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2020 Château Mouton Rothschild Label Unveiled

Painting on 2020 Mouton Rothschild label

Château Mouton Rothschild has unveiled its 2020 label by Scottish artist Peter Doig. The renowned figurative painter settled in Trinidad in 2002 and divides his time between there and Scotland. Doig is the first British artist to have been commissioned to paint this leading Bordeaux château’s label since Lucien Freud in 2006. Other famous British contributors include (formerly) Prince Charles in 2004 and Francis Bacon in 1990. 

The initiative to invite an artist to adorn the Château Mouton Rothschild bottle label with a painting first began in 1924 with the poster artist Jean Carlu. 

The 2020 label is of a dreamlike scene showing red grapes growing under the light of a full moon with workers in the vineyard. Doig has drawn parallels with other renowned artists such as van Gogh, Bacon and Cézanne who have all painted farm or vineyard workers. The main figure in the centre of the piece – Emheyo Bhabba – is one of Doig’s close connections and muses. A Trinidadian cuatro player, Emheyo has previously performed in one of the artist’s previous exhibitions in Paris using this four string guitar.

‘The painting shows something of what goes on behind the scenes in the production of wine, what happens offstage, as it were’, commented Doig. ‘It’s a sort of ode to workers, to all those involved at the various stages of making a wine before it’s finally bottled. It’s a dream with a romantic streak, as if someone spontaneously decided to sing in the vines. It’s a moment of poetry, where you can take your time. It’s neither really day nor really night, but rather something in between, between waking and sleeping. It is possible to see it as a progression, a dream journey in the world of the harvest.’

Commenting on this new label, Julien Beaumarchais de Rothschild said: ‘We wanted an artist who uses canvas and pictorial material to express figurative subjects.’ ‘Unrivalled as a colourist, Peter Doig focuses entirely on painting and has become one of his generation’s foremost exponents of the discipline, holding exhibitions all over the world. There is something very special about his technique and his universe that sets them apart in contemporary figurative art. His subjects are very varied, his painting resists any classification: he has succeeded in creating his own, inimitable world.’

Take a closer look at the 2020 label and at previous years’ here.

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Moët Hennessy’s Champagne Stocks Running Low

Bottle of Krug Grande Cuvee

Moët Hennessy’s CEO has commented that due to high demand from affluent buyers in the run up to Christmas, its Champagnes are ‘running out of stock’.

Philippe Schaus, Moët Hennessy’s CEO, spoke to Bloomberg Television and said that the French luxury company – that owns top Champagne brands including, Dom Pérignon, Krug, Moët & Chandon and Veuve Clicquot – was ‘running out of stock’ of some of its bubbly. This is mainly due to Covid rules having been relaxed and more people socialising.

‘As people are coming out of Covid there’s been pent up demand for luxury, enjoyment and travelling,’ Schaus commented.

Schaus didn’t elaborate on which Champagnes were running low, or hint at what the state-of-play is with specific brands’ stock levels.

Louis Vuitton Moët Hennessy (LVMH) shared last month that its wine and spirit divisions had delivered double-digit revenue growth in Q3 of this year. Still wines and Champagne were the best performing categories. 

The luxury conglomerate announced that sales had risen ‘sharply’ this year in Europe, the United States and Japan. The two main drivers of this growth can be attributed to international travel resuming after the pandemic, as well as ‘solid demand’ from consumers.

On the subject of the strength of the US dollar in the market, Bloomberg made the point that strong growth might simply have been because US shoppers were able to take advantage of this by buying luxury items in Europe. However, Schaus indicated that there is still uncertainty out there due to rising inflation. It’s possible that some products will go up in price due to the rising cost of raw materials. 

Find out more about Dom Pérignon’s new P2 2004 release in our recent news article.

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Hospices de Beaune 2022 Wine Auction

Exterior of the Hotel Dieu in Beaune with the sun falling on the roof's tiles

Each year since 1859, the Hospices de Beaune has taken place on the third weekend in November. It’s the world’s most famous charity wine auction that happens in the heart of Burgundy’s Côte d’Or: the town of Beaune. Christie’s auction house had organised the annual event since 2005 and it is undeniably the key occasion in any Burgundy lover’s calendar. However, it bounced back last year with a physical auction (2020 was virtual due to Coronavirus) and with a new auction house at the helm too: Sotheby’s.

