Macro Events on Wine
2018 has been a turbulent year for many areas of the UK economy. Brexit has caused volatile swings in the British pound. In 2018, GBP has lost 5.51% against the US Dollar and 1.08% against the Euro. With the Brexit deal looking unlikely to ascend through parliament, and both houses in a deadlock, more turbulence can be expected in the coming months. This suggests the continuation of the opportunities presented to astute investors in fine wine since the EU referendum.
Fine wine is among the commodities with a perceived inverse relationship to conventional markets. Historically these vehicles have been valuable tools for investors to protect their funds from economic downturns and volatility in domestic FX and investment markets. The accelerated growth seen in fine wine since the referendum gives credence to the notion that fine wine possesses this inverse relationship. Since June 2016 the Liv-Ex 100, their benchmark index, has increased 20.15% (0.65% monthly average). This dwarfs the index’s average monthly performance of 0.41% observed over the last ten years (49.07% total gain) by 0.24%. Alongside the ability to protect investor’s funds whilst generating capital growth at times of traditional market contraction, fine wine consistently shows low volatility and considerable compound annual growth, 9.10% and 7.22% respectively since January 2002 (both Liv-Ex 100).
The depreciation of GBP has also increased interest in the UK fine wine market from overseas investors, eager to spend their domestic currencies at the new favorable GBP exchange rate. This has translated to an increase in buying activity from collectors in the US, Europe and Asia. However, this spending is causing stock levels of wine held in the UK, bought at pre-referendum rates, to dwindle meaning a rise in domestic fine wine prices is expected as more wines will need to be imported and paid for in Euros.
The fine wine investment forum has been a mixed bag in 2018. The Liv-Ex 100, which is considered the benchmark index for fine wine has seen a contraction, posting a loss of 0.13%, (a -0.01% average monthly move). This contrasts the average annual performance over 5 and 10-year terms; 4.49% and 4.91% respectively. This Index is dominated by Red Bordeaux, which makes up over 70% of the basket. This underpins the suggestions that Bordeaux in particular has experienced a contraction in market share with Liv-Ex posting an average loss of 0.41% across the Liv-Ex 50 and Investables in 2018. However, with this contraction, other regions grow to fill the void. Burgundy and Champagne have both had an exceptional 2018; gains of 36.43% and 6.43% were posted respectively, the former in particular towering above the average. Across the Indices discussed above, the average monthly growth has been 0.70% in 2018. This growth is testament once again to the stellar growth experienced in Burgundy with a compound monthly growth rate of 2.62%.
Bordeaux – A Breath, or the end of a Growth Cycle?
The two Bordeaux-centric investment indices, the Liv-Ex Investables and Liv-Ex 50, highlight current trends. The Liv-Ex Investables index is comprised of an unspecified number of wines selected from 24 leading Bordeaux Chateaux. The basket of wines included in 2018 have resulted in growth of 0.43% and a monthly average increase of 0.04%. However, the gains posted across 5 years and 10-year terms; 24.89% from 0.41% average monthly growth and 69.73% from 0.58% respectively dwarf the gains seen in 2018.
The Liv-Ex 50 consists of the ten most recent physical vintages of the five Bordeaux First Growths, namely Haut Brion, Lafite Rothschild, Latour, Margaux and Mouton Rothschild. It thereon highlights that First Growths in particular have performed negatively over the year. In 2018, the Liv-Ex 50 has experienced a contraction of 1.24%, with an average monthly change of -0.10%. The lessening of First Growth trading seen in 2018 is indicative of a market contraction in the top wines of Bordeaux. This is underpinned when comparing 2018 growth with the past five and ten years; 20.48% and 64.97% respectively, averaging 4.10% and 6.50% annually. The difference between these two indices also suggests better performance from other left bank Grand Crus and Right bank wines than the recent vintages of First Growths in 2018.
Over the last 15 years the Liv-Ex 100 has seen two noticeable peaks, with highs of 247.77 and 369.81 recorded in August 2008 and June 2011 respectively. After both these postings, the index fell to lows of 198.28 and 300.35 at the close of 2008 and 2011. Since the start of 2012, steady growth has been recorded with the index posting levels of 316.62 in June 2018. After several years of strong positive growth, the current level of 312.05 could be viewed as an indicator of Bordeaux nearing another peak.
