Author: Desislava Lyapova

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Champagne’s financial bubbles: rising costs spark concerns over affordability

Champagne
Champagne
  • Rising production costs and inflationary pressures in Champagne have raised concerns around its accessibility and its appeal to consumers.
  • Higher interest rates pose challenges for financing grape supplies, potentially eroding profit margins for smaller Champagne producers.
  • Champagne’s investment market has also been undergoing a similar shift, which has diminished its relative affordability compared to other fine wine regions.

Champagne has experienced a period of remarkable success, with a new record turnover set for the region in 2022, The Drinks Business highlighted in an article this week. However, leading figures in the region have noted that inflationary pressures and rising production costs could potentially make Champagne too expensive. This is a particular concern at the lower end of the market where fixed costs make up a larger proportion of the value of the wine and the need to keep prices affordable is more pronounced. But prices have come under pressure in the secondary market too, which has shifted its dynamics.

Champagne’s rising costs spark concerns among smaller producers

The escalating prices of grapes, along with increasing costs of labour, energy, packaging materials, and glass, have placed significant financial pressures on some Champagne houses. According to the article, the price of grapes from the 2022 harvest rose by as much as 10% compared to the much smaller 2021 vintage.

Rising interest rates, which were sitting below 1% two years ago and have now reached 3% and higher, have added extra pressure on financing grape supplies, potentially eroding profit margins of smaller producers. Meanwhile, various packaging materials, including paper, foils, cases, and glass, are up by around 40%.

The rising production costs may lead to further price increases for Champagne. This situation raises concerns around Champagne’s accessibility and its appeal to consumers. Some producers fear that higher prices could deter customers and potentially drive them towards alternative sparkling wines.

The shifting dynamics of Champagne’s investment market

The dynamics of Champagne’s secondary market have also been undergoing a clear shift. Previously, everything seemed to work in Champagne’s favour: abundant stock, strong distribution, consistent demand, and relative value compared to other fine wines.

Speculators have taken advantage of Champagne’s strengths, fuelled by a string of excellent vintages that increased demand. This has altered the traditional rules of the Champagne market, as speculators often hold onto their stock without consuming it, resulting in potential oversupply. The sustainability of rising prices in the face of a potential stock overhang can present a challenge.

Meanwhile, the rising price of Champagne has diminished its relative price advantage compared to other fine wine regions. Previously considered an affordable entry point into the world of fine wine, Champagne’s average prices now rival those of Bordeaux. For instance, the average case price of Krug Vintage Brut (£5,001) is higher than that of the First Growth Château Haut-Brion (£4,802).

Champagne vs Bordeaux

*Over the last five years, Champagne prices are up 76.8%, compared to 15.3% for Bordeaux. Champagne experienced stellar price performance between mid-2021 and the end of last year. Year-to-date, its index is down 9.1%.

Some producers have also displayed an ambition to raise prices. Notable brands, such as Philipponnat’s Clos des Goisses and Lanson’s Le Clos Lanson, have joined La Place de Bordeaux, signaling their intent to push their brands. Last year, François Pinault’s Artemis Group acquired a majority stake in Champagne Jacquesson. While this highlighted Champagne’s investment potential, it also indicated a departure from offering wines at entry-level prices.

All of this presents a complex landscape for Champagne’s future pricing and market positioning; particularly, for smaller more affordable producers, less able to spreads costs over multiple products and absorb the rising costs. Is the era of affordable Champagne over?

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Bonds vs fine wine: what should you invest in?

  • Both bonds and fine wine can help to mitigate short-term risk in a portfolio.
  • After ten years the average bond delivers a 15% return, while fine wine – 78%.
  • Fine wine is an inflation-resistant asset, unlike bonds.
  • Bonds are generally much more liquid than fine wine.

Bonds are one of the most popular ways to invest. For decades, investment managers would opt for a strategy known as “60/40”, where 60% of the portfolio was allocated to equity and 40% to debt instruments. The idea was that the riskier equity (stocks and shares) would shield against inflation while helping to generate returns. By contrast, the more stable debt instruments (bonds and credit) would ground the portfolio and prevent it from plummeting during market downturns.

However, a lot has changed since then. Today, many experts comment that the 60/40 rule no longer applies. Instead, investors need to diversify much more to achieve more market stability. And they need to go further afield – into alternative assets – to find true inflation resistance.

In this article, we’ll compare the risk, value drivers, return, liquidity, and inflation characteristics between bonds and fine wine.

Both wine and bonds can mitigate short-term risk

Bonds come with many different risk levels. Some borrowers – like fledgling start-ups – are extremely likely to default. While there are others – like the governments of developed nations or blue-chip companies – that are almost definitely going to meet the repayments.

Occasionally investment managers will opt for extremely risky debt – known as a High Yield Bond strategy. But generally, most will allocate a greater portion of the portfolio to low-risk bonds, which tend to be rated AAA or Aaa by specialist agencies. This is usually to anchor the portfolio and help bring in stable fixed income.

Like bonds, fine wine is also generally a low-risk investment. Because the value is intrinsic, it is unlikely to plummet overnight. After all, fine wine will always be valuable. No matter what’s going on in the stock market, somebody will almost always want to buy it.

Investment managers will often add a small allocation to fine wine to help preserve wealth and mitigate risk. We have noticed that the wealthier the client, the higher the proportion tends to be. So, ultra-high net worth (UHNW) individuals and family offices generally have more fine wine in their portfolios.

