Wine Market Investment Report November 2019

by Wine Owners

Posted on 2019-12-09

I have just finished reading the latest threats relating to U.S. trade tariffs. In response to France’s application of a 3% digital services tax on heavyweight U.S. tech companies (you know the ones), DT and his representatives are considering recouping $2.4 billion from France’s premium markets; namely handbags, make up, certain cheeses and sparkling wines made from grapes. These tariffs will not be introduced until the new year if at all, so Christmas is saved at least. These products are possibly facing a 100% tax penalty so it’s out with Vuitton, Chanel, Roquefort and Krug and in with Coach, Maybelline, Monterey Jack and Napa Mumm – maybe Brexit isn’t looking quite so bad for us Brits after all!

How these lists are drawn up I do not know; the cheeses include Edam, Gouda and Parmesan which, as we all know, are not known for their Gallic qualities. Unlike still French wines below 14.1% alcohol, Champagne dodged the tariff bullet in October but may now be hit four times harder. These tariffs are messing up our market and we don’t like it! Tit for tat exchanges cannot be the way forward, and we look and hope for more stable trade agreements globally, but we must live with them for now. We have heard of several ‘swerves’ so far; U.S. buyers storing in Europe in the short term, importers identifying the highest alcohol level of any of a producer’s wine and employing that number universally across the producer’s range and even producers being asked to mark 14.1% on the label!

Index Current Value MTD YTD 1 Year 5 Year 10 Year
WO 150 Index 315.67 -1.95% 1.44% 2.03% 62.62% 91.05%
WO Champagne 60 Index 493.15 0.77% 5.40% 7.02% 73.96% 166.01%
WO Burgundy 80 Index 744.26 -0.61% 6.08% 7.35% 147.25% 239.18%
WO First Growth 75 Index 274.38 -3.16% -2.76% -2.65% 48.45% 64.45%
WO Bordeaux 750 Index 366.5 -2.23% 8.20% 8.98% 69.82% 111.68%
WO California 85 index 679.17 -3.41% -0.14% 0.83% 98.95% 296.39%
WO Piedmont 60 Index 335.87 -1.70% 5.64% 6.32% 81.94% 125.17%
WO Tuscany 80 Index 312.88 -2.43% 6.86% 10.01% 61.16% 86.68%

As predicted last month, the indices are beginning to tell the story of recent headwinds. It is interesting to note that Champagne was bucking the trend - that will not continue now. All the other main indices drifted down; the Italian numbers surprise me as the wines we are currently seeking to accumulate have shown no weakness in price. Italy remains free of any U.S. tariffs although further scrutiny can be expected.

I expect there to be some continued easiness in the market in the short term, but I would not recommend selling now as I think it unlikely the market will retreat by 10% or more. Spreads have widened a little and bids are currently around 10% (or more) below the cheapest market price. There will indubitably be some very interesting buying opportunities in the coming months for those brave (and clever) enough and it is interesting to note rarer stocks already becoming available. Great 1990 Bordeaux is a perfect example; normally very scarce and difficult to buy, there is some volume available and it is a buyer’s market.

If some of the current headwinds, namely Hong Kong politics, U.S. tariffs and uncertainty surrounding GBP stemming from UK elections, and no deal Brexit fears, died down activity would increase, and the wine market would soon shore up. In the world we live in, with low (or negative) interest rates and where investors buy bonds for capital appreciation and equities for income, wine will make a lot of sense again soon. There needs to be a certain amount of unravelling of these issues first, however.

WO 150 Index - Wine Owners - November 2019

Please contact with any questions.

Villains of the piece

by Wine Owners

Posted on 2014-08-14

As prices of fine Bordeaux continue to tumble, the chancers, city trader refugees, the numerically challenged, con-merchants and worse - who set up so-called wine investment companies over the last few years and who attracted hot money and gullible consumers’ hard-earned cash - are continuing to go bust as their mini ponzi schemes or lop-sided balance sheets run out of road.

The latest to hit the headlines are Encarta Wines, Canary Wharf Wines and the snappily named En Primeur Ltd. These add to the list of Culver Street, Premier Cru Fine Wine Investments (who transferred their clients to Cult Wines), and European Fine Wines this summer.

These events do serve to further depress prices, as two things happen: distressed stock comes onto the market and is quickly traded; and consumers who have been stung take flight and get out at any cost. I suspect these events contribute to the overshoot that is a typical behaviour of all bear markets. Whether we’re already in overshoot territory, only time will tell.

It is really rather depressing how people get seduced into putting money into these businesses. Very often we see prices being offered to consumers that are far higher than market rates. For Christ's sake, don’t buy from cold callers you’ve never heard of! At the very least buyers really need to check the value of wines via Wine Owners Market Level pricing or by browsing the range of merchant prices listed through Wine-Searcher. One such consumer contacted Wine Owners earlier this year after they’d been offered a case of Montrose 2003 by a firm selling prestige fine wine at £2,100 per 12x75cl IB when the market price was £1,350-1450 at the time. The implication was that it had been rerated 100 points by Parker and that it was primed to go rise to £2,500 per case. In the event it had not been rerated, was not rerated, and today stands at £1,450.

