Wine Market Investment Report March 2020

by Wine Owners

Posted on 2020-04-08


Miles Davis, 2nd April 2020. 

If we look at the performance of the wine market relative to the major asset classes, wine has, once again, demonstrated some fine defensive qualities. The wider wine market has traded in a narrow range in the last couple of years, but the WO 150 is still up 57% over a five-year period. So far this year the WO150 is -1.3%. The WO First Growth 75 Index is down 6.6% - not bad compared to the FTSE slide of over 26% (peaking at -34%). There is a correlation in that the Covid 19 crisis has brought both classes down but the difference in magnitude and the speed in which it happens is significant:




Perhaps there will be a time lag response to the wine market as liquidity is so relatively small and because professional investors will not even stop to think about wine in times such as these (a good thing!). Following the Global Financial Crisis in 2008, The Fine Wine Fund, which I was co-managing and invested entirely in blue chip Bordeaux, lost an average 5.5% a month between September and December.


Wine Current Value MTD YTD 1 Year 5 Year 10 Year
WO 150 Index 306.56 2.00% -1.52% -0.26% 54.19% 83.43%
WO Champagne 60 Index 488.78 2.24% 1.73% 6.53% 62.87% 151.71%
WO Burgundy 80 Index 786 5.20% 7.57% 17.87% 155.27% 256.58%
WO First Growth 75 Index 251.92 -0.29% -7.14% -9.68% 34.15% 46.01%
WO Bordeaux 750 Index 365.35 2.71% 0.08% 8.06% 68.39% 105.06%
WO California 85 index 685.88 1.42% 0.04% 2.46% 94.94% 292.25%
WO Piedmont 60 Index 312.96 2.44% -5.89% -2.24% 68.28% 101.01%
WO Tuscany 80 Index 339.75 2.33% 5.82% 15.45% 77.51% 96.32%


So far, the current market does not feel like it is going to react in quite the same way as either back then or like the major asset classes. To start with Hong Kong (and therefore China) has been inactive for the last nine months, first with the political troubles and now the virus and inventory must have reduced but, more importantly, the strength of the US dollar versus sterling is in play. At the start of the year GBP/USD was 1.33, falling to 1.15 on the 20th March and now at c. 1.24. The depreciation of GBP has protected sterling holders of wine and encouraged dollar buyers back into the market – indeed, we have seen this as a noticeable trading pattern, one which will probably continue.

Our own experience is that we have seen buyers of first growth Bordeaux, village and premier cru Burgundy, 2016 Piedmont and some of the super Tuscans. Most of the sub-indices are in good shape but there are two points to note here; one is that merchants rarely mark stock down unless they have to and the other is that these are calculated using the only readily available price – the offer price. Bids may well tell a different story.

Overall, the wine market is going to struggle this year and I would predict mainline prices, i.e. liquid Bordeaux and expensive Burgundy will be up against it. There will be lots of opportunities however and I do not expect a sudden crash, as we would have seen that by now. In a normal market 2016 Piedmont would have been extremely difficult to buy but, as it is, it is proving a joy. This will not be the case when the dust settles and as there’s very little to go around, I repeat my buy recommendation.

N.B. Our Burgundy index needs reworking as it has too many older, illiquid vintages contained within it.



Focus on: Margaux 1996

by Wine Owners

Posted on 2019-01-18



WO Score: 96

Price: £6,900 per 12

Margaux ’96 has always received rave reviews from the Wine Advocate, whether is was big Bob himself or Neal Martin who awarded it the full 100 in October ’16. Neal does not hand out the perfect score lightly – in fact, barely ever. Our own Nick Martin gave it the full three figures at the Wine Owner’s Margaux dinner last summer although his clout is not quite as heavy!

Left bank 96s deserve a decent allocation in any investment portfolio given their quality, liquidity and age profiles. You could argue the stars here are aligned. Margaux ’90, the only other confirmed 100-point Margaux from vintages still possible to source, enjoyed a chart break out starting last summer (see chart below). The ’96 is trading at a very attractive 47% discount to the ’90 suggesting a strong recommendation. The chart break out may not be around the corner but I’d want to be long when it does.




Recommendation: Buy as a core holding.



Focus on: Margaux 1989

by Wine Owners

Posted on 2019-01-15


Chateau Margaux - ©Wine Owners Ltd.


