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.
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.
by Wine Owners
Posted on 2016-07-21
The past few weeks have seen significant movements and activity within the fine wine market, with the closure of the En Primeur campaigns and the devaluation of sterling kicking the market 4-5% higher.
Whether this situation lasts following the surge remains to be seen, but combined with the upward movement of the market in the preceding few months, and 21 months of increasingly solid gains in the Bordeaux market, it makes for an interesting period.
We've put together our updated set of Fine Wine Predictions for the second half of 2016, including thoughts on the impact of Brexit, tips for collectors, and analysis of buying trends in the market.
We hope you enjoy reading the report, and would love to hear from you if you have any questions, are looking for specific guidance, or want to join the conversation.
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by Wine Owners
Posted on 2014-12-17
Anticipating buying opportunities
The subdued state of the Bordeaux market offers buying opportunities, such as First Growths from 1996 and right bank wines from 1998 – superb vintages that are coming into an early stage of their long maturity phase. Because of this demand ought to pick up. 1996 in particular looks fair value following declines of 40%, with the exception of Lafite which still commands a premium.
Volatility creates buying opportunities in any market, and wine is no different. When sentiment is negative, markets will tend to overshoot as they readjust. In wine, the very greatest vintages, comprising wines that are most susceptible to high prices at release, are often those that are sold off the hardest.
One such vintage that has been sold down over the last 3 years and yet which is one of the ‘greats’ is 2005. Whether the market has yet hit bottom is hard to judge. What is sure is that 2005 is the next great vintage following 1996 and 2000 that has a huge drinking window.
2005 may have been under-rated by key critics relative to 2009/2010. The likelihood of this vintage seeing improved ratings is greater than a downside, and any broad-based re-rating of them as they start to show their true class will spur price rises. Spring 2015 could well be the turning point for this vintage.
Back vintages of right bank Bordeaux have started to pick up, with the top of the market leading the way. This may have a positive effect on the peer group of right bank, merlot-dominated top wines. Typically production volumes are much lower than the big Medoc (left bank) estates, and scarcity exerts a greater influence on market pricing of older vintages.
This is an extract of our report 2015 FINE WINE PREDICTIONS
by Wine Owners
Posted on 2014-12-15
Bordeaux re-evaluated
Bordeaux’s steady decline from its broad-based peak in the summer of 2011 has led investors to reappraise the role of red Bordeaux, and especially the First Growths within their portfolio.
Whereas before 2010/11 top red Bordeaux might have accounted for 90-95%+ of all wine investments, these days diversification is seen by many as much more important as a hedge against volatility.
Market watchers now see buying opportunities on the back of 4-5 year lows and expect the Bordeaux market to move up in the next year. This is a likely scenario in respect of Classed Growth Bordeaux from the best years and First Growths from the lesser years, barring near-term risks posed by economic and geo-political externalities.
Sentiment towards Bordeaux will improve as prices bottom out. From 2008 onwards many new participants entered a frothy market. Several have now exited (e.g. Wine Networks owned by a Korean Telco) and many of the cold-calling wine investment companies that profited from a fast-rising market have gone bust – all of which have caused price falls to accelerate as stock was dumped. This unwinding has been necessary and essential for the market to resume normal functioning.
Looking ahead, prices of back vintages will start to firm up as channel inventories need to be refilled and as consumer confidence slowly rebuilds. Calling the bottom of a market is notoriously problematic, but back vintages are looking more interesting, right now, than at any time in the last 5 years.
Futures market in the balance
The new Bordeaux release of the 2013 vintage was the damp squib that everyone predicted and confirmed that the en primeur (futures) market is moribund.
Looking forward, 2014 is promised as a good to excellent vintage that would normally see prices rise. This time around it will need to be different: a moment of truth for the en primeur system.
As long as top wines are favourably priced at a discount to 2013 releases, en primeur may spring back into life, and the rest of the secondary market will be given further impetus. To this end a strong dollar will help.
The question is whether Chateaux still value the role the consumer plays as stockholder or whether that role is being taken for granted. There are only two reasons to buy young wine before it is bottled: either because it will be difficult to find in the future or because it’s better value to buy early. For Medocs and Graves, scarcity isn’t an issue, so it has to be much cheaper than when it is available in bottle for consumers to buy en primeur.
This is an extract of our report 2015 FINE WINE PREDICTIONS