FX events, notably the weakness of the pound compared to major currency pairs, has certainly accelerated performance. Since the referendum, the Liv-Ex 100 has demonstrated a -0.66713 correlation to the GBP/EUR exchange rate. This equates to a strong negative relationship between the two. The Liv-Ex 100 has experienced a 20.15% increase since the Brexit vote, we estimate due to the correlation that 13.44% of this growth could be explained by changes in GBP. With this in mind, it is instructive to look at the Liv-Ex 100 adjusted for the inflated growth caused by currency depreciation. The chart below represents an approximated plot since the referendum date with the estimated growth caused by the downturn in GBP removed.
This plot shows a more gradual growth and is less indicative of the market reaching a peak, as seen in 2008 and 2011. Rather it suggests Bordeaux is moving in a linear fashion at a rate that suggests 2018 could be a pause in steady growth. We also predict a reduction in sales for Bordeaux En Primeur 2018. Overall it looks likes the 2018 vintage is likely to be the fifth very good/exceptional vintage in a row – despite its challenges. However, while Chateau are reducing allocations, holding more stock back, we do not expect any significant reduction in prices, rather slight increases on the 2017 vintage. Please find our 2018 Harvest Report here.
Champagne Sparkling Performance and Value
The virtues of vintage Champagne as an investment are obvious; strong and consistent global demand driven by clubs, restaurants and private collectors the world over. This demand gravitates to a handful of leading marquee cuvees, which form the terminus of fine Champagne collectibles. Indeed, the relative value of these major cuvees, which one could be forgiven to coin as the First Growths of Champagne; Cristal, Dom Perignon, Krug, Bollinger Grande Annee and Taittinger Comte is apparent when compared to Bordeaux, Burgundy, Napa and even Italy. The average price of a 6x75cl case of the last ten releases of these five Champagnes is £786, which is incredible when one considers these are not released generally until they have at least eight years age and that over half of the aforementioned average come from wines with an age of over 15 years. The average release price – excluding 2008 – for the big five is £568 per case of six, rendering brilliant value. There is a material shortage of leading champagnes in the market, for example Cristal is sold out of 2007, 2008 and 2009, they have chosen not to make a 2010 or 2011 vintage. The next release will be 2012, perhaps in late 2019 or 2020, which marks another great vintage and likely to reflect this in the price. We predict an average price of a 6x75cl case to be £1,000 by 2021 and an average release price of £750 by the 2012 vintage.
Performance reflects these premises and the realisation of the forecast. According to Liv-Ex, Champagne has been among the best performing indices in 2018. The Champagne 50 consists of the most recent physical vintages of 12 Champagne houses and has posted gains of 6.43%, this was achieved by 0.54% average monthly growth. However, these gains have been less than those observed in the past five and ten years. The Champagne 50 has achieved 40.64% over the past five years (8.13% annual average) and 85.17% (8.52% annual average) over the last ten years. This has been achieved by 0.68% and 0.71% average monthly gains respectively. Alongside the gains seen in 2018, the Champagne 50 has also generated the second best CAGR amongst the Liv-Ex indices with a figure of 9.35%. These impressive growth figures have contributed to a total index gain of 285.17% since January 2004. We recommend collectors focus on this segment of the market for the next three years.
Burgundy – Treading New Ground
2018 has been a rewarding year for those with positions in Burgundy. Liv-Ex’s Burgundy index has seen considerable returns, dwarfing those seen in other region-specific indices. The Burgundy 150, (consisting of the most recently physical white and red vintages of 15 Burgundian producers, including six Domaine Romanee Conti vintages) has registered 3.04% average monthly growth, posting 36.43% gains in 2018. These returns are even more impressive when compared with the returns of the past five and ten years; 105.86% and 215.61% respectively. These advances equate to an annual average of 21.17% and 21.56% underpinning the gains seen in Burgundy in 2018. The Burgundy 150 also boasts the highest CAGR (12.58%) and largest total gains (497.07%) since January 2004 of any Liv-Ex indices.
The continued positive performance has outperformed our projections. The mechanics of Burgundy are that of miniscule production, decreasing physical stock and for several vintages, greatly reduced yields, further compounding the issue of supply restraints. Increasing global demand has stretched an ever-decreasing global stock position. The largest growth in 2018 has been seen from the most prestigious blue-chip names, which also have minuscule production. Foremost of which is Leroy, the average price for their Richebourg has increased 45% in 2018, however, their Musigny, which often produces as little as two barrels a year, has risen 450% to £26,000 a bottle. DRC experienced an increase of 22%, the best performing DRC, Richebourg, followed by Romanee St. Vivant and La Tache, although every wine posted over 20% with Romanee Conti itself rising 21% to £15,000 a bottle. Armand Rousseau Chambertin and Close de Beze have returned 36.56% and 51.81%, yet both are trading with an average bottle price below £2,000.
