by Wine Owners
Posted on 2019-11-07
I wrote at the end of September that the market mood is sombre, it is a bit darker now. It is too early to be reflected in the monthly indices, but blue-chip Bordeaux prices are beginning to slide a little. The ongoing factors that have been keeping a lid on any sort of optimism, namely International trade wars, the Hong Kong political situation and Brexit have now been compounded by upcoming UK elections, in December, and therefore huge concerns over sterling, and US trade tariffs imposed by Donald Trump’s administration in retaliation on behalf of the airline industry (for Pete’s sake!). These tariffs are to the tune of 25%, added to the value of French, German and Spanish wines at 14.1% alcohol or below. Champagne is exempt - god knows why! One could argue that thanks to global warming there’s barely an investible wine made under that alcohol level these days but news like this tends to affect the market as a whole; people will not seek to differentiate one wine from another.
| Current Value || MTD || YTD || 1 Year || 5 Year || 10 Year |
| WO 150 Index || 321.96 || 0.02% || 3.46% || 3.67% || 67.21% || 101.28% |
| WO Champagne 60 Index || 489.4 || 0.07% || 4.60% || 6.22% || 70.83% || 170.94% |
| WO Burgundy 80 Index || 748.85 || 0.20% || 6.73% || 9.37% || 152.68% || 254.40% |
| WO First Growth 75 Index || 283.32 || 0.02% || 0.41% || 0.80% || 54.59% || 76.29% |
| WO Bordeaux 750 Index || 374.87 || 0.10% || 10.68% || 12.29% || 74.33% || 123.98% |
| WO California 85 index || 703.15 || -0.55% || 3.39% || 6.44% || 108.22% || 326.72% |
London based merchants have had little reason to be properly confident in the last few months and these latest two factors are enough to have toppled the balance. The same applies to private clients, be they drinkers or investors, but all players need the feel-good factor to make the wine market tick up. That is simply not around - UK consumer confidence is at its lowest point for six years, according to a recent YouGov poll. So, with the core of the market, in the form of London based merchants, cowering under their desks, the good folk of Hong Kong donning tear gas masks and fighting in the streets and with Uncle Sam’s citizens being asked for a further 25% in tax, there aren’t any hot spots of demand right now. These are all conditions that can, and will, change but for now it is tin hat time.
I have been arguing for a while that recent vintage (anything since 2005), highly expensive (albeit highly rated) wines from Bordeaux are still in huge supply. No one is drinking them as they are either far too young or just too expensive, fit only for the ‘money no object brigade’. Also, with the glut of ‘investment companies’ that existed during the glory days of the Bordeaux market, there are warehouses stuffed full of overpriced claret all over the land. Even the good guys of the wine investment world largely focus on very highly rated claret from good years, quite often without stopping to consider the price.
2009 and 10 First Growths have been my biggest sell recommendations so far this year, but I have expanded those thoughts and now, I would suggest that Bordeaux First Growths and equivalents since and including 2000 are a SELL; also, a lot of next tier down, Montrose and Pontet Canet ‘09 and ’10 for example, notwithstanding their incredible ratings. I would keep anything from 1990 and beyond due to rarity and would sit on the fence for anything in between, although I am sure that prices there will ease a little too.
I do not think the rest of the wine market will suffer to the same extent as Bordeaux, mainly because it’s not nearly so tradeable and doesn’t suffer from the over supply problem; Bordeaux is unique in this and with another great vintage around the corner (early reports suggest 2019 is going to be very good, but isn’t it always thus!) there’s another wall of stock on its way, probably much of it at the wrong price again.
Don’t get me wrong, I love Bordeaux and am very happy to accumulate and drink older vintages. For investing, I just prefer other regions right now, particularly Piedmont, Tuscany and vintage Champagne. Even in these tough trading conditions it’s actually quite difficult accumulating really good stocks of Piedmont at decent prices at the moment.
Below is a quick comparison between some great vintages of Mouton Rothschild versus Bartolo Mascarello, one of the best Barolo producers. Mascarello is not the household name that Mouton is but it is the qualitative equivalent, is produced in tiny quantities (easily less than a tenth of Mouton) and is held almost entirely by the cognoscenti who are likely to drink it themselves. Mouton, on the other hand, can be found in cellars from the cognoscenti to the cretini! The message is clear, and the relative bet to my mind is absolutely nailed on (as they say on the racetrack).