WO Score: 95

Price: £4,675 per 12

Margaux ’89 has never received great scores from Robert Parker, with five tasting notes at either 89 or 90 points. His last post on the subject, however, was recorded in 2003. Neal Martin has always been more generous, rating the wine between 92 and 95, the last note dated 2010 – so, again, some time ago. In 2008 Jancis Robinson rewarded the wine with a generous 19 points which, as we know, is a high score from her.

The relatively low (and now aged) scores from Parker have probably always depressed the price performance of Margaux ’89. A more recent note from another critic a bit closer to home, from a dinner only a few months ago, yielded this review: “The generosity of the vintage is evident on the nose, yet the accomplishments of this wine are still hidden, and there’s a sense of more to come. That grainy texture and gorgeous spiced finish are surely harbingers of great things in store for future drinking. As a result, a decent investment to boot for a 10-year view: 94+.”

Margaux ‘89 has always been dwarfed by its much acclaimed sister from the ’90 vintage which currently trades at £13,000 per 12. 1989 and 1990 are often coupled for comparative purposes and have thrown up some intriguing pairs, both for tasting and trading purposes, Haut Brion and Petrus being the most fabled.

As the chart below demonstrates, the prices of Margaux ’89 and ’90 started diverging six months ago and the differential has never been wider. This, coupled with our own notes above, gives us good reason to recommend a purchase.


___ 1989
___ 1990

Recommendation: Buy.


Fine wine investment strategies

by Wine Owners

Posted on 2018-09-19


This is an extract of Wine Owners' Collecting and Investing in Fine Wine guide. You can download if for free here.


Short-term? Long-term?

Generally speaking, wine investments perform best over a minimum period of around 5 years.

There is no single ‘right answer’ of course. Some very active collectors sell and reinvest as soon as they see a fixed return, following speculative market momentum. Other collectors tend to hold for long periods of time— and although they may go through periods of flat or negative growth, typically they benefit from shifts in supply and demand; when demand pulls significantly ahead of supply, prices tend to move sharply reflecting that imbalance. Longer-term strategies may also benefit from partial realisation of profits to mitigate the risks of re-ratings.

Wine has periods of both high and low performance, just like any other investment class. Medium- and long-term holds tend to perform more consistently as a result. They also give investors the option to enjoy matured wines (i.e drink rather than sell), if their financial circumstances improve such that personal enjoyment of the wine becomes more significant than the financial value of selling it.



Vintage follower vs. perennial buyer

A common refrain among some investors is “the best wines from the best vintages”. It’s practically a matter of pride having exclusively the best wines in their portfolios.

However, this approach does not fit with the reality of how buyers are allocated wine at first release by merchants. Nor is it necessarily a good idea.

With Bordeaux, this ‘best-vintages-only’ policy is relatively easy to maintain. There is no particular need to buy off-vintages because the wines are produced in volume, and are widely distributed.

But things are different for scarcity-led markets such as top Burgundy, Barolo and cult Californians. Here, supply is low, demand is high and distribution channels are narrow. The net result is that suppliers can apply pressure on consumers to buy a particular wine every vintage, or else lose their right to an allocation next year. With so many customers vying for these wines, merchants can choose to give their best allocations to their best (most consistent) customers. Maintaining an allocation of these wines, therefore, requires consistent buying every vintage, irrespective of quality.

Cherry-picking vintages doesn’t always work, either. Vintages which are heavily touted initially are not always those considered the best in the fullness of time. Piedmont 1997 was considered a stellar vintage early on, but today the favour falls with less-hot vintages such as 1998, 1999 and 2001. And this works both ways; Burgundy 2002 was largely unloved at release, but has now evolved into one of the all-time greats.


Relative value picking 

Identifying value is vital for both short- and long-term performance. How do you select which new releases to pick, or determine which vintages of a wine represent the best value?

Picking the best prospects is now simple. Use relative value analysis to find sweet spots between market pricing and (carefully weighted) critic ratings.

To determine whether Le Pin 2017 is a sensible en primeur purchase, the analysis below compares it with four earlier vintages. The Relative Value Score shows that 2017 is a more attractive buy than the higher-rated 2015 and 2016 vintages. It also confirms that 2012 offers better value (at current market prices, factoring in current critic ratings) than any of the other four vintages.