The sources of value are different

While AAA bonds and fine wine may have similar risk levels, their revenue sources couldn’t be more different.

Investors make money from debt instruments like bonds by collecting the repayments from the initial sum, plus interest (the extra interest is known as “coupons”). With bonds, investors get regular revenue, which is why the asset falls under the category of “fixed income”. The repayments and coupons are usually paid quarterly.

By contrast, fine wine investors generally need to wait until they have sold the cask or bottle before they can access any returns. However, the returns are usually much more lucrative than bonds.

Wine has a stronger return profile

The average annual return of a bond is 1.6%. Usually, bonds will last for longer than a year though. Short-term bonds are around three years, mid-term is about five years and long-term is anything over a decade. Over ten years, investors gain an average of 15% returns. This means that if you invested £1,000, you could expect to get around £1,150 back.

One of the useful things about a bond is that investors should be able to clearly know how much they will get in advance. This is because the repayment terms and interest are already agreed upon, it does not depend on the ebbs and flows of market sentiment.

Like bonds, fine wine can also take some time to realise its return potential. But, on average, it’s much more profitable for investors than bonds. Figures from the Liv-ex 1000 index show that the average bottle of fine wine already brings returns of 23% after two years. After five years, that increases to 34%, and after ten to 78%. So, if you had invested £1,000, you could expect to get back £1,780%.

Liv-ex Fine Wine 1000 ten years

You can follow how specific bottles have performed over the past decade with Wine Track.

Bonds are more liquid than fine wine

There are two main ways to invest in bonds. You can buy them on the primary market and lend money directly to borrowers, or you can trade bonds on the secondary market. In the secondary market, the new buyer will then own the debt and pick up the repayments. This makes bonds quite liquid, meaning they are fairly easy to sell and turn into cash if you suddenly need the money. For publicly traded loans (rather than private debt) you should usually be able to sell a bond and expect the money in your bank account within a week.

Fine wine investors also have a primary and secondary market, but the process of trading is not usually so quick. For the best results, investors should wait until the wine matures before selling. But this can mean that the money is locked-up for months or years at a time. Some vintages, for example, can take upwards of twenty years to peak. If you sell early, you could miss out on valuable returns.

Before investing in wine, always consider your liquidity needs. It can be helpful to add-in some cash or cash-like investments into your portfolio in case you need to access funds quickly.

Fine wine is more inflation-resistant than bonds

Inflation occurs when the value of money decreases. Usually, this is because a central bank (like the Bank of England) prints more money to help the economy overcome a crisis, known as Quantitative Easing. While this measure may help to prevent a recession, sooner or later it usually needs to be reversed. When the economy is red hot, central banks normally need to hike up the interest rates to cool things down again. This can be painful for debt investors, and especially those holding long-term bonds.

Imagine that in 2019, you bought a ten-year bond to lend £1,000. At this time, the bank rate was set at 0.75%. Today (in 2023), you would still have six years left on your bond, but the bank rate has soared to 4.5%. The borrower will still be paying you the rate that was agreed in 2019. You could be paying more for your own mortgage or credit card than you’re getting back from your investment.

What’s more, the initial sum is becoming worth less by the day as high inflation of 8.7% grips the economy. If the inflation continues, by the time the bond is repaid, that £1,000 is the real value equivalent of just £740.55 today.

The downside of investing in bonds is that they don’t really protect you from inflation, especially over the long term.

Fine wine, on the other hand, is a good example of an inflation-resistant asset. Over the years, the value of precious bottles tends to keep up or even outpace Quantitative Easing.

There are many reasons for this. First and foremost, it is a physical asset like property and art, which acts like a wealth store. It is rare and depleting. Furthermore, the passionate and global market usually keeps prices at a healthy level.

The best approach is probably a mix of investments

As Nobel-prize laureate Harry Markowitz famously quipped, “Diversification is the only free lunch in finance”. This philosophy marks the cornerstone of modern portfolio theory. The idea is that you should invest in as many different revenue sources as possible to mitigate against risk. This means that for most portfolios there should be a blend of equity, debt (like bonds), alternative investments (like fine wine), real estate and some cash. Usually, the allocation to cash is about 5%.

Both bonds and fine wine have different investment characteristics. The trick is to use them in the most beneficial way to investors. For example, if you’re looking to grow your wealth over the long-term, fine wine is probably a better option. However, if you’re looking to generate regular income, investing in bonds could be a better bet.

There are interesting examples of bonds and fine wine working together within retirement portfolios. Fine wine is increasingly used as a growth generator to boost the investor’s wealth at the start of their pension journey. Meanwhile, bonds normally provide stable and regular income after the investor retires.

 

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

 

 

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Investment opportunities in back vintage Bordeaux

Investment in Bordeaux
  • Back vintages can often offer better investment prospects than new releases.
  • Looking at Bordeaux 2022 so far, the wines have been offered at a 16% premium on last year on average; some as high as 40%.
  • Prices for physical Bordeaux have declined since the start of the campaign, making older vintages even more affordable.

With the annual En Primeur campaign in full swing, many consider the investment opportunities in Bordeaux futures. What has become clearer in recent years, however, is that back vintages can often offer better prospects than the new releases.

For many châteaux, En Primeur is no longer the cheapest time to buy a bottle, with older vintages available in the market for less. This goes against the original premise of buying futures, which was an opportunity to acquire the wines at the lowest price possible.

