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Wine has been around for centuries and the term wine originally came from the Latin word ‘vinum’. It is an alcoholic beverage made from fermented grapes, Vitis vinifera or its hybrids with Vitis labrusca or rupestris are one of the most common grapes used to make wine. Grapes ferment without having anything extra added to it, such as sugar, acids, water or any other nutrients as the yeast consumes the sugar found in the grapes and then converts it to ethanol and carbon dioxide. Different variations of grapes and strains of yeasts produce several different types and styles of wine. These variations of wine are usually the result of the complex interaction between several chemicals and objects such as, the biochemical developments of the grape, the reactions that are involved in fermentation and the production process.
In the past, gentleman wine collectors followed the basic rule of buying five cases of claret and putting them in the cellar. After doing this they would typically wait 10 years then drink the 2 cases and leave the remaining 3 cases for sale, from this profit they would use the money to buy 5 more cases of younger wine and starting this whole process again. In doing this year on year, the process becomes self-financing due to the wines tendency to increase in value.
Over time, wine has changed from being something that only leisured gentlemen with their own cellars would buy, to being apart of the investment market, similar to those of other commodities that are traded for profit. Prices of the most widely collected and traded wines, like Bordeaux, rapidly rose within the first decade of this century. This attracted buyers who weren’t as interested in the substance itself, but more so in the profits that they seem to generate. The other factor for these changes is down to the huge growing demand from Asian buyers.
Fine wine is one of the best performing assets for over the past 20 years. Some of the most expensive wines in the world have cost up to £500,000 a bottle or more, which was the price at a Sotheby’s auction in Hong Kong where a box of 114 bottles of Romanée-conti Burgundy cost around £1,035,000, £9,800 per bottle.
Investing in your own wine fund would mean outsourcing all responsibility for selection to a fund manager. This could potentially spread your risk among other different types of grape and vine which essentially saves you time and effort. You would also be free from any potential biases from wine merchants. These particular funds tend to work as unregulated collective investment strategies. Due to these strategies the financial regulator, Financial Conduct Authority, has held down on these particular types of strategies and have said that they have to only be promoted to those who are sophisticated investors. When trading wine it is important to remember the fact that you do not actually own the wine you are simply trading it on the value of the market.
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