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Over the last two decades, the financial industry has evolved at a fast pace. Financial products have become more complex and have been blamed for much of the recent financial and economic crisis. At the same time, the finance industry has started to take an interest in physical goods and has turned them into alternative (investable) assets to satisfy an increased demand by investors. Properties, ships, planes, or commodities have been packaged into financial instruments, while the art, stamp, vintage car, or coin markets have been proposed as alternative investments by portfolio managers. According to the Knight Frank Luxury Investments Index, collectibles have yielded returns between 83% and 430% over the 2003-2013 period and thus have represented a profitable investment. During the same decade, wine funds became a serious contender for money from (ultra) high-networth individuals, especially from Russia and China. Finance professionals have advertised these funds as a possibility to benefit from the enthusiasm for alternative investments (see Lim Fat and Vetsch [2010]). According to Chris Smith of the Wine Investment Fund, in 2011 "total holdings in formal funds [...] and quasi-managed funds (like Berry Bros) are around USD 1,200 million" (Rose [2011]. We are looking at a market that is by no means small and that has gained in importance over the last 10 years.
The case for or against a direct investment in fine wine is still open. Several studies (Jaeger [1981], Fogarty [2006], Sanning et al. [2008], and Masset and Henderson [2010]) have found that fine wine is an interesting alternative to classic assets. Not only does it offer higher returns for a lower risk, but it is also weakly correlated with other assets. On the other side, some authors (see Krasker [1979] and Burton and Jacobsen [2001]) have found that fine wine is a difficult investment due to high costs, breakage, and illiquidity and only offers very limited benefits for investors. Wine funds managed by professionals could help alleviate some of the concerns and make wine investments more attractive. At the same time, it is well documented (see Jensen [1968], Gruber [1996], Chen et al. [2010], or Elton et al. [2012]) that professionally managed mutual funds rarely outperform the market. Likewise, mutual fund managers seem to display only limited...