Even taking into account trading spreads and expenses I would happily recommend selling Bordeaux blue chips and reinvesting in other areas. The difference between the per bottle prices of equivalents elsewhere suggest there’s plenty of upside in the trade.
Miles Davis 7th November 2019
by Wine Owners
Posted on 2019-10-09
As we’ve written here before, we love Vieux Chateau Certan and we’re not the only ones. The wine has always been great, but it just seems to get better and better. The ’78 recently was sublime. It seems to be quite vintage proof too, producing a highly rated 2011 (96-8 points, Neal Martin), which we have commented on before (here). Neal’s comments on the ’04 also resonate: “this is a triumph of wine over vintage”.
So, a great wine with a limited production from 14 hectares of Pomerol, a popular family as owners, a rising reputation and prices that are manageable (in the context of very fine wine). A wine trade legend recently commented “I can’t understand why every vintage of VCC doesn’t start at £200 per bottle”.The vineyard is next to Cheval Blanc and like the St. Emilion Grand Cru Classé A powerhouse has a lot of the vineyard given over to Cabernet Franc. It is planted 60% Merlot, 30% Cabernet Franc and 10% Cabernet Sauvignon and the Chateau is not scared of big selection decisions for the grand vin to achieve the best results - the ’98, for example, was 90% Merlot. For the sake of comparison, Petrus covers 11.5 hectares and is 100% Merlot.
Here are the bottle prices of various older vintages (’95 - ‘06) with WO scores:
1998 was a brilliant right bank vintage and it stands out as such. 2000 was also excellent across the board and as a result, it is more homogenous in its appeal. It is interesting to note that these older vintages are much cheaper than the (admittedly higher rated) younger versions, (’08-’16 below). Whilst on ratings, there is no doubt VCC has been achieving greater things, but wine critic’s scores have also been on the up in the last decade, meaning a modern day 97 feels more like a 93 or 94 from the noughties.
I prefer older vintages because of the faster falling supply and favour the ’98 over the ’00 for investment purposes, just. Some outright value can be found in the ’04 at a little over £100 a bottle;
NM writes: “Alexandre Thienpont having to pass through the vineyard six times in order to pick the grapes. It was worthwhile because this is one of the outstanding wines of the vintage, driven by the Cabernet Franc (30%). A delectable nose with wonderful purity and exuberant, peppery Cabernet Franc with touches of tar and roasted chestnuts inflected the black fruits. Superb. Drink 2015-2030+.”
Here are the Relative Value scores for the older selection:
And now for younger vintages:
In the younger vintages, the ’11 stands out. I have edited the scores just to use Neal Martin’s 96-8 score as we believe the other critics, especially Monsieur Parker, have clearly missed the beauty of this wine which is commonly touted as the wine of the vintage. NM: “It has enormous length and it is one of the very few that could be on the same ethereal plateau as the 2009 and 2010 and perhaps one day...even better”
The other notable characteristic of 2011 is that 30% Cabernet Franc made it into the final blend, and was the last vintage that had such a high Cab Franc component prior to 2018. That means more floral and aromatic character. Given VCC can often be obdurate in youth and middle age, we like vintages like 2011.
Don’t imagine either that 2011 was a poor year climatically for VCC – the numbers tell a different story: high IPT of 83, moderate alcohol at 13.6 degrees, and a relatively low in acid PH of 3.6. All of which is borne out in the glass - plenty of stuffing for a very long drinking window, finesse, lovely balance and moderate alcohol. With LMHB the wine of the vintage.
The ’09 and ’10 receive massive scores from Mr. Parker, noticeably higher than his colleagues. ’15 and ’16 receive massive scores across the board but, as mentioned earlier, scores ain’t what they used to be! The less fashionable ’12 and ’14 vintages offer value with ’15 and ’16 looking fully priced for now although leading the way in terms of a re-rating perhaps? They are the most expensive vintages on the market.
VCC does not deserve to trade at such crazy discounts to Petrus, Le Pin and Lafleur. The ’16 vintage is used as an example below.
On the other hand, it provides an excellent opportunity to access a top terroir of Bordeaux in some of the best wine-making hands at ‘reasonable’ prices, certainly at a fraction of Petrus and Le Pin.
