EML Index - The Fine Wine Investment Specialist

EML index

The Fine Wine Investment

Specialist

TM

www.emlindex.com

European MillésimesTM - The Fine Wine Investment Specialist

Introduction 4 How It All Works – Supply and Demand 5 Wine Market Performance 6 Analysis – What Makes an Investment Grade Wine 8 The Advantages of Investing in Wine 10 The Bordeaux Region 11 Vintage Matters 12 About EML Index 13 The Investment Process 14 Our Services 15

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ConteNTSCONTENTS

INTRODUCTION

With a long-term return of over 15% per annum fine wine boasts an impressive track record. But investment is about looking forward not backwards and this is where the fine wine investment story is most exciting. The basic rela-tionship of expanding international demand to static or diminishing supply is arguably more relevant today than at any point in recent history. The emergence of huge markets in Asia, the expansion of HNWI wealth around the globe and the rapidly growing cultural importance of wine are some of the key factors driving consumption. All these trends, many of which are at a very early stage, give us great confidence that there will be further strong investment growth in both the short and long-term.

EUROPEAN MILLÉSIMESTM We firmly believe that the opportunity to invest in fine wine should be available to everyone. Our mission is to help private clients access the potential of the fine wine market. We have worked with investors, both large and small, over the years and in doing so have built up unrivalled experience and market presence.

Add an unmatched background in finance, trading and investment and our access to crucial flow-data and we have what is widely recognized as the most comprehensive, reliable and wine investment service available.

OUR GOAL To be your partner of reference and offer you a service specifically tailored to your needs. Whether you are a wine enthusiast, serious collector or professional investor, European MillésimesTM offers a logistics and purchasing platform to enable you to participate in this exciting and lucrative market. You will be able to follow market news, trends and features through our newsletter.

We invite you to read and please reach out to us at www.emlindex.com for further information.

«We firmly believe that the opportunity to invest in Fine Wine should be available to everyone»

The Market

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Decide: • HOW MUCH YOU WOULD LIKE TO INVEST

• THE DURATION OF YOUR INVESTMENT

• THE TYPE OF PORTFOLIO YOU WOULD LIKE

www.emlindex.com


INTRODUCTION

How It All Works – Supply and Demanddemand As little as 30 years ago, fine wine was rarely seen out-side its traditional markets of Europe and North America. Over the last 5 years, however, the fast growing market economies of China, South Korea, Taiwan, and even India, have all established themselves as important and growing players in the international wine trade. Previously, such countries were bit-part players in the fine wine market, today they are amongst the most important consumers and investors. With this expanding international support, the top fine wines are well on the way to being established as truly global luxury brands. This demand is not about to slow down. Even after the recent 2008 downturn there are (according to The 2010 Merrill Lynch–Cap Gemini World Wealth Report) 9 million people worldwide with investable assets of at least $1m and a total HNW wealth of $33tr, a figure that is predicted to increase at almost 10% per annum over the next 20 years.

Nine years ago, wine consumption in Asia (excluding Japan) was close to zero. Today, it represents $10 billion per year and over the next seven years it is expected to increase to $27 billion! "explained Arnaud Christaens from Agefi Magazine. But demand is also increasing in Europe and the United States, according to Robert Par-ker the world's most influential wine critic. In 2010 the US became the leading consumer of wine in the world in terms of volume surpassing France, which remains in the lead with regard to per capita consumption. This trend began 17 years ago and looks to continue for the foreseeable future.

