Time was when buying a few cases of wine with the sole intention of reselling them at higher prices was frowned upon by wine connoisseurs and old-school investments professionals. The connoisseurs believed fine wines shouldn't be treated as commodities to be bought and sold. Old-school investors refused to see a bottle of wine, which generates no income and is priced on little more than how it tastes, as a legitimate investment.

Today, however, high-quality clarets with long-ageing potential are sought after as much for their exquisite taste as their future market value. Herve Aymond, a director of wine merchants Corndale Consultants, says most fine-wine collectors used to be over -enthusiastic wine drinkers who simply bought more than they could consume. "But since two or three years ago, almost all collectors are buying [fine wines] specifically to invest," he says. "It's a new trend."

	Alexander: A wine's vintage often determines the extent to which its vaue appreciates over time.

Among the trendsetters here is Curtis Montgomery, founder of finance and investment website WallStraits.com, who has invested some $100,000 in about 800 bottles of fine wines. "We were looking for an alternative investment for WallStraits in addition to just stocks.

Montgomery tells the Edge Singapore that he started investing in fine wines about three years ago after discovering that they offered good returns, as well as much lower volatility than stocks. "Top-notch wines seem to have little fluctuation in their values, and they also don't have a lot of downside volatility," he says. "The stock market can be all over the place. So, we thought [fine wines] would add a prefect balance to our existing portfolio."

A key reason for the superior investment performance of fine wines is their relatively limited supply compared with demand, says Justin Alexander, a director at Australian Wine Index AWI), a wine broker that specializes in investment grade wines. He says investment-grade wines that are "produced to be cellared" make up only 5% of the world's total wine production, while the rest is produced for consumption. "So when you buy a good vintage wine from Australia, for example, the demand for that wine is only going to increase over the coming years." Indeed, the Langton Fine Wine Index, which tracks the prices of 28 leading blue-chip Australian wines, has returned about 12% a year over the past decade, outperforming Australian stocks and real-estate properties, he adds.

As strong as that performance seems, it's not unusual in the world of wine investing. Investment-grade wines from other international regions have also achieved double-digit annual returns, says Aymond, who has some 25 years of wine-investing experience. "Annual returns of 10% would be the global average for the world's 25 to 50 blue chip wines." In fact, top notch French wines from the Bordeaux region such as Chateau Petrus of Pormerol district and a good vintage premier crus — or first growth — wines from Medoc have consistently outperformed these average returns by a wide margin, year after year. "For example, during the Asian financial crisis [of 1997], Chateau Petrus 1982 was selling at $1700 a bottle. I just sold a few cases recently at $5100 a bottle." Aymond says.

Picking wine winners
The process of researching and analyzing the investment potential of fine wines can be a tedious task for newcomers, though. I have been learning a lot of wine, and it can be such a long learning curve," says Montgomery. To keep the risks low, wine experts recommend that novices investors stick to the most reputable wines of the best vintages. These wines are highly sought after, and investors can be quite certain that demand will outstrip supply in the future." I would tell investors to concentrate on the blue chips of wine as there will never enough bottles of { first growth like} Chateau Mouton Rothschild, Chateau Lafite or Chateau Latour," says Ayamond.

Becoming familiar with a particular wine producer that has a solid track record is a good starting point for beginners. Penfolds Grange — one of Australia's most highly regarded wines — is a good example, says AWI's Alexander. Several wines bearing their prices more than triple over the past decade.

Just as important as a wine's pedigree is its vintage. Often, average wines from a good year command higher prices than high-quality wines produced in an otherwise poor year. For instance, most wine experts believe that the 1989 Chateau Montrose, which is second-growth Brodeaux claret from St Estephe commune, is a better wine than the 1990 Chateau Montrose. Yet the former is priced 60% lower than the latter because 1990 is universally recognized as an exceptional vintage for wines from that region.

Buying the wrong vintage could result in investors having to drink their mistakes. For instance, wine collectors who bought the first growth 1997 Brodeaux at $200 a bottle when it came out are likely it still selling for the same price in retail stores, says Aymond. "It is all about vintage." Just as location is the most important factor to consider when investing in real estate, a wine's vintage often determines the extent to which its value appreciates over time, says Alexander." For fine wines, it is vintage, vintage and vintage."

For investors thinking about buying Brodeaux first growths, Aymond reckons that years such as 1900,1929,1945,1961,1982,1986,1989-1990,1995-1996,2000 and 2003 would be the best vintages to choose from. He recommends that investors put 85% to 90% of their money in blue-chip wines, such as the first growths or the well-regarded second growths, and the rest in rarer boutique wines from the same region. His top two picks are the Chateau Petrus {all vintages} and the 2000 Chateau Mouton Rothschild.