The last ten vintages of Petrus average a score of 96 points and a price of £2,333 per bottle against an average of 95.9 points and £151 for VCC. Put another way, you can drink nearly fifteen and a half bottles of VCC for every one of Petrus. Surely that’s enough to get you thinking!?
Please see live offers of VCC on the platform here. Other vintages are available, so please speak to Miles or Luke MacWilliam.
N.B. A new platform feature – there is no need to type out Vieux Chateau Certan any more – typing VCC will do the job.
Miles Davis, 11th October 2019. Professional Portfolio Management.
07798 732 543
by Wine Owners
Posted on 2019-10-08
At the risk of sounding like a stuck record, the market mood is sombre. It does, however, remain reasonably steady amidst a turbulent sea of macro factors.
Hong Kong is an important market for wine and the ongoing protests are a concern. The original cause of complaint, an extradition agreement between the territory and the Chinese mainland, has long since been retracted but the protests continue, becoming ever more violent. This is about democracy and freedom and the eyes of the world are watching. It is an uncomfortable position for China who cannot afford to handle the situation as perhaps it might in its own provinces but in the long term, remains a very powerful parent. Already the economic effects are being felt; officially occupancy rates in Hong Kong hotels are currently running at about 20%, unofficially they are in single digits. A quick internet search found a room in the territory for US$9 a night, including breakfast!
As we know, Hong Kong, apart from having its own burgeoning wine scene, is currently the gateway to the wine market of China, legally or otherwise. We expect China will open new free ports in time, but the current troubles may just accelerate that process. We think this is a short term problem but in the meantime, trade form that corner of the world is quiet.
U.S./China trade negotiations and Brexit shenanigans continue, and emerging markets are threatened by contagion emanating from Argentina. Thrown in the unrest in various parts of the Middle East and various other more localised scenarios, it’s a right old mess. And what does well in right old messes – physical assets! Here is the Gold price performance so far this year against the WO 150 index.
We’re not saying there is any correlation, delayed or otherwise, between wine and gold but recent financial history (since the last global financial crisis) has made physical and alternative assets increasingly popular.
We live in an era of negative real interest rates, where buyers of roughly a third of the world’s outstanding bonds will lose money if held to maturity and where even high yielding equities with strong balance sheets are not performing – all very sobering! With all this going on, is it time to hit the bottle?
Within the wine world, my investment themes remain the same; focus on regional allocation, combined with scarcity and relative value is the game.
Please contact firstname.lastname@example.org with any questions.
by Wine Owners
Posted on 2019-07-09
The reputation of Luciano Sandrone continues to grow and grow, in keeping with the popularity of Barolo. Not as famous as the very top tier of Bruno Giacosa, Giacomo Conterno or Giuseppe Rinaldi but nestling just in behind, at a far more attractive price point.
Here we consider Le Vigne cru although the story is much the same for the slightly more expensive Cannubi Boschis (renamed Aleste in 2013 – in classic, designed to confuse, Piemonte style!).The consistency of the scores is incredible - through a mixture of very varied vintages from ’06-’15 the average is 95.3 points (Wine Advocate). Very significantly, the estate releases a small amount of the exact wines (under the labels Le Vigne Sibi et Paucis and Cannubi Boschis Sibi et Paucis) after ten years of age and they consistently achieve greater acclaim at that point, the ’07 going from 96 to 99 points (WA) for example. The range of points scored would indicate these are very fine wines indeed and given the rarity, must be only affordable to only the mega rich. Not so, prices start at c. £60 a bottle, rising to c. £170 for the stonking 2010 vintage.
For comparison sake I looked at some other fine wines from Burgundy and Bordeaux over the same ten year time period. Obviously these comparisons will never be exactly like for like but the differentials are not that great either; brilliant producers from the top tier of their respective regions, producing internationally acclaimed wines from the best local grape varieties designed to take advantage of their particular terroirs and climates to the full. We have a decent premier cru Burgundy, Domaine Dujac Aux Combottes, a sensational Pomerol on top of its game, Vieux Chateau Certan, and the king, Chateau Petrus (just for fun):
Comparisons between ‘06-‘15 vintages:
Luciano Sandrone Le Vigne Barolo DOCG
Domaine Dujac Gevrey Chambertin Aux Combottes Premier Cru
Vieux Chateau Certan
I suggest there is room for significant upside for this Barolo. And I am going to start selling the Combottes I own, the differential is absurd and further illuminates how crazy Burgundy prices have become. Production of fine wine in Barolo (and Barbaresco) is tiny compared to even Burgundy and completely miniscule in what we could consider the ‘investable’ candidates.