The History of the Hospices de Beaune 

The Hôtel Dieu (God’s House) was built in 1443 by the Chancellor of the Duchy of Burgundy Nicolas Rolin and was originally a charitable hospital. It was founded to house sick Burgundians and help them recover there. The auction was first created in order to raise funds to support the Hospices’ benevolent works. Today, it is no longer a hospital, nor are any wines made there as a new winery was constructed in 1994. However, the funds raised from the auction continue to support those who work in the vineyards. Even those who may not be familiar with the auction might just recognise the eye-catching roof tiles of the Hôtel Dieu that shimmer in the Côte d’Or sunlight.

The 2022 Wine Auction

This year’s 162nd edition of this prestigious wine auction will take place on Sunday the 20th of November. Sotheby’s has announced that it is set to be one of the largest auctions in its history, with a total of 802 barrels from the 2022 vintage that hail from all of the 51 cuvées.

The auction will be made up of 620 barrels of red wines and 182 barrels of white wines from 60-hectares of holdings belonging to the Hospices which are in their second year of organic conversion. Two new cuvées that are included are the Corton Grand Cru, Cuvée Les Renardes and Beaune Premier Cru, Clos des Mouches, Cuvée Hugues et Louis Bétault.

Each year the auction features a special charity barrel – the Pièce des Présidents – (the Presidents’ barrel). This year, the selected charity barrel is a Corton Grand Cru, in honour of Louis Fabrice Latour, former head of Burgundy négociant Maison Louis Latour, who passed away in September. 

The proceeds from this charity lot will help support the Princesse Margot Association that helps children with cancer and the World Vision Organisation that comes to the aid of vulnerable children.

The 2021 auction, which was run by Sotheby’s for the first time, raised  €12.6 million in total, with a record €800,000 solely for the Presidents’ barrel.

Read more about this year’s Burgundy vintage here.

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Dom Pérignon Reveals the 2004 Plénitude 2

Bottle of Plenitude 2004

Dom Pérignon is launching its new 2004 Vintage Plénitude 2 (P2) Champagne this month in Hong Kong where the prestigious Champagne house has also announced its brand new member of the Hong Kong Dom Pérignon Society.

The Plénitude 2 wines represent the Champagne being ‘elevated to its second life’. With ‘close to 15 years of slow transformation in the cellars’, the wines take on a new ‘vitality’ with this extra maturation.

This launch focuses on the 2004 vintage, a year which the maison commented on as being ‘a year of renaissance and calm’. While August was cooler than normal, the weeks that superseded it brought a dry heat that allowed the vines to grow the ripest and fullest fruit.

The house has now released its tasting notes for the new 2004 expression which has some 18 years of age. On the nose, expect ‘citrusy notes of pink grapefruit and blood orange, which gently cede to figs’. There’s also plenty of brioche and roasted nuts on the palate with this new release ending with an elegant finish.

William Kelley at Wine Advocate awarded this new 2004 vintage 95 points and proclaimed that it is ‘drinking beautifully on release’.

The Dom Pérignon Society is a global network of top chefs and proponents whose main focus is on Plénitude 2. The newest member of this elite group, which comprises 64 global chefs and restaurants, is Chef Julien Tongourian who works at Hong Kong’s L’Atelier de Joël Robuchon.

Tongourian will now join his two fellow Hong Kong counterparts: Chef Maxime Gilbert of two Michelin-starred Écriture and Chef Richard Ekkebus at Amber at Landmark Mandarin Oriental which also has two Michelin stars.

To launch the 2004 Dom Pérignon P2, each of the three Dom Pérignon Society Members in Hong Kong have created a special menu to accompany this new Champagne release. Each menu will represent an interpretation of a key moment in each of the Chefs’ careers. The menus are available now at the above three Hong Kong restaurants for a limited time.

Read more news from the Champagne world in this recent article about Champagne Henriot’s merger.

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How Climate Change Affects the Value of Fine Wine

Fire in forest outside Bordeaux as viewed from the water

The greatest risk for many investors today is – undoubtedly – the climate crisis. Each year the planet warms by 0.018 degrees Celsius[1]. And the past six have been among the hottest since records began. The resulting floods, fires and changing biodiversity are impacting nearly all asset classes and investment types. By 2050, climate change is anticipated to restrict global GDP by 14%[2].

For investors in fine wine, the rising heat could signify the end of an era for some of the greatest flavours, adding further scarcity to valuable bottles. On the other hand, the changing temperatures could offer interesting opportunities elsewhere.

