At the start of the year we posited in our 2019 outlook report (which can be found here) that the regions we thought would garner the most appreciation in 2019 were Burgundy, Champagne, Napa and the Super Tuscans. As we embark into Q4, we thought this was a good opportunity to re-evaluate the climate and examine our predictions.
The Liv-Ex indices are not solely comprised of investment grade wine, they are therefor not completely representative of the investment climate. It also mean that with careful selection, it is possible to outperform the indices. Below is a rebased graph demonstrating index performance since January 2018, we will now look at investment grade wines from each region and evaluate whether the trend has been beaten.
2018 performance in Burgundy was a tough act to follow. The Burgundy 150 posted gains of 36.43% in 2018, whereas 2019 has seen a loss of 4.33%. However, it is our view that the Burgundy 150 is not representative of the Burgundy investment market as a whole. Investable Burgundy is dominated by a few producers, namely Rousseau, Roumier and Leroy. However, without doubt, the jewel in the crown is Domaine Romanee Conti. It is therefore logical to analyse their growth to gain an unobscured view of Burgundy’s performance. Since January 2018 their flagship wine DRC Romanee Conti has gained 36.10%, with the average bottle price moving from £12,411 to £16,891. This was achieved with 12.22% growth in 2019 alone. This performance obviously dwarfs that seen in the Burgundy 150. However, of the three main wines from Domaine Romanee Conti it showed the smallest growth. DRC La Tache posted 35.41% since the start of 2018 and 9.45% this year to date whereas DRC Richebourg gained 47.58% and 13.18% over the same terms. To put this in perspective, an investor who bought a three-bottle case of DRC Richebourg 20 months ago, would have been able to do so at an average price of £5,334. Today this would likely have been worth £7,143 at the start of 2019 and £7,872 today. These excellent gains are underpinned when looking at a rebased plot of DRC Romanee Conti, La Tache and Richebourg against the Burgundy 150 index over the last 20 months.
The above is testament to the health of the investment Burgundy market. We posit that this growth is building trajectory and will continue into 2020. Burgundy therefore remains a region we advise taking positions on where possible.
The growth observed in the Liv-Ex Italy 100 in 2018 has continued into 2019, making it the best performing index this year. Since January 2018, the index has posted gains of 10.45 % with 4.49% of this achieved in 2019 to date, rising from 284.55 to 297.32. in 2019, Sassicaia has been the best performer with average bottle prices moving from £178 in January to £208 in August. This equates to a 16.85% move in 2019 to date with a 29.19% move recorded since January 2018. Tignanello and Solaia have also enjoyed excellent growth over the 20-month term gaining 29.49% (10.99% in 2019) and 23.60% (11.11% in 2019) respectively. Ornellaia and Massesto, the other Super Tuscans, also had sterling years.
They followed similar patterns with a small downturn towards the end of 2018. However, 2019 saw a growth spurt from both wines gaining 9.43% and 8.81% respectively. Both also had a sterling 20-month period from the start of 2018 posting gains of 19.18% and 17.32%. The magnitude in which the Super Tuscans beat the trend of the Italy 100 can be seen in the chart below. However, it is noteworthy that Tuscany has seen two exceptional back to back vintages, the 2015 and 2016 which has certainly boosted the market over the past 24 months.
At the start of the year we projected Champagne to be among the best performing regions in 2019. This has proven correct with Champagne being the second best performing region. The Champagne 150 has risen 1.78% from 385.51 to 392.36. However, carefully selected releases from 2019 have convincingly beaten the trend. Dom Perignon 2008 released in January at £1,200 per 12 bottles and is now trading in the UK market at £1,320. An increase of 10% in under nine months. Bollinger Grand Annee 2008 has also demonstrated superb appreciation. Those who bought on release in March were able to do so at £800 per 12 bottles. The same case is now trading 20% higher at £960 less than 6 months later. Moreover examining the average prices of three of the most prestigious and investable Champagne Houses tells a similar tale. Rebasing average prices of Dom Perignon, Cristal and Krug to January 2018 demonstrate their growth. Although they do remain closer to the trend laid out by the Champagne 50 index, they have all convincingly outperformed in 2019 to date. The average bottle price of Dom Perignon, Cristal and Krug started the year at £150, £200 and £193 respectively and are currently trading at £160, £216 and £210. This equates to growth of 6.67%, 8.00% and 8.81% in 2019. These gains are impressive but the performance has been helped by the release of the 2008 vintage which is widely thought to be a modern legendary vintage. The assumption that emphasis should be placed on prestige Champagne in any investment portfolio is further strengthened when looking at the 20-month growth in the chart below.