Then there’s the story of Nobles Crus (the wine fund of Elite Advisors) who were forced to suspend redemptions last year by the Grand Duchy of Luxembourg’s financial regulator due to insufficient assets to meet the demands of clients heading for the exit door. Then in May this year something akin to a sweetheart deal was stitched up with leading creditors that led to redemptions at a notional value of €37M (Read the FT article Luxembourg embroiled in fine fine row).

What the true worth of the fund is, no one really knows. Ernst & Young were apparently used to bring authenticity to a suspect valuation method that included punchy Hong Kong auction prices. Supposedly there are €51M of assets left in the fund. Yet the fund has not filed accounts since 2011. Rumour has it that a variety of potential buyers have sniffed the assets over the last year only to walk away, believing values to be too high. One thing is likely: investors would be lucky to get out with the 28% discount to valuation that Banca Generali achieved when it recently sold their shares in Noble Crus to an unnamed 3rd party, as and when they manage to redeem.

How can a global leader like Ernst & Young have accepted a proprietary valuation methods for auditing a fund’s value, especially when that valuation was being questioned by other parts of the mainstream fine wine market including Liv-ex? How can the presumed oversight of a leading Italian Bank, who was a shareholder in Noble Crus, have still allowed a situation like this to develop? Not that regulated markets are necessarily any better. And they say the opaque derivatives market is booming once again…

But doesn’t this further demonstrate the value of being in control of your own portfolio of fine wine? A bit unfair perhaps on the good guys such as The Wine Investment Fund, Wine-Source and other reputable, well-run funds. But of course people who want to build their own portfolio are a different breed to those who are happy to go into a collective, so you can’t really compare. Collectives address a certain market seeking financial diversification and targeted returns, which isn’t the same as the mainstream fine wine market of collectors and lovers.


An investment to savour?

by Wine Owners

Posted on 2014-02-17

By Peter Adcock

Wine. For many people one of the great pleasures of life. A liquid that's been around for thousands of years and which today supports a multi-billion dollar industry worldwide. For most, wine is a drink to be enjoyed. Whether we buy a few bottles each week at the local supermarket or are more serious about building a cellar to last a few years, we have one aim: to enjoy wine as one of the most versatile and varied of drinks. In recent years increasing numbers of people have started to treat wine as an investment. On the face of it the steep rises in wine prices in recent years lends support to the view that wine makes sense as an investment. But does it? It is probably true that most wine investors actually understand and enjoy drinking it! Quite often too they may be anti-other "risk investments": because wine is an actual physical asset perhaps they trust it more. So what are the positive reasons for investing in wine? 1. Wine can be an excellent alternative investment which can be used to diversify larger portfolios. 2. Capital returns are free of all capital gains tax (CGT) making wine an attractive option for investors who already use their CGT exemptions elsewhere. 3. The potential returns on sought-after wines can be spectacular. Until recently fine wine was one of the best performing investments over the last twenty years. 4. Wine stored in a bonded [duty-free] warehouse doesn’t attract any VAT or duty until it is withdrawn from the warehouse. Potential Drawbacks As with any investment there are disadvantages and perhaps its biggest drawback concerns its legal status. Investment in wine fall outside the remit of UK financial services legislation. This has two implications:

  1. Losses are not covered by the Investor compensation scheme, meaning there is no white knight coming to rescue you if your investment turns out to be worthless.
  2. Investors who consider they have been given bad advice cannot use the Financial Services Ombudsman to obtain redress. Legal action to recover money is at your expense.
Like other unregulated sectors, the lack of regulatory controls makes it easier for less soundly structured businesses to operate and indeed for some downright scams to take place. A recent example which affected some of our clients was quite simple really. Take one parcel of wine. Sell it to several different clients! Repeated one hundred-fold and you can see the potential scale of the racket. “Houses of cards” like this come tumbling down easily. This one did when the first client wanted to liquidate his assets. The vast majority of wine dealers are reputable but like any business sector some fail while others do very well. If therefore you want to take advantage of the undoubted potential advantages of investing in wine therefore, how do you protect yourself? Here are a few points to think about: - Don't consider investing unless you have substantial investments and pensions elsewhere. Because of its unregulated nature I generally recommend wine only where a client has at least £250,000 invested in mainstream assets. - Having decided to take the plunge, check out different ways of investing. These include the bigger, well known wine merchants as well as newer specialist wine websites. - Talk to friends and acquaintances who have invested. Who do they buy through? Why? How and where is their wine stored? Be guided by recommendations but not to the exclusion of other sources of information. - Look for businesses with a proven track record for staying in the course. - Having drawn up a short list of brokers/suppliers, interrogate them. What regions do they invest in: are they sticking to "Classic France" or ranging further afield? If they make bold claims for the performance of their investments do independent guides support these claims? - From a legal viewpoint, check that your purchases are identified separately and that you hold a certificate of ownership. Can purchases be identified separately at their place of storage? - As far as possible check the business's financial status. Review their published accounts. Crucially ask if client funds (you usually have to provide funds before wine is purchased on your behalf), are segregated from general business finances. Don't be scared to ask for bank statements and ask if the accountant audits this account separately to the business. If they have nothing to hide they should have no problem in providing any of this information.   Like any investment (regulated or not), you cannot always avoid losing money when investing in wine. You can though make extremely good returns. Worst case: unlike any other major investment, if it doesn't work out for you at least you can drink your assets!

Peter Adcock, Financial Planner, Accountant, Founder of Adcock Financial, and fine wine lover.

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