Please see charts for Market Price and Relative Value Scores for available vintage comparison.
9th July 2019
by Wine Owners
Posted on 2019-07-08
The highlight in June for the wine world was clearly the Daily Telegraph event ‘Wine; for profit or pleasure?’. A sell out crowd witnessed excellent talks from four leading experts from the wine world, including two of us from Wine Owners (Miles and Nick). Please contact us for a copy of the presentation.
Otherwise June was again tranquil with trade bobbing along just fine but with no particular surges or dips anywhere. Global stock markets enjoyed a rise after Messrs. Trump and Xi found some accord but this doesn’t seem to have inspired the wine market as yet! Wine stock levels are healthy amongst Asian traders so not even a continuing depressed sterling is bringing about much marginal demand from that corner although most indices are in positive territory in June.
The Bordeaux en primeur campaign came to an end with an almighty whimper. En primeur gets under the skin of the wine trade and all involved spend far too much time talking, writing and moaning about it…yet even so, I shall continue! Within the wine market(s) it has represented very poor relative value for a decade, prices are just too high, yet merchants don’t dare turn their back on this once great provider. It was a great system for all involved, including the man on the street. Now only a very few wines ‘work’ each year (whereby they make sense to the supply chain and the end buyer). And now, to compound the problems of high prices, the Chateaux have decided to retain more and more of their own stock. How this comes to market, when and at what price will fuel debate but based on the evidence of the mighty Chateau Latour, the market may just turn its back. The feeling of stock overhang may easily outweigh the feeling of short supply and it’s not as if the world is going to go thirsty, there will always be alternative choices.
If only our Italian friends came together with a synchronised offering, we could have a proper old school primeur market again. All the market players would have to be involved at the same time, jostling for position, scrapping over every six pack and would still be able to sell at a price that would make everyone happy. The hype that the merchants used to create in Bordeaux primeur markets, that we are still hungover from, could be regenerated. We all miss the hype and the excitement which created such fear amongst the white-faced, panic-stricken collectors and consumers who couldn’t possibly stand even the faintest whiff of FOMO (fear of missing out).
As it is, Italian releases come to market in no organised way and importers and merchants release when they feel like it. It’s all very Italian really but it does make buying easier. We have been acquiring some 2015 Barolo new releases from Fratelli Alessandria, whose reputation is markedly on the up. Prices are very reasonable for these high scoring wines, ranging from c.£35 per bottle for their basic Barolo (94 Wine Advocate points) to nearer £60 for their top cru, Monvigliero (96+). Outside of the very top group, Luciano Sandrone is another producer worth mentioning - consistently high scores at affordable prices. Their equivalents in quality in either Bordeaux or Burgundy would be far more expensive.
Piedmont is easily our favourite region at the moment, due to the demand/supply equation and the blue chips remain well bid. Whilst Bordeaux and Burgundy remain lacklustre, Champagne and Rhone have attracted some attention. There is no question we would recommend the brilliant 2008 vintage in Champagne and the recently released Sir Winston Churchill looks a good bet with the ’96 being double the price.
Please see the Blog for more articles about the wine investment market.
Also, any enquiries about my Professional Portfolio Management services are most welcome.
8th July 2019
by Wine Owners
Posted on 2019-06-07
The wine market in May was completely dominated by Bordeaux en primeur. Overall the market is steady but lacklustre, ongoing concerns over U.S. and China trade wars and boring old Brexit rumble on and even a weaker GBP hasn’t managed to inspire substantially more marginal demand from USD based buyers. The secondary blue chip Bordeaux market is solid but a little stodgy. The bids are there but nothing much is moving north. As a result it is little surprise that merchants’ 2018 Bordeaux offers, backed by some exuberant critic’s reports and scores, have been flooding the inbox.
For our Bordeaux 2018 ‘in a nutshell’ report on the 2018 vintage, please click here.
