Time for fine-wine investing?

Last year, fine wines returned an impressive 40.5% on the Liv-ex Fine Wine 100 index, with limited volatility. But is this outstanding performance likely to continue through 2011 or should investors steer clear?

The Wine Investment Fund (TWIF) predicts that the Liv-ex index will finish 2011 at around 407, a rise of 21% compared with its 2010 year-end level.

There is high demand for wine, especially in Asia, and a limited supply of expensive vintage wines that make good investments.

Andrew della Casa, director of TWIF, says that with inflationary pressures rising and investors increasingly turning to physical assets, 2011 should be a good year for fine wines.

Martin Bamford, managing director of independent financial adviser firm Informed Choice, says: "[Although] returns like those we saw from wine last year are unlikely to be repeated again this year, it is an alternative investment market that tends to have a steady annual return."

Vanquish Wine recommends using a well-established merchant and investing in older vintages at a higher price, as the return should be better. Don't forget to consider import fees, VAT, and insurance and storage costs. However, you won't have to pay capital gains tax.

Richard Brierley, head of fine wine at Vanquish Wine, says it's important to get expert advice and guidance, buy the best you can afford from a trusted merchant and buy the wine in original wooden cases.

He also advises not buying too much of one wine and not being tempted by cheap wines. The most actively traded wines are the wines of Bordeaux. Brierley says: "A strong portfolio should focus on the top wines."

However, some IFAs urge caution. Nick McBreen, an IFA at Worldwide Financial Planning, says: "Fine wines are a specialist play for sophisticated and aware investors with a highly developed investment risk profile."

For a more in-depth look into investment opportunities in fine wine, read Peter Temple's guide: Taste success by investing in wine.