Price and score inflation

Although Bordeaux has experienced improvements in quality, a trend evident in critic scores inflation, the price increases have been even more noticeable.

Looking at Bordeaux 2022 so far, the wines have been offered at a 15.6% premium on last year on average; some as high as 40%. For instance, Château Rauzan Segla was released with a 40.3% increase and Château Beau-Séjour Bécot – up 37.2%.

Château Climens, which did not produce wine in 2017, 2018 and 2021 due to weather challenges, launched its 2022 with a 139.4% increase on the 2016. As a result, back vintages like 2007, 2010 and 2011 enjoyed heightened demand, which in turn pushed prices. Château Climens has become one of the best-performing Bordeaux brands so far this year, according to Wine Track, rising 39%.

Prices for physical Bordeaux decline

Not all releases have enhanced a brand’s value. Since the start of the campaign, prices for physically available Bordeaux wines have declined 1.3% on average, according to the Liv-ex Bordeaux 500 index.

This is making back vintages look especially good value, in the context of rising En Primeur prices.

Take for instance one of the most recent releases, Château Lynch-Bages 2022, which was offered at £1,280 per 12×75, up 20.8% on last year. The 2022 surpasses the price of any vintage younger than 2010. The 2019 and 2016 look particularly good value, with higher critic scores and lower prices.

Lynch-Bages

Buyers will find opportunities in old vintage Bordeaux, such as 1995 and 1996, as well as the most recent years – 2021, 2020, 2019 and 2018. The recent trilogy of greats (2018-2020) offers plenty of options, with comparable quality to the new releases and lower prices.

For instance, the average Neal Martin score for the 2022 vintage is 94.8; in comparison, his 2019 is 95.2 and 2020 – 95.1.

The campaign’s successes

As discussed in a recent article, there have been some successful En Primeur releases such as Cheval Blanc, Beychevelle, and most recently, Les Carmes Haut-Brion. These wines were offered higher than last year but still represented an attractive point of entry into the brand, and immediately enjoyed demand.

Carmes Haut-Brion

Les Carmes Haut-Brion has become a collector’s favourite as quality has improved. Until 2010, 93-points was the highest score the wine had received. The newest release achieved 98-100 points from Antonio Galloni (Vinous) and 99-100 from Yohan Castaing (Wine Advocate). Neal Martin also credited it ‘as the best Carmes the new owners have overseen’. Its average score was higher than the more expensive Ausone, Haut-Brion, Lafite Rothschild, Margaux, Mission Haut-Brion and Le Pin.

At a quarter of the price of a First Growth, and half the price of wines like Léoville-Las Cases and Palmer, the wine has demonstrated considerable potential for continued appreciation. This has been reflected in the performance of its index, which has risen 41% over the last five years, making it one of the best-performing Bordeaux properties.

The successful 2022 releases have taken into consideration existing demand for the brand, vintage quality and, most importantly, offered value compared to back vintages.

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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The pairing of old wine and new markets: demographic shifts and emerging trends

A version of this article by WineCap’s CEO Alexander Westgarth was first published in Forbes.

  • The wine investment landscape has evolved significantly, with younger, international buyers increasingly shaping the market.
  • Growing global demand has made the market more liquid, transparent and efficient.
  • New investors are exploring assets beyond traditional stocks and bonds such as wine and other collectibles.

The image of the traditional wine investor is changing. Gone are the days of gentlemen with monocles and fur coats. Today, the reality of who purchases fine wine may surprise you.

In this article, we explore the changing demographics of wine buyers and highlight modern investment trends for wealth managers looking to incorporate wine into their portfolios.

Shifting demographics: younger generations enter the market

The average wine buyer has become considerably younger in recent years. Jamie Ritchie, Head of Wine at Sotheby’s Auction House, said that in the 1990s the average wine buyer was 65. However, according to a 2021 report, only 7% of wine buyers are now over 60, while 37% are under 40. Nearly 270 millennials and Gen Zs placed the winning bid for Sotheby’s finest wines and spirits.

This shift is particularly relevant for wealth managers, as fine wine aligns well with younger investors who have long-term investment horizons. Most fine wines have potential for ageing – a good Bordeaux, for instance, can be cellared for 50+ years. This can add stability to an investment portfolio. Over the past two decades, the average price of fine wine has risen 380%, suggesting a potential for continued growth as demand increases and supply diminishes.

The liquidity challenges of wine investment

While investing in fine wine offers long-term benefits, one should not ignore the liquidity aspect. Younger investors may require quicker access to funds, which poses a challenge as wine can take time to trade. Selling wine investments prematurely may result in missing out on substantial profits. Wealth managers should, therefore, consider diversifying portfolios by combining fine wine with other liquid assets, such as cash-like securities, blue-chip stocks, and bonds. Striking the right balance between illiquid and liquid investments is key to maximising returns.

Global appeal

The international appeal of wine has grown significantly over the past two decades. According to Sotheby’s Wine & Spirits Market Report 2021 referenced earlier, North American bidders have been drawn to the market to make up nearly half of Sotheby’s new buyers.

This could be partly attributed to the power of currency. On the first day of 2021, 1 pound was worth $1.37. But by mid-December, it had zigzagged down to $1.32. As the green bills swelled in purchasing power, fine wine (usually denominated in sterling) grew increasingly tempting to U.S. investors. Today sterling continues to weaken against the dollar. As of June 7th 2023, 1 pound costs $1.24.