In this article, we’ll uncover the major threats and opportunities for fine wine investors.

Scarcity will make much-loved bottles more valuable

Vineyards across Southern Europe and wine regions of North America are facing an uphill battle trying to mitigate the effects of climate change. In August 2022, an unprecedented hailstorm tore through Châteauneuf-du-Pape vineyards in France. The 120 mile-per-hour wind destroyed up to 90% of the vines in some of the most celebrated plots. So extreme was the storm that one vineyard owner described the scene as ‘completely shredded’ and ‘not a leaf is left'[3].

On the other end of the spectrum, extreme heat waves combined with drought in the summer provoke catastrophic forest fires. While only a small number of vineyards are caught up in the blaze, the resulting smoke can disrupt the delicate flavours and quality of the wine. Smoke taint – the ashy taste that lingers – can render entire harvests useless, leaving assets stranded. Even prized and world-famous regions like Bordeaux are feeling the painful financial impact.

It seems inevitable that many of the most-loved wines will become less and less available in the future. What this means for investors is that already-rare bottles are likely to become even more scarce and sought-after. Fine wine is already a limited and depleting asset, which climate change exacerbates. What’s more, as hungry new collectors enter the market, demand could even further outstrip supply, further raising the value of fine wine.

What’s more, according to 2021 data from Knight Frank, the average fine wine investment has returned a staggering 127% over ten years. Sticking to the strategy almost always pays off.

New flavours may be hard for investors to stomach

Even for regions without droughts or forest fires, climate change can seriously impact the flavour of wine. This is because the lack of water irrigation, combined with heat waves creates more sweetness and less acidity in the grapes. To avoid the wine becoming too sweet, producers may need to harvest early, which risks missing out on characteristic and valuable secondary flavours.

Not only could iconic wines now start to lack their defining volume, but the added sweetness could mean different varieties taste more alike. For wine lovers, who may enjoy certain brands or pride themselves on detecting notes, this development could be hard to stomach. There is a serious investment risk that future bottles could lose value, compared to their ancestors.

To avoid this cultural and financial damage, some regions are now lifting regulations to allow irrigation. In August 2022, for example, the Institut National de l’Origine et de la Qualité gave special dispensation for three sites in Bordeaux to water their vines. What this means for investors is still unclear. Depending on the success of regulations and irrigation systems, future harvests may yet retain their distinctive taste and value.

Another intriguing development triggered by climate change is the renewed focus on hybrid grapes. As famed vineyards look to adapt and mitigate against extreme weather, producers are working side-by-side with scientists to create more resilient grapes. While many critics remain sceptical, hybrid grapes could help vineyards restore some of their former glory..

Exciting investment opportunities are entering the scene

There are not many silver linings to the catastrophic climate situation. However, for investors in fine wine, there is a unique and exciting opportunity to buy new varieties early. As the planet warms, new terrains are opening, in previously unthinkable places.

Incredibly, vineyards are popping up in the UK, Belgium, Norway, and Sweden. In the UK, the wine real estate market is enjoying unprecedented growth, with land selling for £25,000 per acre[4]. English land dedicated to winemaking has more than doubled in the past eight years and looks set to continue[5]. As increasing numbers of producers and investors snatch up these pockets of land, it seems likely that the British wine scene is about to mature. Sparkling wines in particular, such as those produced in Sussex are exploding in popularity, with some critics describing the taste as comparable to Champagne. As of July 2022, sales of English and Welsh wine have surged by 69% from 2019[6]. Whether this boost will translate over to the fine wine market has yet to be seen, but with the warmer climate, British bottles could prove to be an interesting investment opportunity.

Vineyards with a sustainable focus look promising

Of course, the impacts of the climate crisis go far beyond the physical weather changes. Consumers are increasingly looking at the sustainability of their products too and thinking about how their money affects the planet. According to 2022 research, 48% of US alcohol drinkers say that they’re more likely to buy bottles if they see the company has sustainable or environmental initiatives[7].

In many ways, fine wine investments are already good for the environment, which is good news for the market. And it seems that those vineyards with extra sustainable initiatives in place could be even better positioned to capitalise on this trend.