Liquidity has fallen with availability and it is rare to find DRC, Rousseau or Leroy in anything other than loose bottles and decreasingly as such. The great wines have also moved firmly into the sphere of speculation. We do not predict performance in 2019 to match 2018, where our basket below exceeded our expectations by 50%. We posited in 2016 that Romanee Conti would achieve £20,000 a bottle within five years, La Tache £5,000 and Rousseau Chambertin and Chambertin Clos de Beze £3,000. This opinion suggests further very appealing growth in 2019 and Romanee Conti and Leroy Musigny provide a continuing watermark for market prices. We predict strong growth for the other great wines of Burgundy, as collectors and speculators substitute brands and diversify further.
|Wine||Jan 18′||Nov 18′||Appreciation|
|Rousseau Clos de Beze||£1,243||£1,887||51.81%|
|Roumier Bonne Mares||£820||£1,119||36.46%|
|JF Mugnier Musigny||£1,160||£1,621||39.74%|
|DRC Romanee Conti||£12,411||£15,020||21.02%|
|DRC La Tache||£2,909||£3,582||23.14%|
|DRC Grand Echezeaux||£1,426||£1,788||25.39%|
Liv-Ex’s Super Tuscan index, the Italy 100, is a basket of the ten most recent vintages from the five ‘Super Tuscans’ and five other leading Italian producers. The Italy 100 has enjoyed positive growth in 2018. 5.21% growth has been achieved with average monthly growth of 0.43%. However, in 2018, a contraction in monthly growth has been observed. The Italy 100 has previously enjoyed growth of 0.50% and 0.72% resulting in gains of 29.74% and 85.98% respectively over five and ten-year terms. This growth has been achieved with annualised volatility of 6.80% and a CAGR of 7.15% resulting in a total gain of 183.23% since January 2004.
The 2015 vintage, among the Super-Tuscans, which released throughout 2018, presented excellent buying opportunities. Sassicaia 2015 released at £565 per case of six and has risen 50% since to £850. Tignanello 2015 rose from 16% from £345 to £400, Ornellaia 2015 25% from £600 to £750, Masseto 2015 12.7% from £1,375 to £1,550. Finally, Solaia 2015 charted new territory. It released at a large premium to previous vintages at £945 per case of six and rose to £1,325, a 40% increase. It traded as high as £1,560. The 2016 vintage is considered on par and equally as exceptional as the 2015s. As such the 2016 releases should be viewed as great buys throughout this year, making two great back-to-back vintages. Indeed, the rise in price of Bordeaux, Burgundy and Napa means the price ratio of the Super Tuscans wines to substitute brands suggests it is a good time to buy.
Napa’s Stable Performance and Greater Demand from Asia
Napa has experienced four banner years running from 2012 to 2015. The 2016 vintage is already being considered as another high-quality vintage. Interest remains high in Napa, domestically the great Estates have come under more demand and over the last five years this demand has spilled over to Europe. The Pound’s weakness against the dollar means new releases are priced at the higher FX differential. In 2018, we saw increased demand from Asia for the great names, which provides further confirmation that the love for Napa’s charm is a global affair. Performance of the big names last year, was excellent, a continuation of the last five years. As can be seen below, Screaming Eagle, Harlan Proprietary red, Dominus and Opus One saw an average return of 15.25% last year and 75% over the last five years.
|Wine||Dec 13′||Jan 18′||Nov 18′||Appreciation 1y||Appreciation 5y|
In conclusion, 2019 will present many exciting campaigns, including 2008 Champagne, 2016 Super-Tuscans along with a strong 2018 vintage in Bordeaux. It will offer excellent investment opportunities in Burgundy, Champagne, Napa and the new Super Tuscan releases, where we suggest clients continue to focus a higher percentage of their portfolio funds. Our Bordeaux analysis proposes clients take some profit from Bordeaux supplement their portfolio with regions which will outperform. Investment grade wine will continue to present port in a storm of turbulent economic times and its low correction and volatility suggesting investment grade wine to be an important part of any investment portfolio. For British based investors, the negative correlation to the weakness of the pound against the Dollar and Euro provides a natural hedge against further potential losses in the Pound. The promising growth in several areas makes 2019 an exciting year for wine investors and collectors.