Fine wines are predicted to soar during 2011 with increases of 21 per cent expected for the main wine index, according to The Wine Investment Fund (TWIF).

Last year the asset class returned an impressive 40.5 per cent on the Liv-ex Fine Wine 100, with very limited volatility, mainly due to a boost in popularity in the Asian market.

Wine surpassed many other asset classes in 2010 and saw price increases in 11 out of 12 months of the year. Its returns compared well with other equity markets including the FTSE 100, which rose by 9 per cent, and the FTSE All-Share, up 11 per cent.

According to TWIF, reasons behind the impressive performance include the continued good performance of the main wine-purchasing countries, especially China, the growing attractiveness of wine as an asset class to institutional investors and the effects of exchange rate movements, especially between the Chinese renminbi and sterling.

The star performer for the year was Château Lafite, with most vintages increasing by between 60 and 100 per cent.

Joss Fowler, investment expert at Berry Bros. & Rudd, thinks although it's unrealistic to predict further rate rises, the finite supple of these wines cannot be ignored and demand continues to grow. 

The release of the 2010 vintage in the late spring, early summer, could further impact prices and she says: 'It looks like we have another excellent vintage on our hands - will the Bordelais price it as fully as the vintage before it?  If so, back vintages of the top 20 or so chateaux of Bordeaux may well start to look very cheap indeed and we could well see some price movement here.'

Andrew della Casa, director of TWIF, says demand from China doesn’t look to be going away any time soon, and with inflationary pressures rising and investors increasingly turning to physical assets, he predicts another good year for fine wines.

But it’s important when investing in wine to remember the issues of storage and insurance. As Dennis Hall, independent financial adviser at Yellowtail Financial Planning, points out: ‘Most investors have to store their wine in controlled warehouses and this does incur costs’.

He says there can also be problems selling it on as there are costs involved and ‘it’s not the same as selling a few shares on the stock market’ as dealing costs for physical assets, like wine, are more expensive.