SUPPLYUnlike the mass market wines we see in local retail stores, fine wine operates in a structural market shortage. As a result of legal limitations on production, the forces of nature and the relentless pursuit of quality, only a miniscule amount of truly fine wine is produced. Of the 4000+ châteaux in Bordeaux, only the top 30-40 consistently reach the standards we require for investment. Moreover, the necessity of established pedigree, formal classifications and positive critical opinion create very effective barriers to new entrants keeping supply limited. The importance of supply-side issues to Bordeaux wine prices is often overlooked in favour of the dramatic ex-pressions of the demand-side. Yet, any market that has progressively reduced its production by 20-30% (more in many cases) over the course of a decade would inevitably place significant pressure on prices. Across the First Growths and their peers the figures speak for themselves. Château Margaux allocates just 35% of production to the estate wine, Mouton-Rothschild limits vine production to a miserly four bunches per vine and, ultimately, Château Pétrus produces fewer than 2,500 cases each year for the entire world market. However you look at it, investment grade Bordeaux is in very short supply. The combination of finite production and increasing consumption is extremely rare in invest-ment markets; undeniably bad news for those that enjoy drinking these great wines but excellent news for those looking to make a profit.

Example To put this in some kind of perspective and illustrate the issues of supply and demand, Château Latour made approximately 10,500 cases in 2003 of which 20% was allocated to the UK. Today with the arrival of new buyers this allocation has been cut in half. The opening price for 2003 Château Latour was approximately £2,250 per case. In January 2011 the wine was trading at £10,500 per case.

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1.2

Sharpe Ratios: Wine vs. other asset classes Sept. 09 / Sept. 11

FTSE Wine(Liv-ex 100)

Gold Oil DowJones

1

0.8

0.6

0.4

0.2

0

* A high ratio indicates better historical risk-adjusted performance


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PerformancePurchasing fine wine for investment is nothing new. In fact, the British and the French have been doing it for more than 150 years. Even in America, many collectors historically have engaged in a “two case” purchase strategy - one case purchased for consumption and the other for investment, with the profits from the sale of the investment case being used to offset the purchase of both cases. However, the concept of including fine wine in a diversified investment portfolio is quite recent. Liv-ex, the global marketplace for fine wine with members in 33 countries on 6 continents was created in 1995 to help bring structure to the market. The chart below shows the relative performance of the Liv-ex 100 fine wine index vs. US stocks (as represented by the S&P 500 index), foreign stocks (as represented by the MSCI-EAFE index) and US real estate (as represented by the NAREIT US Equity REIT index) for the 10-year period from July 2001 through June 2011.

Historically, the Fine Wine market tends to show low volatility in times of financial and economic turmoil - two exceptions being the Lehman Brothers collapse in 2008 and the European sovereign debt crisis of late 2011.

But if these examples show that the wine market does not just move in a straight upward line, studies from Pro-fessors Philippe Masset and Jean-Philippe Weisskopf in their papers “Raise Your Glass: Wine Investment and the Financial Crises” (November 2009) and “Wine as an Alternative Investment”(February 2010), found that including fine wine in an investment portfolio increases overall returns while reducing risk (particularly during financial crises).

As the search for investments that combine the potential for capital growth and inflation hedging intensifies, it seems likely that interest in the wine market from both private and institutional investors will increase. This combined with ever-growing consumption will go a long way to supporting future price appreciation.

Viewed in its entirety, this information shows that selected investment grade wines can provide above average long-term returns when compared to the stock market while also significantly reducing investment risk when incorporated within a diversified portfolio.

SINCE 2005, THE AVERAGE PRICE OF THE 100 GREATEST WINES HAS INCREASED MORE THAN 3.5x

The fine wine market: As good as gold

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Indices Level MOM YTD 1yr 2yr

Liv-ex FIne Wine 50 415 -4.4% 3.6% 20.2% 175.6%

Lic-ex Fine Wine 100 345 -4.0% 2.5% 13.5% 109.8%

FTSE 100 5.395 -7.2% -8.6% 3.3% -8.7%

S&P 500 1.219 -5.7% -3.1% 16.2% -6.5%

Gold 1.125 13.6% 23.6% 38.4% 241.9% as of August 31, 2011 Source: Liv-Ex

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-100.00%

Fine Wine (Liv-Ex 100) US Stocks (S&P 500) Foreign Stocks (MSCI EAFE) US Real Estate


SINCE 2005, THE AVERAGE PRICE OF THE 100 GREATEST WINES HAS INCREASED MORE THAN 3.5x

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Analysis – What Makes an Investment GRADE Wine

Parker Points There are a number of prominent critics but RobertParker stands alone in the extent of his influence. A good score from Parker’s Wine Advocate can make the difference between success and failure. The price surge for the 2008 Bordeaux En Primeur is perhaps the most recent and dramatic demonstration of this prominence. Robert Parker received the National Order of Merit by President François Mitterrand in 1993 and the « Legion d'honneur » from Jacques Chirac.

