Wine and Art Lead Investing


NEW YORK (MainStreet)—Despite the ailing economy, Bloomberg's European Luxury Goods Index is up more than 50% since 2011 while art exceeded S&P 500 returns of 7.0% since 2002.

"People are seeking to diversify risk and seeing art as a long term safe haven," said Philip Hoffman, founder and chief executive officer of the Fine Art Fund Group in London. "Art has shown a very solid 5% plus compound return across all sectors over the past 100 years."

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Although the Mei Moses fine art index declined 3.28% in 2012, Huffman invests in art not wine, another leisure investment.

"Rare wine is not in diminishing supply always, because people hold wine and much of it does not get consumer," said Hoffman. "It is at the lower end of the ultimate commodity while art is the most expensive asset in the world per square inch. If you are investing in rare contemporary or modern art, we've been seeing around 17% to 18% compound return on investments in that sector."

The Mei Moses Fine Art Index tracks the art market going back to 1810 and gauges future values and compares returns to more traditional financial indexes.

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"The supply of rare art is very small whereas there are millions of different first grade bottles of wine. There are not 20 Rembrandts left in private hands," Hoffman said. "Once a rare painting like Picasso or Degas is sold or gifted to a museum it is unlikely to ever be resolved and this contributes to the diminishing supply while demand is still growing considerably."

Although art is interesting, at an entry level minimum investment of $250,000 a painting, wine is most likely more affordable for the average American investor.

"Price levels are below their 2008 and 2009 peak and have generally drifted slightly down in the last year," said David Nathan, director of the Oracle Paradis Wine Fund, which was launched in December 2012. "They have fallen as a consequence of the overall global economic downturn but our active trading strategy gives us the potential to make profits even in a flat market."

The Liv-ex 100 index, which tracks the price of the best vintages, fell 9% in 2012.

"When you take a three-to-five-year view, prices appreciate and can yield 10% annual returns depending on your investment," said Martin Graham, chairman of the advisory board for the Oracle Capital Group in the U.K.

What sets wine apart from other investments is its liquidity, because it's easier to sell and buy a case of wine than it is to buy and sell a house. The Oracle Paradis Wine Fund invests in classic Bordeaux and Burgundy wines, rare cognacs aged in the 18th and 19th centuries and Scotch whiskies from before 1940.

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"By offering stock of exceptionally rare cognac and whisky owned by the fund for sale to collectors, we aim to generate trading profits even in an overall environment where the wine market may be flat or trending downward," said Nathan.

The fund recently acquired bottles of Cognac Clos de Griffier 1789 from the cellars of the famous La Tour d'Argent restaurant in Paris.

"Wine is less correlated with movements in the stock and bond markets than many other investments," said Nathan. "Our goal is to generate above inflation returns through highly informed purchases, access to first buyer pricing from the very top castles and active trading of the rare spirits portion of the fund in particular."

--Written by Juliette Fairley for MainStreet

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