Overview -
It’s likely that those who have invested in fine wine over the past few years were able to enjoy some great bottles during the holiday season; 2010 was another boom year for wine investors.
Economic circumstances over the past several years have had relatively little impact on the overall value of upper-echelon fine wine. This is because during times of prosperity demand for fine wine is driven by consumption. However, during more economically adverse periods, fine wine may also be considered a safe haven thereby resulting in an inflow of capital from investors as they switch to tangible asset classes.
As a commodity, fine wine is rather unique. There is only a finite amount produced by each chateau in each vintage and great vintages get better with the passage of time. Yet, because the product is consumable, while the quality is improving the volume is simultaneously decreasing.
Over a reasonable timeframe this situation can be capitalized on as portfolios can either be partially or fully liquidated and returns are paid out. Additionally, the returns generated may be re-invested into younger vintages, with a few cases skimmed off and consumed for free, having been funded by the profits.
Fine wine investment indices have steadily outperformed the FTSE 100 over the last five years and should therefore be a leading candidate for inclusion in any portfolio as an additional investment class.
2010 Retrospective -
Two topics dominated the fine wine investment conversation over the past year - the much anticipated 2009 en primeur campaign and the effect Asia is continuing to have on fine wine prices.
To say the en primeur campaign was eagerly awaited would be an understatement. Traders, investors, collectors and drinkers alike all held their breath in anticipation. With reports declaring unprecedented quality across the board the big question was going to be what quantities would be available and at what price. Unsurprisingly, the prices were unanimously high and the first growth wines lead the charge. Price levels of the very top wines inevitably spooked many prospective investors. This forced those individuals to look elsewhere, often by seeking value lower down the hierarchy of quality. The high scoring ‘Super Seconds’ and the St Emilion Grand Cru Classe wines became areas of heavy investment activity.
One of the unexpected side effects of last year’s campaign was that back vintages of first growths suddenly started to become relatively good values, creating a situation where the en primeur campaign had the effect of pulling up the prices of older vintages. Ultimately, the market illustrated that it was still willing to absorb the high 2009 prices. The question now is, in the short term, whether the wines leading the price charge can keep up the current rate of growth and, if so, will they continue to drag the rest of the market up with them?
As predicted, the Asian market grew considerably over the last 12 months. The only aspect of the market to disappoint traders, to an extent, was the limited appetite of Asian buyers for the 2009 campaign. On the growth side, the demand for all things Chateau Lafite Rothschild has been unprecedented. This trend was illuminated by the many Hong Kong auctions that brought in stunning sales numbers. The resulting movement in this market sector has had a hugely positive effect on portfolios which include any vintage of Lafite Rothschild or Carruades de Lafite.
Investment Pick of 2010 – Chateau Lafite Rothschild, 2008 – The steady increase in value of this wine over the last 24 months highlights how comparatively undervalued the wine was at release. This growth was only bolstered by the craze created when it was announced that the Chinese symbol for the number ‘8’ would appear on the bottle. The graph below shows the performance of Lafite Rothschild 2008 vs the FTSE over the last two years.
Looking forward to 2011 -
It is hard to imagine any circumstances that would cause consumers in the emerging ‘BRIC’ economies of Brazil, Russia, India and China to reverse their burgeoning interest in historically Western lifestyle products and symbols, including fine wine. The biggest of these economies is certainly China. Whilst we currently see China as an abnormal sales market due to the complete fascination with Chateau Lafite Rothschild, we also observe an enormous appetite to learn about wine. As educational programs and opportunities expand there is no doubt that Chinese consumers will begin to appreciate other high-end wines as well.
Which top-tier wines the Chinese market eventually pursues may seem to have a somewhat random nature to Westerner observers. Partly these choices are driven by the translation of the brands into Mandarin and the symbolism of the labels. In this brand driven environment, it is likely that some of the up and coming wines are going to be estates like Chateau Leoville Las Cases (which translates to “wine of the lion”), Chateau Angelus (“golden bell”), or Chateau Beychevelle (which has a ship on the label not dissimilar to a Chinese dragon boat).
It is also interesting to note that current per capita wine consumption in China is half a litre per person per year. This compares to 55 litres in France and 18 litres in the US. In the event that Chinese consumption increases to just half of US per capita levels then the whole wine business, on a global scale, will change dramatically.
As we move fully into 2011, it appears that the popularity of Lafite Rothschild in Asia will continue unabated. Be this as it may, I predict that the other first growths will start to enjoy some of the same popularity over the coming months. Following on Lafite’s tip of the hat to the Chinese market with their 2008 bottle, Mouton made a similar move by offering their 2008 label design to Chinese artist Xu Lei. This acknowledgement of the importance of Chinese consumers will go a long way towards fostering goodwill in the marketplace and increasing demand. At this stage Mouton is still looking undervalued compared to the other first growth estates, creating an investment opportunity which could prove to be a shrewd long-term move.
Having spent considerable time with Chateau owners and winemakers in Bordeaux over the past 6 months, the word at some properties is that 2010 is reckoned to be an even better vintage than 2009. Yet, given the successes of 2009, are 100 Parker Points going to be enough to sell through the available stock of the 2010 campaign? At this point we have yet to taste the wines or get a solid feel as to whether the market still has deep enough pockets to absorb another top vintage. Although, if the rumours are true, we could be looking at another pair of successes along the lines of the famed fin de siècle vintages of 1899/1900, which would offer investors further opportunities to enhance their portfolios.
To all of our fine wine investors in 2011, here’s raising a glass to a successful coming year and many great returns.
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