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.
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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 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.
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:
- 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.
- 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.