Additionally, Asian buyers now make up 52% of wine sales at Sotheby’s, with American investors representing 18%, and Europe (primarily split between the UK and France) accounting for the remaining 30%.

Growing global demand for wine offers some serious advantages for existing investors. As well as bringing in more potential buyers, the value of fine wine tends to rise above regional shocks. As the market base grows, the market becomes more liquid and efficient, improving price transparency.

A thirst for inflation-hedging and nostalgia

Historically, fine wine has been difficult to access. Investors needed to be deeply entrenched in elusive private markets. Owning an investment portfolio at all was generally reserved for the wealthy few.

But today, spurred by a boost in financial literacy and digital investment platforms, new groups are entering. Alongside wine, today’s digital investors are adding cultural timepieces like iconic shoes, sweaters, watches and even Legos to their portfolios. This could be partly due to nostalgia but it could also be the result of an astute investment strategy.

Historical data shows impressive returns for collectibles, with sneakers generating over 2,000% returns and Swatch timepieces delivering over 7,000%. One in-depth study found that from 1987 to 2015, Lego collectibles delivered returns of at least 11%.

Considering the anticipated high interest rates, low growth, and volatility of 2023, physical assets can serve as a hedge against inflation. While certain collectibles may be speculative, wine and art have demonstrated a history of hedging against economic downturns.

Leveraging online investment platforms and adapting to investor preferences

Wealth managers can leverage online investment platforms to access performance data, bid-ask spreads, and forecasts. They can also purchase wine directly and handle everything from storage to auctions digitally.

As the investor landscape changes, wealth managers should explore assets beyond traditional stocks and bonds. Incorporating alternative investments, such as wine, can help diversify and enhance portfolio performance. Furthermore, incorporating passion assets that resonate with younger investors, such as sustainability-focused investments and items reflecting their values, can strengthen client relationships and attract the next generation of investors.

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Joseph Drouhin expands vineyard holdings to meet rising Burgundy demand

Joseph Drouhin
  • Joseph Drouhin has acquired two properties, Château de Chasselas in Saint-Véran and Rapet in Saint-Romain.
  • The expansion comes as both producers and buyers seek to find stock and value in an increasingly competitive market for Burgundy.
  • Drouhin has been a brand on the move, with some of its wines rising near 40% in value in the last year.

Joseph Drouhin expands its vineyard holdings 

Rising demand for Burgundy has fueled winery purchases and new investments. One of the most prominent producers, Maison Joseph Drouhin, has expanded its vineyard holdings with the recent acquisition of Château de Chasselas in Saint-Véran and Rapet in Saint-Romain.

Frédéric Drouhin, president of the Maison, explained that this decision was driven by increased competition and challenges in acquiring vineyards and purchasing grapes. The purchase focuses on high-quality yet more affordable areas in Burgundy – outside the main Côte d’Or villages, as both producers and buyers seek to find value in a region that has experienced significant price increases in recent years.

Just in the last five years, Burgundy fine wine prices have risen 75.7% – more than seven times the prices of the Bordeaux First Growths.

Burgundy vs Bordeaux prices

The insatiable demand and investment interest in the region have also impacted the cost of land, creating something of a vicious circle. 

The price of the latest Drouhin purchase was not disclosed.

The estates

Château de Chasselas encompasses 17.3 acres and is already a major supplier of Drouhin’s Saint-Véran wine. The property also includes small parcels in Chasselas and Beaujolais. The Rapet estate spans 19.8 acres and includes both Pinot Noir and Chardonnay vineyards in Saint-Romain, as well as small parcels in Auxey-Duresses, Pommard, and Meursault.

The debut vintage of Drouhin’s Saint-Romain wine is the 2022, while the first bottling of Saint-Véran Château de Chasselas will be the 2023 vintage, which will be released in 2024. All the newly acquired vineyards are being transitioned to organic farming practices.

With these acquisitions, Maison Joseph Drouhin owns close to 250 acres of vineyards, spanning from Chablis to Mâcon and encompassing 60 appellations. Their portfolio includes 14 Grands Crus and 20 Premier Crus. 

Drouhin’s place in Burgundy’s secondary market

Joseph Drouhin has been a Burgundy brand on the move. The brand jumped 142 places in the 2022 Power 100 rankings, thanks to its price performance. 

Four wines from the estate also ranked in the first tier of the 2021 Liv-ex Classification, which ranks the wines of the world solely by price: Montrachet Grand Cru Marquis de Laguiche, Musigny Grand Cru, Chambertin-Clos de Bèze Grand Cru, and Chambolle-Musigny Premier Cru Les Amoureuses.

The best performing Drouhin wines

In the last year alone, the best performing Joseph Drouhin wines have risen between 13% and 39%, outperforming the Burgundy 150 index. 

The biggest riser has been their Beaune Premier Cru Le Clos des Mouches Rouge, which has an average price of £1,403 per case.

You can now explore the historic performance of these wines on Wine Track. Our tool provides a clear overview of a fine wine’s track record, including critic scores, average price and investment returns. 

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

 

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The role of technology in fine wine investment: From blockchain to AI

tech and wine
  • Technology has revolutionised various aspects of the wine trade, from ensuring provenance to streamlining valuations.
  • From blockchain to AI and data analytics, these advancements can improve transparency and efficiency.
  • Wine investment tools like Wine Track help investors spot opportunities and discover relative value.

In the rapidly evolving landscape of fine wine investment, technology has emerged as a transformative force, revolutionising various aspects of the industry. From verifying provenance to streamlining valuation processes, advancements such as blockchain and artificial intelligence (AI) have played a crucial role.