Vintage The Vintage effect can have a significant impact on price development. Celebrated vintages such as 1961 and 1982, and more recently 2005 and 2009, have an eleva-ted status which demands a price premium. Vintages such as 2001 and 2003 are considered to enter their ‘drinking windows’ earlier than, for example, 1986 and 2002, which is important in determining consumption patterns.

Market Drivers First, it's rarity. Only a fraction of total wine production should be considered investment grade. Even amongstage-worthy and noble Châteaux there is only a small proportion that provides a track-record of investmentgrowth. We're talking about less than 1% of French production and mainly concentrated in the Bordeauxregion (95-97%). Among the selection criteria of the model developed by our team of analysts, 4 factorsdominate: Parker Points, Vintage, Availability and Brand.

Availability Production figures vary by château but it is unusual for the most coveted producers to make more than 20,000 cases per annum. Whilst some very successful châteaux have production figures in the low thousands it is important to have sufficient wine in circulation to consistently meet international demand. The counterpart to production is consumption (and maturity), which together will determine true market availabilty.

Brand Derived from an array of factors including history, ownership and exclusivity, brand is an increasingly important determinant of buying decisions. Brand driven purchasing is particularly evident in countries that are relatively new to fine wine. The most prominent recent beneficiary is Château Lafite which has found great fa-vour in Asia. One need only look at the spectacular prices commanded by the estate’s second wine to see this effect.

Building a Portfolio As the table opposite demonstrates, stock picking is as important in fine wine investment as in any other. Blanket investment in the best Châteaux or best vintages may not usually yield the desired returns. We use a variety of analytical tools including relative pricing, flow informati-on and release strategies, which allows us to construct a multidimensional matrix of wine prices. The aim is not just to select a portfolio that will perform well but to select one that is suited to the investment objectives of our client.

The 4 key elements: Parker Points, Vintage, Availability, Brand

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Château Vintage Release Price*

Market Price**

Total Return**

Ch. Lafite Rothschild 1982 250 37,000 14700%

Ch. Margaux 1982 270 9,300 3344%

Ch. Grand Puy Lacoste 1989 120 800 567%

Ch. Leoville Barton 1989 175 875 400%

Ch Lafite Rothschild 1996 600 12,900 2050%

Ch. Mouton Rothschild 1996 600 3,600 500%

Ch. Latour 2003 2600 9,000 246%

Ch. Leoville Poyferre 2003 200 850 325%

*Average first tranche offer price, **As at June 2010

The 4 key elements: Parker Points, Vintage, Availability, Brand Since 2005 the average price of the 100 greatest wines has increased more than 3.5 x

60%The Big Nine: % Turnover by Brand

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010

50%

40%

30%

20%

10%

0%

Haut Brion Lafite

Latour Margaux Mouton

La Mission Cheval Blanc

Petrus Ausone

1st Growth

2,6Ratio of Margaux 2005 over Margaux 1995

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

01/01/2008 09/08/2008 17/05/2009 23/01/2010

2,5

2,4

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1,9 Average RatioRatio

Average Ratio Ratio

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Advantages of Wine Investment

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An easy market to understand and follow With the Liv-ex 100 Fine Wine Index, the main bench-mark of the wine industry, follow the price movements of 100 wines - the most sought after and likely to find a buyer on the secondary market.

A structural bull market A particular quality of most fine wine is that it improves with age. With a lifespan of between 30 and 100 years due to consumption, the available supply decreases. The result is an inevitable imbalance between supply and demand that tends to appreciate in value regard-less of the broader market situation.

