Collecting fine wines as an investment might yield much better long-term returns than stocks and bonds, and it definitely adds diversification to an institutional or retail portfolio.
Mahesh Kumar, finance professor at Mount Royal College, Calgary, Alberta, undertook what is probably the first serious academic analysis of wine as an investment in his new book, "Wine Investment for Portfolio Diversification."
To quantify the risk-return characteristics of fine wine, Mr. Kumar created the Fine Wine 50 index, comprising a basket of the same 10 chateaux wine producers with five rolling vintages. The composite index includes pricing terms on 50 "blue-chip, investment-grade" wines. Mr. Kumar consults with wine critics and investment managers who recommend the producers and vintages.
Back-testing found the Fine Wine 50 outperformed the FTSE 100 stock index in all time periods from 1983 to 2003. The annualized 21-year return of the Fine Wine 50 for the period ended Dec. 31, 2003, was 11.8% vs. 8.9% for the FTSE 100 for the same period. By contrast, the Dow Jones industrial average return for the same 21-year period was 12.3%. In addition, Mr. Kumar's historical analysis found little correlation between the returns of good wine and U.S. stocks.
The book will be released Sept. 2 by its publisher, The Wine Appreciation Guild, San Francisco. It will be available from the guild's website, www.wineappreciation.com, and at bookstores and wine stores.