The Bordeaux 500 index has experienced a period of flattening, as can be seen in the chart below. However, impressive gains over the same term have been observed in the five First Growths. Since January 2018, Chateau Margaux has been the best performer with gains of 18.56% on average bottle price (5.13% in 2019), superb growth can also be seen across the other First Growths across 2018-2019 and 2019 to date with gains posted of 13.36% and 6.49%, 7.39% and 5.05%, 12.71% and 5.46% and 11.81% and 4.07% from Haut Brion, Lafite, Mouton Rothschild and Latour respectively. It is noteworthy the downturn observed at the end of 2018 running through the early parts of 2019. This started the flat period seen in the Bordeaux 500 running through to today, whereas the more robust First Growths were able to kick the downturn and post growth in the months following. It is for this reason that we posit investment grade Bordeaux has now become a stock pickers market.
The top wines of the Napa Valley are relative newcomers to the investment forum, the most prominent of them being Screaming Eagle who only produced their first vintage in 1992. However, after receiving 100-point scores across the board on their debut, Napa’s status as an investment region was truly cemented. Since then it has gone from strength to strength and 2019 has been no different.
After a small lull in growth observed towards the end of 2018, the main investable wines from Napa, namely Screaming Eagle, Scarecrow, Opus One and Harlan, have enjoyed average bottle price growth of 2.66%, 5,49%, 9.45% and 7.92% respectively. They continue to be a wise inclusion in any investment portfolio.
Paying less attention to the indices and taking a more holistic view of the fine wine market shows the trend running back to the start of 2002 painting a promising picture. The plot above allows us to see the gains observed in the Liv-Ex 100 compared to traditional markets. The Liv-Ex 100 has consistently outperformed the capital appreciation seen in the FTSE 100, Nikkei 225 and Dow Jones Industrial Average.
These markets have long been considered wise investments to park funds and accrue appreciation. However, had capital been placed in the components of the Liv-Ex 100 over the same period, larger gains could have been achieved. From the plot, the only two that generated higher appreciation than fine wine was Brent Crude Oil and Gold. This is not surprising, but the erratic nature of these commodities makes them a riskier investment, as can be seen in the chart. It can therefore be concluded that of the more stable investments, fine wine has garnered the highest appreciation.
To cement the premise that fine wine can generate above average returns with a considerably lower risk profile, a Risk vs Reward plot can be found below. This is created by plotting the Annualised Compound Return against Risk (Annualised Standard Deviation). Several conclusions can be drawn from this. Namely, the lower risk profile found in fine wines is clear, the tight grouping of all the fine wine indices at the lower end of the X-axis demonstrates that fine wine consistently shows a risk factor of between 5% and 10%. Considerably lower than that found in the other markets which range from 13% (FTSE 100) to 29.9% (Brent Crude Oil). When coupled with the observed Annualised Compound Returns where the fine wine indices, aside from the Rhone 100, beat all the traditional markets aside from Gold and Brent Crude Oil in some instances, the conclusion is clear. For considerable above average returns and the lowest risk profile, fine wine investment is the best documented vehicle for steady, capital appreciation.
A final point of note is the current affairs issue coming into view. Namely the proposed introduction of a 25% tariff on various good produced in the EU by the US. The list of included goods is vast, but most relevant is the inclusion of French wine. The tariffs have been proposed for retaliation to the ongoing tensions between the EU and US over the aircraft manufacturer Airbus. Whether the tariffs come to fruition remains to be seen but there is talk of an implementation date as soon as 18th October. The ramifications on the wine industry are twofold; it will create a lessening of demand for French wines in the US whilst simultaneously propping up the US wine market as consumers look inwards for an alternative good to replace their now more expensive French bottles and perhaps invigorating demand for the wines of other EU countries, such as Italy, whose wines were curiously not included in the tariffs.
Looking solely at the Liv-Ex indices gives a warped perception of the fine wine market. When looking at the finest wines of the world, deemed worthy of investment, positive growth has been seen throughout in 2019. Our predictions from the start of the year have held with the four regions all outperforming Bordeaux. Below is a chart of the average figures of the
baskets discussed rebased to January 2018. It confirms that Burgundy, Napa, Tuscany and Champagne have all had sterling years. Whereas Bordeaux saw contraction in Q1 followed by growth in Q2 and Q3. Our outlook has been vindicated and remains unchanged, we advise greater emphasis on these four regions in any investment portfolio and although excellent growth can be found in the wines of Bordeaux, it tends to be at the apex of the region’s wines. It therefore remains a stock pickers marker for investment which we anticipate will continue for the next 12-14 months.