This is an extract of Wine Owners' Collecting and Investing in Fine Wine guide. You can download if for free here.


Rioja was Spain’s answer to Bordeaux

by Wine Owners

Posted on 2018-09-14


Rioja was Spain’s answer to Bordeaux - incredibly high quality AND quantity produced from noble grape varieties (in Rioja’s case Tempranillo). 

Back in the 1950s and 1960s the large Rioja houses were making wine of extraordinary quality to rival their Bordeaux neighbours to the north. By the 1980s and 1990s many Bodegas had let standards slip (with a few notable exceptions) and the outside world turned away from Rioja, creating a self fulfilling downward qualitative spiral. Since the early 2000s the region has turned itself around, make serious investments, and more recent vintages have attained (or perhaps even bettered?) the heights achieved of their great post-war vintages. 

Rioja prices are still great value but the world is catching on, the positive cycle is established an the region’s future as a blue chip wine producing region is more or less assured.

The following shows the jump in the last 12 months of Rioja prices compared to the general Spanish Index (in which there is a hefty Rioja set of constituents as well). 

For the budding collector, without access to unlimited funds, Rioja is the obvious region to buy into on a 10-year view.


What does Brexit mean for the wine lover and collector?

by Wine Owners

Posted on 2016-10-24


Market context and performance since June 24th

Serving as a general fine wine market tracker, the WO 150 gained 6% in the year to June (6.5% in the previous 12 months) but is now up 19.8% YTD.


Focusing on the all-important Bordeaux market, the world’s single largest region of fine wine production, the WO First Growth Index was up 8.7% year to date on 24th June, but is now up 23%.

As regards Bordeaux Firsts, this performance is on the back of 4 years of decline, following the bursting of a Chinese-inspired bubble in late 2011. The market in these blue chip Bordeaux bottomed in Q3 of 2015, and has soared since. Chateau Latour, released at £11,400 per case of 12 bottles, is now back within £100 per bottle of that release price.

The rest of the Bordeaux market had tested its lows the previous year, and so its performance year to June 2016 was a slightly higher 10.25%, reflecting the additional momentum gathered over the previous 18 months. Looking at all classified growths, the market is now up 22.5% YTD.


Whereas Bordeaux is a market driven by liquidity and large production volumes, scarcity-driven markets such as Burgundy, Piedmont and cult Californians, have enjoyed a long-term run stretching back 20+ years, and these wine markets have not suffered the roller coaster ride of Bordeaux.

The WO Northern Italy index is up 171% over the last 10 years, the WO Blue Chip Burgundy Index is up 311% over the same period, and the WO California index is up a whopping 427%.




What’s going to be the effect on new releases?

New releases are already more expensive to buy due to the pound buying less euros or dollars.

Brexit will cause new releases of two sought after vintages (Burgundy 2015 and Bordeaux 2016) to rise by 30%+, caused by producer increases of, say, around 10% compounded by the 20% effect of devaluation.

First in line: the impending 2015 Burgundies are due for UK release as futures in January 2017. With a compromised 2016 vintage assuring small production volumes, 2015s from some addresses will rocket to compensate for next years’ lower production.

Bordeaux will follow in April 2017.

Given the UK’s preeminent role in global fine wine trading, Brexit has turbo-charged market performance, and given the relatively recent recovery of Bordeaux markets a boost after a prolonged period of decline.

As the pound falls, assuming a rising fine wine market (key as it means there's strong global demand), the price of secondary market wines will rise since they are cheaper to buy for buyers holding currencies such as HKD or dollars.

This increases the value of collectors' current stock since the market is global. London is still one of the most important global trading hubs for fine wine, if not the most important.

Could price rises kill demand?

Because top burgundy from the best producers can double after first release it is unlikely to dampen initial demand – by much. And if it does there’s always the USA, Japan and other markets that’ll mop up the relatively small volumes.

Secondary market prices of older vintages may rise, pulled up by the higher new release prices. But as they rise, the number of potential secondary market buyers may decrease, causing these scarcity driven markets to become less liquid. As a result, it may take longer to sell your wines at these higher prices. The moral of the story is that scarcity driven markets are not for the impatient seller who needs cash tomorrow. These are better seen as long-term holds.