This article explores the impact of technology on fine wine investment, delving into blockchain-based provenance verification, AI-driven wine valuation, and digital marketplaces that are shaping the industry’s future.

Blockchain-based provenance verification

One of the significant challenges in the fine wine market is verifying the authenticity and provenance of bottles. Counterfeit wines can undermine investor confidence and erode market trust.

However, blockchain technology has emerged as a powerful tool to address this issue. By creating a decentralised and immutable ledger, blockchain allows for the transparent recording of a wine’s journey from vineyard to consumer.

Each transaction and transfer of ownership can be documented, ensuring a reliable and verifiable record of a wine’s provenance. This technology provides investors with greater confidence in the authenticity and quality of their investments.

However, applying blockchain to tangible assets like wine has some complexities. Unlike virtual transactions, the wine trade involves physical goods with unique characteristics and specific storage requirements. Bottles can be removed from cases, stored improperly, and tax status may vary, posing challenges for a fully distributed ledger system. Despite the existing challenges, blockchain holds significant potential in creating a more secure and trustworthy wine trade ecosystem.

AI-driven wine valuation

Accurate and reliable wine valuation is essential for investors seeking to make informed decisions. AI-powered tools and algorithms are transforming the wine valuation process, leveraging vast amounts of data to generate precise and timely assessments.

By analyzing factors such as vintage, producer, critic ratings, market trends, and historical sales data, AI algorithms can provide sophisticated valuation models. These models offer investors insights into the potential appreciation or depreciation of specific wines, enabling more informed investment strategies.

Digital marketplaces

Digital marketplaces have disrupted traditional fine wine trading by providing a platform that connects buyers and sellers in a transparent and efficient manner. These platforms leverage technology to facilitate secure transactions, streamline logistics, and expand the reach of the market.

Online marketplaces allow investors to access a global network of fine wines, enabling diversification and providing a more extensive selection to choose from. Additionally, these platforms often offer tools for researching wines, comparing prices, and tracking market trends, empowering investors with valuable information to make informed investment decisions.

Fine wine investment tools

One free tool that helps investors is Wine Track. Wine Track is a comprehensive fine wine index that enables investors to identify investment grade wines, spot trends and wine investment opportunities.

The tool uses daily wine price data from multiple sources, tracking over 75,000 investment grade wines. It indexes the prices of multiple vintages of a given wine, and aggregates critics’ scores, to provide a clear overview of a wine’s investment track record.

The tool also highlights the best and worst performing wines over different time periods, and includes a ‘price per point’, which is a clear indicator of relative value to help investing in wine.

Wine Track

Data analytics for market insights

Data analytics has become crucial in fine wine investment, offering investors valuable insights into market trends and patterns. By analyzing vast amounts of data from multiple sources, including auction results, critic ratings, and global demand patterns, investors can gain a deeper understanding of market dynamics.

Data-driven insights enable investors to identify emerging investment opportunities, track the performance of specific wines or regions, and make informed decisions based on historical market trends.

Technology has significantly influenced the landscape of fine wine investment, providing investors with enhanced transparency, efficiency, and analytical capabilities. Digital traceability ensures wines reach the right hands, while AI-driven wine valuation leverages data analytics to generate accurate and timely assessments, guiding investment decisions. As the wine trade continues to adapt the latest technology, investors will be able to navigate the market with greater efficiency and confidence.

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Moët Hennessy’s new organic certifications reflect a growing trend in the wine industry

Terrazas de Los Andes
  • Moët Hennessy has achieved new organic certifications for three estates, highlighting their commitment to sustainability and soil health initiatives.
  • The wine industry has seen a rise in organic wineries as more producers adopt sustainable practices to promote soil health, biodiversity, and natural pest control.
  • This is not only beneficial for the environment but presents an opportunity for ESG investors.

Moët Hennessy achieves new organic certifications

Moët Hennessy has achieved new organic certifications for three of its estates as part of its sustainability initiative called ‘Living Soils Living Together’, the drinks business reported.

One of the accreditations was granted to Château Galoupet in Provence, recognising its commitment to soil regeneration and soil health initiatives.

Additionally, two wine estates in Argentina, Chandon Argentina and Terrazas de Los Andes, were awarded the Regenerative Organic Certified (ROC) status by the non-profit organization Regenerative Organic Alliance.

In line with the program, Moët Hennessy had previously committed to ceasing the use of herbicides in its Champagne vineyards.

The rise of organic wineries

Moët Hennessy is not alone in its pursuit of a greener future. There has been a noticeable increase in the number of wineries adopting organic practices in recent years. The organic wine movement has gained significant momentum as consumers and wine investors have become more conscious about sustainable and environmentally friendly products.

Wineries are transitioning to organic farming methods to reduce their use of synthetic chemicals, pesticides, and herbicides in grape cultivation. Such practices focus on promoting soil health, biodiversity, and natural pest control, resulting in healthier vineyards and potentially higher quality grapes.

Renowned organic producers

Some of the most renowned organic producers include Burgundy’s Domaine Leflaive, and the Bordeaux Fifth Growth estate, Château Pontet-Canet.

While not officially certified, Burgundy’s Domaine de la Romanée-Conti also adheres to organic and biodynamic principles in its vineyard management and produces some of the most sought-after wines in the world.