 

[1] Source: Visual Capitalist

[2] Source: SwissRe

[3] Source: Wine Spectator

[4] Source: Spears Wealth Management

[5] Source: Wine GB

[6] Source: Wine GB

[7] Source: IWSR

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News

US Buyer Acquires Bordeaux’s Château Lascombes

Exterior of Chateau Lascombes from the vineyard

The US buyer whose recent purchase of Château Lascombes – that topped the list as the most expensive acquisition in the Médoc ever – has been revealed as Lawrence Family Wine Estates.

This is the US investor’s first acquisition in Bordeaux and, indeed, its first ever purchase in Europe. The family’s existing portfolio of brands include sought-after Napa names such as Heitz Cellars, Burgess and Stony Hill Vineyard.

While the full details of the sale haven’t been disclosed, it is a strategic and important one. Château Lascombes is a leading Second Growth located in the Margaux appellation. This top estate rubs shoulders with the four other leading Margaux châteaux including, Châteaux Rauzan-Ségla, Rauzan-Gassies, Brane Cantenac and Durfort-Vivens. What sets Lascombes apart is its size: the estate is the largest in the appellation and spans just over 110 hectares with an additional 10 hectares in neighbouring Haut-Médoc.

The French press reported the acquisition as the largest sole financial transaction in the Médoc’s history. However, what is interesting from the Lawrence Family Wine Estates’ press release is that, and there is little detail, a minority stake in Château Lascombes is to continue to be held by its previous owners, Mutuelle d’Assurance du Corps de Santé Français (MACSF)

Since its foundation in the 17th Century, the estate has changed hands a number of times. Most recently, in 2001, the USA’s Colony Capital bought it for $67 million and then sold it in 2011 to MACSF for an estimated €200 million.

Commenting on its recent acquisition, Gaylon Lawrence, owner of Lawrence Family Wine Estates’, said: ‘We are honoured to become the new stewards of such a historical estate. This Château has some of the greatest vineyards in Margaux and our family looks forward to caring for Château Lascombes for many generations to come’.

Currently, Lascombes represents great value when compared to other Second Growths. Its average price on Wine Track is £689, compared to Château Cos d’Estournel at £1,580, Château Montrose at £1,300 and Château Léoville las Cases at £1,980. Could this new purchase and the recent investment in new winemaking facilities be the beginning of a change in its price point, just like the ones we’ve seen in recent years at Châteaux Figeac and Canon?

Discover the other high profile acquisitions in the world of fine wine in our recent article. 

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Insight

The DRC Ransom Plot

One of Burgundy’s most sought-out producers is Domaine de la Romanée-Conti (DRC). It was the Benedictine monks who were the first to recognise the Côte d’Or’s potential as a winegrowing area. They divided up and organised the parcels of land that produced the finest grapes. 

This piece of land was originally called ‘Le Cloux des Cinq Journaux’, then ‘Le Cros de Cloux’. After changing ownership many times after the monks tended the vines there, the plot was renamed as ‘La Romanée’ by the Croonembourg family. However, it wasn’t until 1760 that this legendary site was given its name that remains to this day. Louis-François of Bourbon – the Prince Le Conti – named it ‘Romanée-Conti’ when he purchased the 4.46 acre plot.

It is rumoured that the prince acquired the land as he discovered that his rival – Madame de Pompadour – who was also vying for the affection of the king, Louis XV, planned on buying the vineyard. The prince hired an agent to carry out his wishes and hoarded all the domaine’s wines for himself, throwing elaborate parties for his distinguished guests.

Domaine de la Romanée-Conti’s wines are some of the most eye-wateringly expensive in the world. Even having the means to purchase them doesn’t necessarily translate into being able to buy them as production levels are so low that only approximately 500 cases of La Romanée-Conti are made each year.

One villain – having discovered just how much the wines were retailing for – hatched a plan in 2010 to hold DRC’s co-owner and head winemaker, Aubert de Villaine, to ransom.

Having made detailed drawings of the vineyard and, shockingly, having poisoned two of DRC’s vines with herbicide already, the crook sent a ransom letter, addressed to Villaine. In it, they demanded €1.3 million from the estate, otherwise they would poison the remainder of the historic vines. 

It transpired that the culprit wasn’t as cunning as you’d have thought. Villaine enlisted the help of private investigators who delivered the ransom money to the specified location and a certain Jacques Soltys retrieved a parcel full of false notes and was met by police who were lying in wait.

After such an ordeal, things returned to normal at the estate. The grapes were picked, fermented and transformed into the 2010 vintage that, unsurprisingly, was proclaimed to be one of the all-time greatest years. 