Bordeaux prices of the new vintage (2016) will also rise when they are released next year. Whether the UK Market chooses to buy or sits this one out remains to be seen.

However, the USA is more or less certain to be buying these futures aided by vintage character of ripe, powerful wines from a hot summer that will suit their palates.

As a consequence, enduring weakness of the pound will place further upward pressure on back vintages.

We predict that recent back vintages will increase sooner than is normally the case (1-2 years instead of the more common 5-7 years), as top Bordeaux producers are becoming principal stockholders in an attempt to capture more of the downstream value of their wines and increase the value of their balance sheet assets.

 


Ballast

by Wine Owners

Posted on 2016-02-01


Do collectors ever drink affordable, everyday drinkers? Of course we do!

Don’t forget that in the heyday of Bordeaux, ‘luncheon’ wines were required purchasing behaviour to ‘balance’ some of the more sought after wines whose supply was carefully managed through judicious releasing strategies by the Châteaux.

At time of purchase, these low cost, often delicious (sometimes extremely dull) drinkers seemed cheap, their modest cost leading on the eager buyer. I remember being promised by one merchant that I shouldn’t hold back from balancing with cheaper wines: “you’ll always be able to sell them for what you paid”.

10-20 years on, the true cost of these wines becomes apparent. Annual storage fees of £10-14 adds up over time. If you thought you might never drink them, it will have proved to be a rather expensive balancing exercise to get allocations of the wines you really wanted.

Continuing to store them is only recommended if you have an idea of when you are going to drink them (a daughter’s wedding perhaps?). Alternatively pull them out of storage and keep them at home where they’re more likely to be broached.

Otherwise, it’s time to move these wines on, get what you can for them, and reduce your annual storage bill. There are plenty of restaurants and wine lovers starting out who are attracted by bottles that are fully mature at bargain prices.




The growing importance of the things you love

by Wine Owners

Posted on 2015-10-30


It's a trend that's more and more talked about.

Every Investor summed it up as follows 'Investors need to reset their investment return expectations from UK equities' quoting a portfolio manager of Franklin UK Managers’ Focus Fund.

Financial News reported that 'anxious investors are pouring money into multi-asset funds in the hope that these will offer then greater protection in a downturn'.

Privately, Swiss wealth managers worry that the current investment model is "broken".

Returns are not what they were, volatility has significantly increased, whilst this year's top quartile heroes are as likely to find themselves in next year's 2nd or third quartile. In the good years private wealth managers are not shy in extolling their own virtues, whilst in the bad years they point to outperformance of the general tracking indices.

High net worth individuals want their investment managers to preserve their wealth. When that becomes a marginal activity is it any wonder that they start to look elsewhere?

One place they look is collectibles. It's a natural thing to do; collectors are often experts in their own right. They might be left cold by financial market and instrument relationships, but the things they love are the things they know most about. 

Let's be clear, the things you love are never going to be a central plank of most people's investment strategy. But for many, that historically skinny fringe around the perimeter of total net worth is growing thicker and thicker. If you can't make money on deposit, and your core investment strategy looks riskier than before, why wouldn't you put a little bit more into the things you understand?

Then there's the question of utility. Financial instruments that form the core of what you invest in have a single purpose: to make you money and preserve wealth.

The things you love have utility beyond this simple purpose. At a basic level they satisfy a human urge to learn, collect and own, then to socialise that interest.

For wine, there's further utility in its enjoyment, its sharing and the generosity of spirit that accompanies opening grand bottles with friends or fellow enthusiasts and collectors. There's pleasure in opening a bottle of wine that has increased in value and knowing you paid rather less for it. There's even rationality in drinking a wine that cost as much or less than when you were persuaded to buy it years before. Some collectors think of this as a form of dividend-taking. A dividend in the form of enjoying some of the fruits of a collection, lovingly built up over time.

Like with anything that becomes used as a store of value, diversity is a key to success. So is independence of thought and action. Access to information and trend data is of course important. A buying perspective needs cross-referencing to verifiable facts and figures. 




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by Wine Owners

Posted on 2014-08-18


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INFOGRAPHIC - The 9 Commandments To Wine Collecting

by Wine Owners

Posted on 2014-06-13


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