Obviously the more exuberant critic reports and scores, of which there are (too?) many, have been the ones used by merchants and their sales teams. Julia Harding MW, of JancisRobinson.com, provided the reviews most in common with our own team’s appraisal and her scores are more subdued than others. She lends perspective to a vintage that we do not regard as highly as 2016 and one that may turn out to be overblown in some quarters. Antonio Galloni of Vinous Media is another commentator in the less exuberant camp and we look forward to his colleague Neal Martin’s commentary when it arrives (Neal did not taste en primeur this year due to ill health – we wish him a full and speedy recovery).
A very important point regarding the ’18 vintage, largely ignored by the salesmen and one I would like to repeat, is that whilst certain wines are very impressive, incredibly concentrated yet well balanced, they are really, really BIG. Nearly all of the alcohol numbers are between 14 and 15%. The poor unsuspecting punters may get quite a shock when they sit down, sometime from now, to enjoy their excellent claret only to discover they have something they weren’t quite expecting in their glass!
It'll be fascinating to see how the wines from 2018 develop as wines, but also from a market perspective. The Chateaux are holding back more and more wine every year and in some cases, releases are up to 50% lower than last year. Will this drive some scarcity seekers to market or will it have the opposite effect of creating a nervy overhang? It is fair to say that so far, Latour has not exactly flourished since retreating from the age old system. En primeur to my mind, apart from a certain few every year, has not made clear financial sense for years and few releases have come close to our ‘proto-prices’ (where the price needs to be to make clear financial sense to buyers), more here on JancisRobinson.com.
Successful releases so far include: Calon Segur, Canon, Carmes Haut Brion, Lafleur, La Mission Haut Brion, Leoville Las Cases, Pichon Lalande, Pontet Canet and Rauzan Segla. The majority of releases have not sold through.
In other areas there is still plenty of demand for high end Burgundy, it’s just that the prices that are being achieved by sellers are well below advertised levels. Piedmont is in good health but in low supply, a good thing for holders! Champagne holds firm, so do Super Tuscans.
by Wine Owners
Posted on 2019-05-13
This time of year in the wine trade is always dominated by the Bordeaux en primeur circus. Please see our 2018 ‘In a nutshell' report here. It’s strange really, as en primeur has not made commercial sense for the legions of the swirling and spitting wine trade, let alone the man on the street, for very nearly a decade. En primeur business has shrivelled like a drought savaged grape over the years and there are only a handful of opportunities each year that really make sense. At the time of writing only a few releases have made sense according to our ‘proto-pricing’ (please see jancisrobinson.com), Branaire Ducru, Duhart Milon and Quinault L’Enclos. Palmer sold out quickly (at 2,880 per 12), partly due its rarity (see blog), but also because they have built their brand so brilliantly under the guidance of Thomas Duroux. As a result, Palmer has a strong en primeur following.
In general, the Chateaux are releasing less than ever this year which makes this game ever more senseless. According to one highly experienced trade legend EP is all about building the client base for merchants and clearly the avalanche of similarly persuasive e-mails work to some extent. Experienced wine players are highly selective in the EP arena and returns in the short to medium term are very far and few between. Real scarcity is where it’s at, if you’re hoping for rising prices, and that doesn’t come from en primeur.
| || Level || Month || YTD || 1 Year || 5 Year || 10 Year |
| WO 150 Index || 303 || -0.6% || -2.0% || 6.4% || 57.4% || 83.3% |
| WO Champagne 60 Index || 462.61 || 0.9% || -1.3% || 5.0% || 68.4% || 154.9% |
| WO Burgundy 80 Index || 691.36 || 3.7% || -2.0% || 25.7% || 142.1% || 233.2% |
| WO First Growth Index 75 Index || 276.71 || -0.5% || -2.0% || 2.6% || 45.5% || 71.2% |
| WO Bordeaux 750 Index || 340.71 || 1.0% || 1.7% || 6.3% || 57.5% || 100.3% |
| WO California 85 index || 669.86 || -0.1% || -0.4% || 15.4% || 106.4% || 309.9% |
| WO Piedmont 60 Index || 318.83 || -0.3% || 0.9% || 9.2% || 75.6% || 126.4% |
There were no new themes detected over the month and scarcity is still the biggest driver. Interest in Piedmont is still firm although the monthly movement of the index would suggest otherwise. The same can be said of Burgundy, which is still active but is trading below advertised offer levels, with buyers negotiating harder.