Search for all of DRC’s wines and find out their performance on Wine Track. 

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3 Rules for Fine Wine Investors During Market Turbulence

Stocks on large screen

As a perfect storm of pandemics, war, inflation, climate change and unsteady politics collide, many investors are feeling the impact in their portfolios. With currencies, bonds and even equities zig-zagging downwards, it can be a stressful time.

For investors in fine wine, however, the tumultuous environment provides an opportunity not just to preserve wealth but to enhance it. In this article, we’ll uncover three essential rules to help maximise returns and avoid pitfalls.

1. Avoid emotional investing with a steadfast strategy

While most wine investors are deeply passionate about the industry, for the best returns it’s important to avoid emotions when trading.

When an asset is plunging, many investors fear that it will lose even more value unless they sell quickly. This reaction can lead to terrible investment decisions, like selling at the lowest possible prices. Likewise, when other assets are growing, many investors want to jump on the bandwagon to boost their returns. This fear and euphoria style is known as “emotional investing” and it costs investors around 3% of their returns each year[1]. During high-stress periods, like recessions or market downturns, emotional investing losses can increase to 6% or 7%[2]. Market noise and herd behaviour can ramp-up the emotional pressure exponentially.

To avoid suffering from needless losses, investors should try to stay cool when a market storm is brewing. In the words of world-leading investor, Warren Buffet, “To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.” Experts agree that the best way to do this is to create a risk-adjusted strategy, diversify and – no matter how you may be feeling that day – don’t deviate from the plan.

It can also help to remember that investments in fine wine have proved to be resilient against market shocks over the long-term. The Liv-ex Wine 1000, for example, has grown in value by 50.8% over the past five years. And since its inception in 2004, prices are up nearly five-fold.

Graph showing the Liv-Ex 1000 growing since 2004

Source: Liv-ex

What’s more, according to 2021 data from Knight Frank, the average fine wine investment has returned a staggering 127% over ten years. Sticking to the strategy almost always pays off.

2. Remember fine wine can be a useful shield in recessions

It can be easy to get caught up in the mayhem of the outside markets, especially when there is so much noise and uncertainty. But investors should remember that fine wine is an alternative asset – and so it’s unlikely to be impacted.

Alternative assets are investments which derive their returns away from the public stock markets. Many will even increase in value during recessions. For example, while stock markets tumbled during the pandemic, fine wine enjoyed significant growth. Over the past two years, the Liv-ex Fine Wine 1000 has performed exceptionally well, delivering returns of 34.9%[3].

Other alternative assets include crypto assets, private equity, private debt, derivatives, collectables and precious metals like gold. Examples of less mainstream assets include litigation finance, art, domain names, whiskey, comic books, music royalties and of course, fine wine. These investments can help shield investors’ wealth from market shocks.

At the high-end, fine wine derives its value from two key streams: intrinsic factors and a self-contained marketplace.

Intrinsic factors include things like the quality of the vineyard, year of production, storage, or label. While the self-contained market is made up of a niche group of collectors and investors. These are often extremely wealthy and passionate people, who are probably less affected by inflation or interest hike scares. It’s also a global market, rising above any one region.

One of the superpowers of fine wine is that it’s a famously recession-resistant asset. During market downturns, it can be helpful to have a few premium bottles in a wealth portfolio.

3. Take advantage of fine wine’s inflation-shielding properties

Across the world – and especially in the UK – inflation is reaching record highs. In September 2022, the Consumer Price Index (a measurement of the change in prices) hit a whopping 8.8%[4]. What this means for investors is that debt, cash, and cash-like assets will erode in value faster than normal. But that’s not all.

To slow the economy and prevent lenders from abandoning their investments, central banks usually raise interest rates too. This can have a ripple effect across the markets, sometimes causing businesses to buckle and mortgages to falter. Many of the traditional “60% equity, 40% bonds” investment portfolios may suffer from losses during these turbulent times. Fine wine, however, is different.

This is because the value of fine wine – unlike debt, equity, and even property – is not directly impacted by inflation. As a sought-after and tangible asset, fine wine retains its worth. This makes it an excellent diversifier for investors, who are looking to shield their wealth from inflation.

The fine wine market is over-brimming with potential

The fine wine market is an exciting and vibrant space. Filled with passionate investors and recession-resistant bottles, it’s over-brimming with opportunities.