Low Entry CostsAn investment in fine wine can begin with as little as $5,000 and the only costs the investor has to bear are those of storage and insurance of the portfolio which are very low. Diversification Historically low correlation with all major stock indexes. Fine wine has become an investment destination for savvy individual and institutional investors.

Real asset Wine is a tangible asset with an intrinsic value - unlike a share or a bond.

FlexibilityWhilst investors are encouraged to adopt a long-term horizon, wine investments can be expanded or liquida-ted quickly according to your individual needs.

Tax Efficient Investing Investing in wine can have significant tax advantages. We suggest that you consult with your tax advisor for how best to include this asset in your portfolio.


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Advantages of Wine Investment

Bordeaux Region And ITs Top10

Médoc The Médoc is the preeminent name in the Bordeaux region since it contains most of the many prestigious chateaux. The famous Classification of 1855 (under Napoleon III), classified wines of the Médoc in terms of their importance, from 1st to 5th growth.

• LafiteRothschild • Latour • Margaux • MoutonRothschild • HautBrion

From an investor's point of view, no other region in the world arouses such interest. While there are real opportunities in Burgundy, Champagne and the Rhone, it is undoubtedly Bordeaux that will form the foundation for a successfulinvestment. A classic portfolio includes an average of 80 to 90% Bordeaux.

St. Émilion & PomerolOn the ‘Right Bank’ of the Garonne river lie the smaller but no less prized appellations of St Emilion and Pome-rol. Considered the spiritual home of the Merlot grape, the estates of the Right Bank tend to lack the great châteaux and aristocratic credentials of the Médoc but are home to the region’s most coveted and expensive names. Leading estates include: • Pétrus • Ausone• Angélus• ChevalBlanc • LePin

MÉDOC, ST EMILION & POMEROL, THE CRADLE OF ExCELLENCE.

«He who aspires to be a serious wine drinker must drink claret.»

Samuel Johnson

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The Vintage, a key elementFor wine lovers, it is the vintage that gives wine its place in time and acts as the reminder of man’s dependence on nature. The climatic factors of rain, sun, temperature, wind, etc. all play a crucial role in determining the character of a vintage. For a high quality wine to be produced each component must come together in the right way and at the right time. It is this variability that makes each vintage unique and what ultimately separa-tes the mediocre from the good and the good from the truly great.

Popular perceptions and critical opinion are pivotal in determining the level of worldwide demand. Where a vintage is declared ‘magnificent’ there is a constant stream of interest from consumers, collectors and inves-tors looking to acquire important positions in these feted

wines. However, it would be quite wrong to assume that weaker vintages, with their correspondingly lower release prices, are not capable of producing wines of quality and, crucially, compelling investment worth.

Ultimately each wine must be assessed on its own merits with vintage being only one, albeit important, factor. The graph below shows total returns from release for a collection of leading châteaux in a number of recent vintages.

«I am amazed that the authorities demand blood alcohol tests which detect the grams of alcohol in one's blood yet not the vintage or varietal breakdown!»

O. de Kersauzon

700%

Total Returns by Château/Vintage from Release to Q1 2010

Lafite Latour Margaux Mouton Haut Brion Leoville Rothschild Lascases

600%

500%

400%

300%

200%

100%

0%

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2005 2003 19952000 1996


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The Vintage, a key element

Your account manager will take you through some questions to establish your investment target, time horizon and risk appetite. Drawing on your objectives and our proprietary analy-sis, we will select the individual wines for the portfolio.

Each wine is allocated a risk weighting and trade out-look. Your account manager will contact you to discuss your proposed portfolio and address any questions that you may have.

Portfolio Design The success of the investment largely rests on the quality of the initial selection. We follow a 3-phase process which is designed to meet your investment objectives:

We purchase your Wine We are constantly looking for great wines of Bordeaux and Burgundy for our clients. We demand a perfect state of the bottles: capsule, level, label. Our offers are binding and we pay upon receipt / removal of lots.