A sustainable investment asset

The increasing adoption of organic and sustainable practices by wineries is not only beneficial for the environment but also presents an opportunity for wine investors. The influence of Environmental, Social and Governance (ESG) factors over investment portfolios has grown dramatically in recent years.

Indeed, fine wine can be considered an ESG investment for the following reasons:

  1. Vineyards are a carbon sink. A rugby-pitched-sized area of vineyard soaks up a respectable 2.84 tonnes of carbon every year.
  2. Soil quality can be enhanced through fine wine. Soil degradation is hot on the radar for concerned environmentalists.
  3. Organic wine production supports pollinators. Organic or pesticide-free vineyards – often one of the hallmarks of fine wine – helps bees and other pollinators get back on track.
  4. Fine wine is fighting back against single-use plastic. Unlike disposable plastic, fine wine glass bottles are something to be treasured.
  5. Vineyards help fill rocky terrain and hills with plants. The higher altitude acts as a natural pesticide, making it much easier to create organic wines.

The combination of sustainable practices and investment potential makes the growing trend of organic wineries a positive development in the wine industry.

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Diversifying retirement portfolios: Why pension fund managers are turning to fine wine

pension funds
  • Pension funds have increased investment in alternative assets like fine wine by 25% over the past two decades.
  • Fine wine provides stability and intrinsic value for pension planners, as it is unaffected by geopolitical events or high inflation levels.
  • Fine wine has delivered impressive returns of 40.3% over the past five years, making it an ideal asset for retirement planning and diversification.

Change is in the air. As both the bond and equity markets get shaken by turbulence, pension fund managers are increasingly turning to alternative assets, to hedge against economic shocks. According to one report, pension funds around the world have increased their exposure by 25% over the past two decades. The New York Teachers Retirement System, for example, is plunging a whooping 35% of money into alternative investments.

Private equity, property, hedge funds and commodities are among the most enduring alternative assets. However, little by little, institutional investors are dipping into collectibles like fine wine too. One of Canada’s mightiest pension funds, The Public Sector Pension Investment Board, recently acquired 35 iconic vineyards. Goldman Sachs has also been investing heavily in wineries, with a focus on medium and longer-term returns.

In this article, we’ll unveil what’s making wine so appealing to managers today, and how investors could use this unique asset to bolster their own retirement funds.

Fine wine’s intrinsic value is reassuring for pension planners

Unlike most other investments, wine’s world-famous flavors are not impacted by geo-political events or high inflation levels. Instead, they are affected by storage and temperature.

This gives investors – including fund managers – a welcome sense of reassurance. While they may have no control over the stock market, they can ensure that the wine is well cared for.

Over the decades, retirement planners can rest assured that their wealth is not subject to the twists and turns of the stock market. Instead, it comes from the intrinsic value and exquisite quality within the bottle. This can help to mitigate risk and offer valuable diversification.

Investors can find a bottle to match their retirement timeframe

One of the greatest appeals of fine wine is how it improves over time. Naturally, it’s an asset that complements decades-long investment strategies, like retirement plans.

As our CEO, Alex Westgarth, recently commented for Forbes, ‘Fine wine pairs well with younger investors with long-term horizons. A good Bordeaux, for example, can age up to 50 years. This can add a certain stability to your portfolios’.

An excellent wine will always be in high demand as it reaches maturity. And there will almost always be a passionate buyer willing to pay premium prices.

A great advantage for pension planners is that they can probably find a bottle on the market to match their retirement timeframe. While some wines might be best opened in fifty years, others may need just five. Finding the right wine for your unique timeframe can help you to hedge against market losses and meet your investment goals.

With time, premium bottles become rarer

As poet, playwright and novelist, Johann Wolfgang von Goethe famously quipped, ‘Life is too short to drink bad wine’. Ultimately, the asset is made to be enjoyed. People open investment grade wine to celebrate occasions or present as gifts. And, with time, certain vintages will become harder and harder to find.

When demand outstrips supply, prices increase. That’s another reason why long-term investments in wine can be a sensible alternative asset for pension planning.

As the climate crisis continues to impact vineyards, the scarcity factor is likely to further increase prices. The delicate and unique flavors in already-bottled wine could be the last of their kind within just a few years. This will further reduce supply.

Meanwhile, demand is growing by the day. The past decades have seen an impressive rise in Millennial and Gen-Z buyers. Sotheby’s have even noticed the average purveyor’s age shrink from over 60 to under 40.

What’s more, the vast surge of digital advancements are also bringing in new generations and groups of wine buyers.

If demand continues to grow, the tightening supply should lead to a continued increase in value.

Fine wine has an impressive record of beating inflation

There are several reasons why most pension funds begin by investing in equities. It’s partly because managers can afford to take on more risk with longer timeframes. But it’s also to avoid the devastating effects of inflation. Unlike cash, bonds or other debt instruments, equity is generally more inflation-resistant.

Fortunately, fine wine shares this same inflation-resisting quality. This could make it a strong contender for a pension investment plan.

Fine wine has a history of beating inflation. Since 2021, for example, while the UK has endured inflation rates of over 10%, the Liv-ex 1000 index has risen 33%.

During the middle and final investment years – when the pension pot is most at risk of inflation erosion – a healthy allocation to wine could help mitigate the risk.

Fine wine has a history of strong returns

Over the past five years, the fine wine has delivered returns of 40.3%, according to the Liv-ex 1000 index. What’s more, despite the incredibly erratic market, overall performance has been smooth and steady.

