through he plans to invest it all in The Wine Investment Project, an investment scheme whose aim is to “generate capital growth through the buying, holding and selling of blue-chip wines”.

The Wine Investment Project is one of a handful of companies offering a full investment service in wine. These companies are usually brokers, which means they do not hold wine themselves but go out and buy it to meet clients’ requirements.

With a minimum subscription of £10,000 this is no casual investment for Cullen, who runs his own recruitment business in the City, which usually sucks up all his spare money. But he is confident that his money will return double digits.

“There are 80 wines in the project and out of these only four types of wine have not gone up over a two-year period. There have been a handful with just 1 per cent returns but many are showing returns of more than 40 per cent,” he says.

Historically, fine and rare wine has indeed produced some extraordinary returns for investors since the market really took off in the 1990s. According to the wine investment company Premier Cru, £10,000 wisely invested in a wine portfolio back in 1974 would currently be worth somewhere in the region of £1.4m.

“Wine has easily outpaced the FTSE, unit trusts and building society rates, not to mention other alternative investments such as modern art and photography,” says Cullen.

“You have a very limited and finite supply with only a certain number of labels producing a certain number of cases of wine each year. Alongside this you have a growing number of investors wanting to own it,” he says. “With such an imbalance of supply and demand, wine clearly has a good chance of going up in value.”

He also points out that wine is an improving asset class.

“Fine wine becomes more attractive and valuable as it matures. As it ages it also begins to be consumed, which increases both the scarcity factor and demand, fuelling higher and higher prices,” he says.

The Wine Investment Project has stuck to buying predominantly Bordeaux red wines such as Ausone, Cheval Blanc, Petrus, Lafite Rothschild, Latour, Mouton Rothschild, Haut Brion and Margaux. Peter Lunzer, a wine expert on the project says that the trick is to buy only when these wines are produced in great years. This is a year when sunshine is plentiful and there is enough moisture for the grapes to develop. Such prime conditions usually only occur about three to four times a decade.

Cullen is also attracted by the tax perks of wine investments. As a wasting asset, wine generally isn’t subject to capital gains tax, and if it is kept in a bonded warehouse, it is also free of VAT and duty.

But the icing on the cake for Cullen is the rule changes to self-invested personal pensions from next year. From April savers will be able to put wine into their Sipp and immediately gain up to 40 per cent tax relief.

Some people have suggested that the ability to invest in wine through a pension will be closed down but Cullen is an optimist.

“I imagine they have too many people in the Houses of Parliament who invest in this asset class to pull the plug on wine just yet. Because wine is something that MPs often invest in themselves I’m hoping the tax benefits will stay around for a little while longer.”

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