Brexit concerns seem to have been put on hold for now, more through ennui than anything else, which led to some increased activity from U.K. private clients but overall the market trundles along rather than powering up. It’s a time for gentle accumulation on the bid side of the market.
As an aside; several collectors have approached us about reviewing their cellars, mainly to consider what holdings are investment grade and which are not. This has led to most people making the realisation their collections lack structure. The combination of our expertise and the technological support from the platform is proving to be very valuable.
by Wine Owners
Posted on 2019-04-30
Research does not come any easier than looking at Krug 2004. Vintage Krug is an investment stalwart and the long-term numbers tell us it is a consistent performer. So, you key in the various available vintages into Wine Owners ‘Relative Value Analysis’ and ’04 comes out as THE pick of the bunch:
Then you read the tasting note from Antoni Galloni:
Krug's 2004 Vintage is absolutely mesmerizing. Layers of bright, chiseled fruit open up effortlessly as the wine fleshes out with time in the glass. Persistent and beautifully focused, with a translucent sense of energy, the 2004 captures all the best qualities of the year. Moreover, the 2004 is clearly superior to the consistently underwhelming 2002 and the best Krug Vintage since 1996. Readers who can find it should not hesitate, as it is a magical bottle. 97+
Simples! But, as ever, it is not quite as simple as that; if we compare the returns over the last twelve months, performance across the vintages is far from consistent:
It is difficult to explain the variances, especially the ‘98 but I take heart that the 2004 is yet to perform positively. It was a decent size crop and clearly there are plenty of merchants still holding their allocation but this means there is still time to accumulate before it starts appreciating – and it most certainly will! This is a buy on a long term basis.
by Wine Owners
Posted on 2019-04-04
In the same way the media in March was completely dominated by Brexit, so was the wine market. Instead of permanent squabbling and jostling for position, however, the main players in the house of wine commons continued to sit on their hands. Fortunately, there was no squabbling, but U.K. merchants continued to be, unsurprisingly, risk averse; some are just not buying anything for stock currently, so the market has continued to ease. The good news is this easing is a result of apathy rather than volumes of stock hitting the market. There is nothing worse for markets than uncertainty and it feels like we are in the epicentre of that storm right now.
|| 1 Year
|| 5 Year
|| 10 Year
| WO 150 Index
| WO Burgundy Index
| WO Bordeaux Index
| WO California Index
| WO Champagne Index
| WO First Growth Index
The Burgundy Index continues to slide from its Himalayan style peaks, unsurprisingly, but what is really interesting (to me at least!) is the performance of Bordeaux, especially the First Growths. This sub index gained 2.8% in March and is the only one of the indices above to be positive in 2019. Other than the post Brexit referendum and the weak sterling inspired rally of 2016, the First Growths have been in the doldrums for nearly a decade – is this the turning point we wonder? Market commentators have been saying that Burgundy was making First Growths look cheap again for a while now, yet so far there has been little stirring of the sleeping giant.
We have just returned from Bordeaux, having tasted some, but not all, of the 2018 vintage - more on that here separately and soon. A bad outbreak of mildew and a drought later in the growing season led to severely reduced yields in some properties (two thirds in the case of Pontet Canet) which could easily mean some aggressive pricing in some quarters – yes, again!
As usual, les Bordelais were not to be found suffering from modesty or understatement, many to be claiming another incredible success. The heat from the end of July onwards resulted in small, thick skinned berries delivering highly concentrated juice, resulting in well above average alcohol levels. There are few wines coming in at less than 14% alcohol by volume - Mr. Parker must be punching the air! It almost goes without saying but those who managed the vineyard well, picked in time and maintained acidity have performed the best. At a time when winemakers and consumers are reverting to fresher, more elegant styles the timing of this vintage is somewhat ironic. If Mr. Parker’s influence was still intact we may have been looking at Bordeaux ’18 being declared as the first ever Port vintage outside of Portugal!