The Investment Process

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You become the owner and decision maker A single point of contact: Purchase, Storage, Insurance, Logistics, Sales. We can offer you optimal storage con-ditions in secure bonded warehouses specifically desi-gned to house your fine wine portfolio with walls more than 1 meter thick, constant temperature at 55 degrees Fahrenheit and relative humidity of 60-65%. You can rest assured that your wine is maturing and appreciating in an ideal atmosphere.

Whether in London or Bordeaux (www.lcb.co.uk, www.bordeauxcitybond.com) your wines are stored and protected to the highest standards in an account under your name. We offer a wide range of benefits including: • Casecleaning • Doubleinspectionupondeliveryandbeforeshipping • Independentauditing • Insuranceatfullreplacementvalue Our storage rates are amongst the most competitive in the market and you are free to visit your portfolio at any time with an appointment. Also, should you so choose, we can arrange to ship any part or entirety of your port-folio to addresses throughout the world.

Keeping You InformedYou will be provided with a portfolio valuation every six months. At this time your account manager will contact you to review your portfolio and discuss performance and possible next steps. You will also be sent a monthly newsletter to keep you up-to-date with the latest deve-lopments in the fine wine market.

Building a Cellar Portfolios will be selected according to investment criteria. However, if you would like to select a particular component of the portfolio yourself this can be easily accommodated. Please speak to your account manager for specific advice.

One objective of our clients is to enter the market in search of the best wines of Bordeaux.At European MillésimesTM we offer:

Wines from Bordeaux whose certificate of origin is guaranteed by our vendor partners.

Wine only sold in its original wooden crate. Cases stored by professionals from the chateaux to the bonded warehouses.

OUR SERVICESEASY AND PERSONALIzED

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Next StepsDecide how much would you like to invest We handle investments from $5,000 to $75,000 with a minimum of recommended amount of of 10,000 USD to access stock with the greatest potential.

Decide on the duration of your investment Investors are encouraged to set a 3 to 5+ year horizonfor their portfolios to allow for the opportunities ofa full market cycle.

Think about the type of portfolio you would like

Secured: A range of Bordeaux Grands Crus Classés from the 1855 classification (3rd – 5th Growths). The portfolio would offer limited volatility and is ideal for those looking for the most defensive investment.

Diversified: Portfolio consisting of a wide range of Bordeaux Grands Crus Classés from the 1855 classification ( From 1st-to 3rd Growths ) giving stronger upside potential.

dynamiC: Drawing from Bordeaux’s most elite châteaux, the port-folio will combine top 1st Growths and focus at the "en primeur" stage to capture the price growth at the earliest stages possible. Ideal for those focusing on the extreme upside potential of the market.

«We firmly believe that the opportunity to invest in Fine Wine should be available to everyone.»

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Disclaimer & Risk Warning

EuropeanMillésimes/EMLIndexisnotafinancialinstitution.Assuch,wedonotgivefinancialadviceoranyguaranteesaboutthepotentialincreaseinawine'svalue.EuropeanMillésimes/EMLIndexisafinewinespecialist,andassuchweare

qualifiedtogiveinformationregardingvintagesandwines,theirqualityandprevailingmarket conditions. This information is based upon our knowledge, acquired from

over 20 years of trading, and our daily dealings in the global wine market. Using our knowledge of this market, we can provide approximate valuations for wines and, in

conjunction with past performance of wines, we can give you our informed opinion as towhetherawinemayhavetheabilitytoaccruevalue.EuropeanMillésimes/EML

Index does not charge a management fee and there are no hidden fees involved. The only money that you will pay is your purchase price and any storage fees applicable. When you come to sell your wines, you are not tied to selling through us, although

we will make you as competitive an offer as possible. Wines can decrease as well as increaseinvalue,andtherearemanyexternalfactorsthatcaninfluencethesepricemovements. We urge you to research the subject fully before making a decision. Our

staff is available to answer any questions that you may have.

For specific financial advice, the tax implications or other financial element of wine investment, it is important to speak to an accredited financial advisor.

EML index

www.emlindex.com

TM

EML Index - The Fine Wine Investment Specialist

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Transcript of EML Index - The Fine Wine Investment Specialist