If you’re interested in finding out more about how you can diversify your wealth and shield against inflation, we’d love to hear from you. We offer complimentary 30-minute consultations where you can ask questions and discover more.

 

[1] Source: Oxford Risk and Financial Times

[2] Source: Oxford Risk and Financial Times

[3] Source: Liv-ex

[4] Source: UK ONS

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Increased Global Demand for Fine Wines

Joseph Phelps bottles

Global wine sales are on the up as large retail outlets in Asia and the USA have begun purchasing a wider array of sought-after fine wines and distributing and selling them throughout their sites.

In Asia, South Korea’s Lotte Department Store has, according to local news outlets, started hiring world-class sommeliers who are buying fine wines from traditional wine regions. What’s more, its sommeliers are curating these selections to offer a point of difference to the wines usually available to buy on the domestic market. With mid-priced wines having had to make way for more premium ones, the department store chain announced that its wine sales grew over 20% in September. 

Shinsegae Property, the property arm of the Korean-based luxury company, purchased Napa’s Shafer Vineyards in February earlier this year, as well as  the nine-hectare Wildfoote Vineyard in the Stags Leap District of Napa Valley in August. Shinsegae’s aim is to supply fine wines from boutique producers to its Shinsegae Department Store.

Similarly, the Hyundai Department Store has created Vino H, with the objective of sourcing, importing and distributing premium organic wines from around the globe especially for the South Korean market. 

According to a new report created by Rabobank, it predicts that super premium wines in the USA should weather a recession. Stephen Rannekleiv – Rabobank’s global strategist for beverages – commented that while his ‘expectation is that demand for super premium brands will soften notably in Q4 and turn noticeably negative in 2023 … we believe that the long-term growth trend of super premium brands remains intact.’

Rannekleiv also highlighted that, in the USA, merger and acquisitions have been rapidly taking place and, for the most part, this is in the premium tier. Some of the recent acquisitions include LVMH buying Joseph Phelps Vineyards and Treasury Wine Estates’ purchase of Frank Family Wines. 

With the global appetite for fine wines accelerating, more and more corporations are on the lookout to purchase these highly sought-after wineries and vineyards. In the USA, it’s rumoured that the amount paid to acquire estates’ recently has been incredibly high.

Want to learn more about the growing US market? Read our United States Report to find out the top regions, producers and wines to look out for.

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How Does Fine Wine React in a Recession?

Bottles of wine in rack

It’s impossible to know how exactly any asset – including fine wine – will react in a recession. Commonly defined as two consecutive quarters of shrinking Gross Domestic Product output, recessions can have many different causes and implications for the investment markets.

Fine wine, however, has a fascinating trend when it comes to economic downturns. Its characteristics make it a uniquely recession-resistant investment.

In this article, we’ll uncover some examples, and explore how the characteristics of fine wine make it such a useful asset during turbulent times.

A track record of performing well in recessions

Throughout history, as stock markets plummet, fine wine has tended to preserve or even grow in value.

For example, during the COVID-19 pandemic, the Liv-ex Fine Wine 100 index grew in value every month from June 2020 until June 2022. As stock markets around the world tumbled and economies cascaded into recession, the value of fine wine grew over 36%[1].

We saw a similar turn of events with the 2008-09 Financial Crisis. Between August 2008 and February 2009, prices in the S&P 500 index nose-dived by 52%[2] – the largest drop since World War II[3]. By contrast, after a brief dip, the fine wine market began rallying in November 2008. The positive performance of the Liv-ex market lasted until May 2011 and returns ballooned by 70%[4].

Throughout history, analysts have noticed this fascinating correlation. Fine wine and drinkable assets in general seem to be recession-resistant. Sometimes, they even flourish in these environments. So, what makes this delicious investment so robust? Experts have identified five key properties which could help to explain this fascinating success.

Characteristic 1: Tangible asset

Tangible assets – like fine wine – tend to do well in recessions, as investors look for reassurance in “real” valuables they can hold. They can also provide an excellent hedge against inflation over time.

Precious metals like gold, for example, tend to shine out for investors when the outside markets look gloomy. Recently, we saw this during the turbulent 2020-2022 coronavirus pandemic. On the 1st of January 2020, a kilogram of gold cost investors £36,807. By the 9th of September 2020, it had rocketed to £48,151, a 31% increase[5].