Overall the 2018 vintage is patchy although there are undoubtedly some very impressive wines. Some prices may work, most will not, and it could just be that our favourite vintage of modern times, the 2016, is about to be made even more compelling than it already is!
by Wine Owners
Posted on 2019-03-25
The basic premise for investing in fine wine is a very simple one; you buy a truly great wine that is produced in a finite quantity and store it, carefully. So, whilst others are enjoying/drinking theirs, thereby reducing the supply of that wine, you enjoy the price appreciation that naturally results from the increased rarity value. The growth in global wealth and newly discovered riches help fuel the desire for these wines for added benefit. For example, Chateau Latour 1982 was released in 1983 at c. £400 per case of 12 bottles. That case could today be sold for £16,000, implying an annual growth rate of a little over 12% per annum over the course of its life (and it will continue to be enjoyable for another 50+ years).
So, it is easy then?
First a bit of background.
The investment market is dominated by the red wines of Bordeaux where production levels of top-quality wine far exceeds any other area of note. Other areas which spark interest include the finest wines of Burgundy, Champagne, Tuscany and Piedmont and to a lesser extent some of the trophy wines from the new world.
For decades, centuries even, ‘gentlemen’ have been investing in wine, maybe unintentionally, but certainly filling their cellars with good Bordeaux and Burgundy, Port and Madeira and the like. Auction houses commenced wine sales in England in the middle of the last century and now there are all manner of brokers, merchants, exchanges and on-line auctions in existence. The internet has lent transparency to what was an opaque market, brought an endless flow of information and with it various offerings from a wide range of ‘investment specialists’. Investing in wine has become a more commonplace activity. Very few of these specialists, however, are authorised by the FCA or an equivalent and, thanks to the great bull market of 2005-2011 a proliferation of new companies designed to take advantage of this phenomenon were formed.
Like all markets the wine market continues to evolve although the last decade has proved to be probably the most turbulent period in its history. Previously, wine price performance was generally very steady with long term returns going back to the seventies averaging just over double figures. Once a decade or so, a global crisis would cause a healthy reality check (the oil crisis of ’73, the stock market crash of ’87, the Asian currency crisis of ’97 and the Lehman debacle of ’08, although the latter turned out to be very short lived) and then things would revert to normal.
The great bull run that begun in 2005 was created by exceedingly high and new demand emanating from mainland China. The fast expanding Chinese economy created easy money that flowed through the hands of the relatively experienced Hong Kong based merchants all the way to London, the global centre of secondary market wine trading (the primary markets being located at the point of production). Prices were pushed higher and higher, no one wanted to sell as the value kept on going up, until one day it all stopped.
What had not been appreciated at the time, by either the market or its participants was that this money was not just coming from the newly wealthy and aspirational individual but mainly from officials and employees of state owned enterprises.
Their ostentatious extravagance was legendary – lavish dining in top class restaurants and hotels accompanied by lashings of fine first growth wines, the corporate gifting of wine that oiled the wheels of business and the need to be seen only drinking the very best.
The government had lost control – and that was not going to wash with the incoming new President, Xi Jinping. In mid-2011 all luxury items and their markets were knocked back as the new environment of anti-graft measures were introduced and these measures remain firmly in place today. Having risen c. 260% from ’05 to mid-2011, the Liv-ex 100 index, the leading market indicator, then fell by 36% between mid-2011 and mid-2014. Since then the market has stabilised and in recent weeks has started to appreciate once again. The natural order is returning, and the madness of this extraordinary period has receded, the river of cash from China has dried up and a lot of the new, often dubious, players have been washed up on that river’s banks.
Another major factor that came into play during this period of flux was the stratospheric pricing of two Bordeaux vintages of outstanding quality, 2009 and 2010. Not wishing to miss the party the Bordelais lost their heads; 2009 sold but the market just couldn’t stomach the prices from 2010. Subsequent vintages were not reduced to commercial levels and have also failed to sell.
Some readers will be familiar with en primeur, meaning the first release, which is the first opportunity to purchase wine from the new vintage. In the good old days this was the opportunity to get in on the ground floor and the majority of investors and consumers benefitted. That game is long gone and arguably the market has split between the recent vintages where the release price still influences and the older vintages where the secondary market controls pricing. The market for older wines is, in any case, more compelling as pricing is more logical, there is greater assurance of quality and the dwindling of supply has begun.
Opportunities abound, especially now we are ‘ex-China’. Pricing has never been more competitive and the information available have never been so sophisticated. So, yes, it is easy – if you know what you are doing!
Miles Davis, February 2015