A fun way into fine wine

This quirky bond is a novel way to invest in wine, says Bengt Saelensminde. And it pays a decent return too.

06 September, 2013 A fun way into fine wine Dear Buzzhairs Buzzhairs, I like investing to be fun. Growing your hard-earned savings shouldn't come down to just a load of boring old numbers. It's as much about learning new industries and how the economic world ticks as it is seeking an adequate return on investment. Last Friday, I talked about starting your own business. I know that may not be for everyone, so today I want to show you an opportunity to invest in someone else's very successful start-up business… something in the wine industry. It's a three-year bond, offering a 7% interest per annum (or 10% if investors are willing to take payment in kind… I'll explain in a second). I know that 7% isn't going to spur a mad dash for a chequebook. But nonetheless, that is a pretty good potential return compared to similar investments in the bond market; and anyway, this investment is designed to be a little more interesting than a bog standard bond… What will you do if your money runs out?" Your pension isn't worth what you thought… Your savings are being eaten away by inflation and low interest rates... Your nest-egg probably won't see you live comfortably for the whole of your life... Do you know what you can do about it? Lifetime Wealth is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600. Not a normal fine wine investment There are all manner of fine wine funds out there. And I'm wary of these things. Wine investment funds tend to be a victory of marketing over financial opportunity. In those cases, the investment is reliant on the value of a basket of fine wines – effectively, investors are gambling on what the professionals have stashed away in a cellar for them. But that's not what I'm talking about today. In this case, it's a bond paying a fixed amount of interest. The proceeds of the bond (between £3m and £5m) are to be invested in the actual production of wines. NOT a load of wine sitting in a bonded warehouse somewhere. Naked Wines was formed 5 years ago by Rowan Gormley, one of the chaps that co-founded Virgin Money and later Virgin wines. I first heard of the company while chatting to some friends who are in the wine business in my corner of the Languedoc. Basically, Gormley launched an innovative way of sourcing wine – and a couple of local producers went along with the idea… The idea is that instead of buying wine after it's bottled, Naked wines invests in the wine-grapes before production. This means vignerons – winemakers – can concentrate on production, and not have to worry about marketing. In fact, in the Languedoc, it's often the case that the vignerons simply can't afford to produce premium wines – instead, the grape production is sold into the rather ghastly 'co-operative' system to produce sub-standard plonk. Naked Wines reckon that by investing at the production stage, they can obtain discounts of between 40 and 60%. The model has worked well, and the business has grown turnover from under £5m in 2009 to £35m last year. Source: Naked Wines UK Bank up to 42 extra income cheques a year… No matter what your age or income!   Spare a few minutes to set this up now, and you could have your first cheque in your hands within the next 30 days.   When you've seen how simple this is, you'll wonder why everyone isn't doing it.   Everything you need to get started is here.   The Dividend Letter is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares – you can lose you some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Forecasts are not a reliable indicator of future results. There is no guarantee that dividends will be paid. Customer services: 020 7633 3609. The business model currently allows Naked Wines to invest in next year's production. But obviously, that limits the business to the young and budget end of the market. The directors see an opportunity in investing in higher-end wines too. And that's why they're set to raise between £3m and £5m through this new bond. Investors can invest anywhere between £500 and £10,000. The gross interest will be 7% per annum, or 10% if you elect to take wine credits to purchase wine. The term is three years, though investors can hold on to the bonds after that period, continuing to receive the same benefits. Yes, this could be considered a relatively risky use of funds. After all, this is a new venture, and Naked Wine's high-growth model could come unstuck. This method of fund raising is pretty much unregulated; that means you are putting your faith in the company and its promises to look after your investment. Also bear in mind, the bond is not covered by the Financial Services Compensation Scheme, and the bonds aren't transferable – so you are tied in for three years. Given the risks, I won't be ploughing too much cash into these bonds. Don't invest more than you can afford to lose! And if you opt for the 10% dividend payable in wine credits, don't invest more than you can drink! But, on the bright side, Naked Wines have taken some steps to mitigate risk. A special purpose company has been established to hold the proceeds of the bonds and invest in production. That means the cash and investments are ring-fenced. The proceeds of the bonds will be invested in many winemakers across the globe; thereby diversifying risk. The bond and its interest is guaranteed by Naked Wines… which means that even if things go wrong in the new fine wines business, your cash should be covered by the already successful Naked Wines. You can download a prospectus of the bond here. The offer remains open until the end of the month. Good investing, Bengt Saelensminde The Right Side PS: Got a comment on this article? Leave a comment on the MoneyWeek website, here. 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