It’s good to drink it, but it seems good to sit on it too.

Fine wine, yielding double-digit returns, is low risk and good diversifier given its weak correlation to the return of asset classes — according to a fund which invests in fine wine.

The Wine Investment Fund says investors are receiving returns (after all fees and expenses) equivalent to 13.01% per annum over the last 5 years.

“This year’s payout represents a real return in excess of 70% or 10% per annum when allowing for inflation.  By comparison, over the same period the FTSE’s real return is -3.5% and a typical savings account would have generated a real return of less than 10%.  Fine wine has produced positive and consistent returns for decades now.  It really is proving its worth and we see more professional investors using it as a valuable diversification tool within a properly managed investment portfolio,” says Andrew della Casa, director of the fund.

The fund invests predominantly in wines from Bordeaux, which is housed in a “UK government bonded” warehouse and is insured at replacement value.

Minimum investment in the fund, which says fine wine maybe the only asset class with a perfect inverse supply curve, is 10,000 pounds and avoids buying fashionable or trophy wines.

(Photo: Natsuko Waki)

Investors learned the wrong lesson from the dotcom bubble, and ended up blowing another. 

That’s the view put forward at the CFA Institute’s conference in Amsterdam by Ben Inker, head of asset allocation at GMO. He believes investors became so enamoured of diversification – which seemed to work like a charm for the large US university endowment schemes – that they ran headlong into risk asset classes and blew a giant risk bubble. 

Inker argues that because investors rushed into risk asset classes indiscriminately, they ended up paying for the privilege of taking risk.

“What you cannot do is say: ‘Because I’m diversified, I can take more risk.’ But after the internet bubble, diversification became the mantra,” he said. “Investors looked uncritically at the idea of having a diversified portfolio. That made the risk/return curve negatively sloping.” In effect, investors were paying more to take on risk. 

A small crumb of comfort for those diversified investors surveying the remnants of their portfolios, is that markets have fallen so far you are now once again being paid to take on risk. But is there anything they could have done to avoid this unpleasant sequence of events in the first place? 

Inker suggested they should have gone short risk. Unfortunately, as he conceded, it is not possible for the whole market to do this. 

Lesson learned?