This makes fine wine a strong contender retirement planning. Fine wine has both growth and value characteristics, making it well suited for most pension plans.

How can fine wine be incorporated into a pension?

Usually the best way to add wine into private pensions – like workplace and Self-Invested Private Pensions (SIPPs) – is to speak to a financial advisor. This is because they can help you structure the fund in the most tax-efficient way.

When it comes to taxes, fine wine already has a head start. Fine wine is exempt from Capital Gains Tax. Because of this, your advisor may prefer to leave it out of a SIPP altogether and use the tax perks on other assets instead. But probably they would seek to allocate a proportion of fine wine into your overall retirement plan as a hedging asset or long-term growth generator. As an inflation-resistant and illiquid asset, wine generally lends itself to retirement planning well.

If you’d like to find out more about which wines could best suit your pension goals, we’d love to talk to you.

 

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En Primeur round-up: The best Bordeaux 2022 releases so far

Chateau Lafleur
  • Two weeks into the Bordeaux En Primeur campaign about a third of the most popular estates have released their 2022 vintage.
  • The releases so far have commanded 5% to 25% price premium on last year.
  • Some of the most successful releases included Beychevelle and Cheval Blanc.

The Bordeaux 2022 En Primeur campaign is now in full swing. The past two weeks have seen about twenty of the most important Bordeaux estates release their latest vintage, including Château Beychevelle, Château Cheval Blanc, Château Suduiraut and Château Lafleur.

The majority of the wines have been released at 5% to 25% premium on last year, with price rises often highlighting the relative value and better investment opportunities that back vintages offer.

The best new releases have represented an attractive point of entry into the brand, a combination of adequate pricing and good quality as measured by critic scores. Below we highlight four of them.

Château Beychevelle – ‘fabulous’

 

Beychevelle

Château Beychevelle 2022 was released En Primeur at €67.50 per bottle ex-négociant, representing a 17.2% increase on the 2021. The wine was offered at £836 per 12×75, up 18.4% on the 2021’s opening price (£706 per 12×75).

However, in the context of back vintages, the 2022 became one of the most attractive offerings in the market today. The wine boasts 95-97 points from Neal Martin (Vinous), who said it was ‘one of the most seductive Beychevelles I have tasted from barrel’ and ‘one not to be overlooked’. Antonio Galloni scored it 94-96 points and called it ‘fabulous’.

Beychevelle has been a brand on the move, seeing consistent price growth both in the shorter and longer-term. In the past year, prices are up 6% on average; they have increased 24% over the last three, and 68% in the past decade.

Château Cheval Blanc – ‘wine of the vintage?’

 

Cheval Blanc

Château Cheval Blanc 2022 has been another of this year’s campaign successes. The wine is Neal Martin’s highest-scoring vintage ever and the latest well-priced release from the château, which seems to have created a sustainable En Primeur strategy.

When we spoke to Cheval Blanc’s technical director, Pierre-Olivier Clouet, he stated:

“The release price depends on many things. The quality of the vintage, the economic context in the world, and the price of new vintages available on the market. At the end, the definition of the price En Primeur is not something so difficult to do. This is something mathematical. En Primeur should be forever the lowest price you can find in your bottle. If you purchase later, it’s going to be more difficult to find and it’s going to be more expensive.”

Cheval Blanc 2022 was released at €470 per bottle ex-négociant, up 20.5% on the 2021, and offered internationally for £5,760 per 12×75, up 21.5% increase on last year.

Numerous critics awarded the wine a potential 100-points, including Neal Martin (98-100), Antonio Galloni (98-100), Lisa Perrotti-Brown MW (98-100), Colin Hay (98-100), James Suckling (99-100), and Jean-Marc Quarin (100).

Other older vintages that represented good value for money included the 2021, 2020 and 2016. Prices on average have risen 20% in the last half decade.

Carruades de Lafite – ‘a real showstopper’

 

Carruades de Lafite

Carruades de Lafite, the second wine of Château Lafite Rothschild, is another anticipated release that enjoys high demand year after year. The 2022 was released at €180 per bottle ex-négociant, up 12.5% on the 2021. The wine was offered for £2,256 per 12×75, up 13.9% on the 2021 release, which has since risen in value.

Despite the price increases, the 2022 is the least expensive Carruades on the market today. This has not gone unnoticed and the wine has already traded at a premium of 21.2% on the secondary market.

Martin awarded it 90-92 points, and Kelley gave it 91-93. It also received 92-94 points from Galloni, who called it ‘a real showstopper’.

From an investment perspective, Carruades de Lafite prices have risen 22% over the last five years, and 63% in the last decade.

Château Lafleur – ‘intellectual and delicious’

 

Lafleur

In recent years, Château Lafleur has been offering considerable value in the high-rolling world of Pomerol. The latest release was no exception.

Lafleur 2022 was released at €610 per bottle ex-négociant, up 8.9% on the 2021. It was offered at £7,440 per 12×75, a 14.3% increase on the 2021 release, which has since experienced a significant price growth.

The 2022 received 97-99 points from Neal Martin, who said it was ‘an intellectual and delicious Lafleur – a lethal combination’. Galloni gave it 95-98 and noted that it was ‘shaping up to be majestic’.

The wine also received 98-100 points from Colin Hay and Jane Anson, and 100-points from Falstaff and Jean-Marc Quarin.

Lafleur prices have risen 38% in the last five years, and 83% in the last ten, making it an attractive investment wine.

