As the new year approaches so too does the annual round of storage fees. The upcoming charge is a great reason to appraise your cellar and check those investment cases are progressing the way you had hoped, and are not simply being negated by your cost of carry.
At JF Tobias, we ensure that all our clients’ portfolios have shed dead weight and are in the best possible shape for the year ahead.
Consider Rebalancing your Portfolio
All too frequently we review a client’s investment portfolio only to find the contents lacking in any real financial potential. We find an array of cases that, due to their low value and quality, are unlikely to gain in any significant way.
Typically we find these portfolios have been composed by a wine company looking to take advantage of the selling power of the “investment” connotation. The reality is they have no expertise or understanding of finance and have failed to apply basic investment fundamentals.
Subsequently, clients are left with a stagnant portfolio that is consistently kneecapped by the cost of carry.
This is a common occurrence and requires simple rebalancing to rectify and kickstart profits.
Rebalancing for Profit
Profit is the financial benefit realised when the revenue gained exceeds the expenses, costs and taxes needed to sustain the activity. Or, more simply:
Profit = Revenue – Total Expenses
The costs associated with wine, such as storage and administration, are all absolute. These are fixed and do not vary depending on the value of the wine. However, any gains on wine are always relative. A wine, or the market, will go up or down by a percentage of its value. We take a look at the reality of this below.
The dramatic effect costs can have on profit:
[supsystic-tables id=7]
*The figures here are illustrative and are not a prediction of future performance.
When inflation has been considered (2.4% currently, and targeted at 2%), the Batailley is breaking even each year, and the Pontet Canet is making a marginal return. The Lafite, however, performs well.
We can see from the examples above that if profit is the driver, clients holding Batailley and Pontet Canet should well consider rebalancing their portfolios. Refocussing into higher value and higher quality wines, such as Lafite, is the only way to outperform storage fees and inflation.
If you have 50 cases, at £13 a year each, that is £650 a year in storage charges alone. And this cost is not offset against the value of your investment. Rather, this comes out of your own account, every January.
Renewal Fees:
On January the 1st 2020, the storage fees at London City Bond and EHD will renew and will be increasing from the previous year.
If you are unsure whether your collection is about to start costing you more money and impact your investment, please talk further with a member of the team who will be able to advise.
Portfolio Rebalancing with JF Tobias
If you have invested in a lot of low-value cases, storage fees will be likely wiping out almost all of your gain. With many companies increasing storage fees, it makes financial sense to sell the low-value cases, and refocus into those of higher value, or release the funds. At JF Tobias, we can help you achieve this, and ensure your portfolio is fit for purpose.
The first independent port of call in the wine industry, at JF Tobias we will always offer free advice. If you wish to speak to a member of the team now about whether your wines are suitable for investment, rebalancing your portfolio, or releasing funds, contact us now, and we will be delighted to assist.
Drinking Collection: Consider What You are Likely
to Drink
If your collection is for drinking purposes, or mostly for this purpose, now is a great time to review your drinking for the year ahead. Of course, this depends completely on individual circumstances, such as space, and cost sensitivity.
If you know you are going to be drinking particular cases in the next few months, then it may well be worth taking these out of bond before you are charged the annual rate. If you would like any further advice, or to talk further with a member of the team, please get in touch, and a member of the team will be delighted to assist.
