During the last three years, the Liv-ex 100 index has soundly outperformed the FTSE 100 Index, and many savvy investors have taken advantage of this as an alternative investment option since the economic slump shook the people’s confidence in traditional stock markets. Liv-ex was created to track trades of 100 of the world’s most popular vintages, 90 of which are wines from Bordeaux, which seems to be in the midst of its most successful year on record. Furthermore, since wine is considered to be a diminishing asset, it is exempt from capital gains tax, and if it is held in an approved bond facility there is also no VAT.

Perhaps even more impressively, some wines have outperformed gold over a 25-year period, and this year is looking like no exception. In fact, the Wine Investment Fund, one of the few funds in this sector that has holdings totaling more than £20m announced that it is projecting an annualized return for 2009 topping 16 percent. Since these funds are structured to run for five-year segments, this would mean that 2005’s investors have doubled the amount of their initial investment. Also of note, the economic slump and credit crunch did not seem to affect the fund’s performance in 2004, when investors made an annualized 13.01 percent when the fund matured.

Since the Bordeaux 2009 vintage is not yet bottled and may not be best to drink for five or ten years, many savvy investors may choose to wait until the wine develops a strong trading history before getting involved. For this reason, many of the older vintages are still believed to hold the greatest potential for gains, since the quantity is limited and their popularity continues to grow worldwide.

Now that the harvest had been completed and there’s just three months to go before the 2009 en primeur will be available, interest in this vintage is considerable. It is the considered view of the experts that if a vintage’s en primeur receives a good review, the earlier vintages should also pick up both sales as well as price increases. With everyone predicting that 2009 would be an exceptional vintage, the canny investor would need to consider investing in the 2009 en primeur.

Buying en primeur wines is similar to trading in futures, the wine being purchased at a predetermined rate from the producer at the time the grapes are harvested and taking delivery of it when it is bottled, usually two or three years later. In effect, the investor is able to get the vintage at its cheapest. A favourable rating by the likes of Robert Parker and Jancis Robinson, among others, could see prices surge as the vintage comes into the market. Though it is not unusual for wines sold en primeur to sometimes be available later for a significantly lower price, the demand for the Big Five of Lafite Rothschild, Latour, Margaux, Haut Brion and Mouton Rothschild reduces this risk considerably, assuming that initial prices aren’t set too highly of course!

Investing in en primeur has the advantage of ensuring the wine’s provenance, since the wine is bought early on in its lifetime and without a long chain of ownership. Add to that the fact that obtaining wines en primeur may be easier than trying to get the same vintage a few years later when one might face the twin issues of higher prices coupled with less stocks available.

As always, prudence requires that the fine wine investment is made through a reputable and reliable distributor in order to be sure that he is getting the real thing rather than counterfeit goods.