Alexander recommends that investors pick Australian wines from recent outstanding vintages, such as 1998 and 2002. "The one to look out for next will be 2004."he adds. Besides well-known blue-chip like Penfolds Grange, Alexander also recommends "cult wines" whose prices are supported by a narrow, but highly loyal following.

"We're talking about wines from vine-yards that have 100- or 150 year-old vines," he says. "[These vineyards] produce intense wines in limited quantities." No matter how expensive they get, their fans always seem to buy, he adds. Among the cult wines that Alexander believes could have the greatest upside potential is the Clarendon Hills Astralis 2003.

Herve Aymond's top Bordeaux recommendations Bordeaux first growths Chateau Mouton Rothschild 2000 Chateau Marguax 1996 Chateau Haur Brion 1998 Chateau Lafite Rothschild 2000 Chateau Latour 2003 Chateau Cheval Blanc 1982 Bordeaux second Chateau Leoville Les Cases 2003 growths Rare boutique Wines Chateau Petrus 1998 Chateau Petrus 2000 Chateau La Gomerie 1995 Chateau le Pin 1986 Others Chateau La Mission Haut Brion 1989 Chateau d'Yquem 2003(Sauternes) Chateau Pavie 2003

Justin Alexander's top Australian recommendations Blue chips Penfolds Grange 1998 Henschike Hill of Grace 1998 Elderton Command 2000 Cult wine Clarendon Hills Astralis 2003 Fox Creek Reserve Shiraz 2002 Torbreck Run Rig 2002 Emerging wines Colonial Estate Exile 2002 Kalleske Greenock Shiraz 2003 Two Hands Ares 2002

For more adventurous wine investors, betting on good quality but un-rated wines sometimes generates outsized returns. Indeed, a magical prefect 100 points or a high-90s rating from Robert Parker Jr, a well known American wine critic, has sent prices of many wines skyrocketing in the past. For instance, 2002 for Bordeaux first growths was not one of the great vintages, says Aymond. But when Parker rated them favourably, most of them shot up in value by 40% to 80%, he adds. The difficult thing about wine is that they often become very difficult to source, and you see a spike in the prices," says Alexander.

Montgomery is betting on a newly released un-rated Australian wine called Voyager Estate Cabernet Merlot 2001. "The wine maker thinks it is going to be his best ever wine ever." says Montgomery, who has purchased 12 cases, or 120 bottles, at $40 a bottle. "So, it is still a very under-priced wine, and I think if you keep it for several years, prices have to go up." Alexander, on the other hand called Colonial Estate Exile 2002 as possibly offering strong investment potential.

Besides factors such as track record, vintage and rating of wine, experts also believe that "imperial-sized" fine wines — those sold in large-sized bottles — tend to make better investments. "Generally, oversized bottles are rarer," says Alexander. "And, for many enthusiastic collectors, oversized bottles are in high demand." Aymond agrees, saying that imperials have better investment valve because they will last 20 t0 40 years during a great vintage," he says.

High transaction costs
While having in stocks and bond entails having to pay fees to brokers and custodians, investing in wine involves having to pay commissions to auction houses and wine merchants, as well as fees for shipping and storage. And, wine experts do not recommend skimping on the commissions and fees, even though they are relatively high. Ultimately, paying these costs ensures that wines preserve their investment-grade quality and can be sold at a good price in the secondary market. "It is best to have a reputable third party to do the storage for you so that when you sell your wines, you can verify that the storage conditions were proper," says Montgomery. "If wines aren't stored properly, in four to five years, they will not be worth much money." According to experts, professional wine-storage costs for a bottle in Singapore range from $1 to $3 a year.

Expenses such as auction costs (10% to 15% of sales proceeds) and dealings costs paid to merchants (5% to 10% of sales proceeds) for the sales of wines also dilute part of the investment gains of wine investors. "That is probably one of the main downsides of investing in wine," Montgomery grumbles. "You have to think about how you are going to get rid of the wines. If you want to sell it at a New York or Sydney auction, then you have to pay shipping and auction costs. So, you have a much higher cost of selling then you would with stocks."

Still, if the returns are as high as investors like Montgomery hope, these costs are manageable. Montgomery — who is venturing more aggressively into French Bordeaux and Burgundy after learning his ropes with Australian fine wines — is targeting yearly returns of 15% for his wine portfolio. "We would like to see our wine investments doubling in value every five years." he says. "Over the past three years, we were a bit behind that target, but we still managed to average 10% to 12% annually."