Another tangible asset is property. While there have been government stimuli such as Stamp Duty cuts at play, we can still infer that people tend to veer toward physical property or “real” estate during a recession. For example, the average cost of a UK home was £247,000 in January 2020[6], by July 2022, this rose to £292,000[7].

Because fine wine is a physical asset it can be extremely reassuring for investors. What’s more, as it is a scarce asset, with each vintage diminishing over time, it usually grows in value.

Characteristic 2: Scarcity

Owning something rare has always been appealing to investors. And when the object is depleting a little more every day, it can become even more precious. Fine wine certainly falls into this category, as a limited number of bottles are produced each year and then slowly consumed.

What’s more, investors in fine wine tend to be passionate. They care deeply about what they’re buying, so unlike many antiques or other collectables, the value isn’t just theoretical. Fine wine investors are often willing to pay a premium for sought-after vintages. If the bottle is rare enough, it can even venture into hundreds of thousands of pounds at auction.

Scarcity – when demand far outstrips supply – is one of the major characteristics of fine wine. And it could be part of the reason why the asset tends to shrug off recessions. Regardless of the stock market outside, when a bottle is deeply sought-after it remains valuable. As vineyards are increasingly grappling with the logistics of climate change these bottles may become yet more scarce.

Characteristic 3: Edible asset

Edible assets such as food staples and alcohol tend to remain strong, especially in recessions. Even when consumers tighten their purse strings and steer away from luxury spending, they will still need to buy food from their local supermarket. And, when it comes to alcohol, this holds true as well. Recessions don’t stop people from drinking alcohol. Some studies even suggest that consumers ditch beer in favour of hard liquor in these tough times[8].

Fine wine is no exception. During the COVID-19 lockdown, many people were forced to create their own vacation and special occasion experiences at home, leading to a boost in fine wine sales. According to one survey cited by The Drinks Business, 73% of participants reported spending more on fine wine than at the start of the lockdown[9].

We can also see this trend in the dramatic rise of champagne sales over the COVID-19 period. Trade volumes for Magnums have particularly popped, increasing by a staggering 130% from March 2020 to June 2022[10]. This suggests that the resilience of fine wine market matches the resilience of its drinkers, people will always find a reason to celebrate … or drown their sorrows.

Characteristic 4: A self-contained market

The fine wine market is global, yet niche. In particular, the high-end rises above local and regional indices. And this could be another important factor behind its recession resistance. For example, if the FTSE-100 or S&P 500 takes a tumble, the high-end of the fine wine market shouldn’t be impacted because it is self-contained.

In an environment where so many assets and asset classes are connected to each other, this is a valuable characteristic. As the recession today thunders towards us, investors are expressing concern that traditional alternative investors are starting to behave more like mainstream assets. Cryptocurrency took a devastating blow earlier in the year, showing that in many ways it’s more sensitive and volatile than the public stock markets. And some economists are speculating that gold is also losing its sparkle as it slowly starts to mirror the wider markets.

Finding an asset with an independent self-fulfilling market is a rarity for investors and can offer exceptional diversification. Genuinely alternative asset classes are becoming harder to find.

Characteristic 5: Favourable tax

Another way that fine wine investors stay afloat during recessions is by keeping more of their returns. In the UK, for example, the drinkable asset should be exempt from Capital Gains Tax (CGT). This means that basic rate taxpayers could keep 10% more of their returns, and for higher rate payers that figure rises to 20% (after the annual exemption limit of £12,300 according to 2021/22 tax rules).

There are two main routes for fine wine investors to save on CGT. The first is if the fine wine has an expected life of fifty years or less. If so, it’s considered to be a “wasted chattel”, and is exempt. The second avenue is if the bottle is sold for less than £6,000. In this circumstance, the transaction is also outside the scope of CGT.

It’s worth noting that investors may still need to pay for storage costs, inheritance, and income tax. To find out more, download our complimentary 2022 Guide on Fine Wine Taxation. While this document is intended to be helpful, it is not advice. To find the best solution for you, speak to a tax advisor.

… Looking to get started?

If you’re interested in learning more about the benefits of investing in fine wine, we’re here to support you on your journey.

 

[1] Source: Liv-ex

[2] Source: Data from Yahoo Finance

[3] Source: Investopedia

[4] Source: Liv-ex

[5] Source: Gold price

[6] Source: ONS

[7] Source: ONS

[8] Source: Craft Brewing Business

[9] Source: The Drinks Business

[10] Source: Liv-ex