You can now explore the historic performance of these wines on Wine Track. Our tool provides a clear overview of a fine wine’s track record, including critic scores, average price and investment returns.

WineCap’s independent market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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Learn

How fine wine hedges against economic shocks: In four graphs

fine wine index
  • Fine wine’s value tends to increase when stock markets fall, making it a great hedge option for investors.
  • Fine wine is proving to be a better portfolio hedge than gold which is showing greater correlation with the stock market in recent years.
  • As a precious and depleting asset, wine tends to rise above local shocks and is generally less impacted by cost-of-living pressures.
  • Fine wine has outpaced inflation since 2021, making it a resilient asset to hold in turbulent times.

There is a lot going on in the economy, and most of it is not good. Major financial institutions buckle under high interest rates. Central banks are forced to rethink policies. Inflation continues to flirt with double digit levels. And the stock market lurches from one position to another as world events unfold. According to JPMorgan’s Q2 outlook, ‘2023 looks overwhelmingly likely to be a year of disappointing growth and ongoing adjustment’. Yet, fine wine is generally standing tall, experiencing little to zero negative performance.

In many situations, the value of fine wine has even climbed. As CityAM recently reported, ‘while it might not usurp stocks as the backbone of investors’ portfolios anytime soon, wine is providing some stability and solace amid the turmoil’.

In this article, we’ll uncover how fine wine is reacting to today’s tense economy and why.

The value of fine wine tends to increase as markets go down

Fascinatingly, the value of wine tends to increase as the stock markets fall. One of the most notable examples was during the financial crisis of 2008. Over autumn, the world economies went into shock. Within six months, the great S&P 500 had plunged by 52%.

S&P finance

Source: Yahoo Finance

Yet, while the world’s stock prices zig-zagged downwards, one asset class held up remarkably well. Fine wine (shown in the graph below in red) did not suffer any major downturns. On the contrary, it seemed to have a negative correlation to the stock market. Fine wine prices soared.

Liv-ex 1000 vs S&P 500

Time and time again, fine wine has outperformed when the stock market is sinking. This is because of four essential characteristics.

Most recently, fine wine delivered investors double digit returns over the COVID-19 pandemic and global lockdowns. Between April 2020 and September 2022, the asset shot up a staggering 43.5%.

This makes fine wine an extraordinary hedging option for investors. When stocks are tumbling, a reasonable allocation to wine can help to smooth out the overall performance and absorb losses.

Today, fine wine is a better portfolio hedge than gold   

The current economic environment is unsteady. Understandably, global asset managers are now looking to buffer against some of the market shocks by increasing their allocations to alternatives and hedging instruments.

One of the most popular choices is gold. According to UBS’ latest report, ‘we are also most preferred on gold and recommend holding it as a portfolio hedge in the current uncertain times’.

However, over the past couple of years, fine wine has started to beat gold at its own game. Since Covid-19, the prices of gold have become more correlated to the prices of the stock market. Looking at the graph below, the performance of gold (in orange) is becoming increasingly aligned to the stock market (for example, the S&P 500 shown in yellow). By contrast, the value of fine wine (red) is the least aligned.

Liv-ex 1000 vs S&P 500 vs Gold

When it comes to hedging against a turbulent economy, wine is coming out on top. Some economists are now beginning to question if fine wine is the new gold.

Since 2021, the performance of fine wine has outpaced inflation

The US inflation rate is gradually coming back to an almost-reassuring level. At the time of writing (May 2023), it sits at 4.98%, down from 8.54% in 2022. But it’s more than double the target rate.

In the UK, it’s not looking so good. Inflation now sits at a nerve-wracking 10.06%, meaning that purchasing power is rapidly draining from the pound. At times like this, it’s generally better to hold long-term wealth in assets rather than cash. Physical assets like property, precious metals and fine wine are especially resilient to inflation risk.

Below is a graph showing the UK’s inflation rate over the past five years. Since 2021, it has soared to double digits.

If we compare this to the average performance of fine wine in the same time frame (using the Liv-ex 1000 index), wine hasn’t just kept up with inflation. It has beaten it more than three-fold. Between 2021 and 2023 UK inflation rose by just under 10%. By contrast, the average performance of fine wine has increased by 33%.

There are several reasons why wine is so good at outpacing inflation. Firstly, it’s a global asset so it tends to rise above local shocks. When the pound loses value, Asian or American investors tend to step in. The wine markets are generally private too. This means that the groups of buyers tend to be very wealthy and sophisticated investors, who are less impacted by the cost of living pressures. They’re generally less swayed by rumors or economic turbulence too.

Perhaps most significantly, wine is a precious and depleting asset. It grows in value and scarcity over time, which will almost always outpace inflation levels.

Overall, wine is a useful asset in a turbulent economy

There are so many reasons for turbulence in the economy. Wars, pandemics, political tensions, inflation or the climate crisis to name a few. Yet, the last few years have shown us that fine wine tends to increase in value during these historical moments.

Global demand for investment grade wine outstrips supply more and more every day. As our CEO Alex Westgarth recently explained for Forbes Business Council, wine investors are younger, edgier, and more international than ever. Whichever way you look at it, wine and economic turbulence tend to pair well.

As the markets continue to stride forward into uncertainty, it’s a good moment to reconsider alternative assets and hedging strategies.

Discover seven more delicious benefits to investing in fine wine

WineCap’s market analysis showcases the value of portfolio diversification and the stability offered by investing in wine. Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.