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Fine wine vs luxury handbags: the investment perspective

Luxury handbags vs fine wine
  • Luxury handbags are the second most popular collectible item among UK wealth managers in 2024, after fine wine.
  • Rising prices in the primary market for handbags have led to investment interest.
  • While valuations for brands like Chanel and Hermès have spiked dramatically, the secondary market is less established and more illiquid than the fine wine market.

Recent headlines have been filled with news about skyrocketing prices for luxury handbags. The price of the Chanel medium classic flap bag has risen close to 553% since 2005; and 4,809% since 1955.

With prices in the primary market reaching record highs, interest in handbags as a collectible has grown. The term ‘investment piece’ no longer serves to simply describe the timelessness of an item; for investors today, it has taken a much more literal meaning.

Meanwhile, fine wine remains a more established member of the ‘collectibles’ family. In recent years, fine wine has transitioned from a passion investment to a mainstream asset class.

This article explores the shift in investment trends, the rising popularity of luxury assets, and the risks and rewards associated with fine wine and luxury handbags.

A shift in investment trends

Traditionally, investments have been confined to stocks, bonds, and real estate. Now, they are sharing the spotlight with more tactile assets like fine wine and luxury handbags.

According to our recent survey among US and UK wealth managers, there has been a significant uptick in interest for collectibles. In 2024, 78% of US wealth managers expect demand for luxury handbags to increase, complemented by a strong ongoing interest in fine wine (84%).

In the UK, 86% anticipate growth in demand for luxury handbags, up 6% from 2023, while 92% expect sustained demand for fine wine.

The full findings of this survey will be released later this month.

Comparing fine wine vs luxury handbags

Fine wine is sought after for its stability and remains the top investment choice among alternative assets. Its secondary market is more established, offering increased liquidity and price transparency.

It does not lack impressive performers either; luxury Champagnes Salon Le Mesnil-sur-Oger Grand Cru has appreciated 304% over a decade, and Egly-Ouriet Brut Millésime Grand Cru has seen returns of 452%. Prestigious Burgundy wine, Domaine René Engel Vosne-Romanée is up 3,105% over the same period.

Although luxury handbags are a newer investment avenue, they have shown considerable promise. The valuation of iconic pieces like the Hermès Birkin and Chanel Flap Bag has spiked dramatically, reflecting their growing appeal among investors who value both fashion and finance.

Chanel bag prices

Celebrity endorsements

Celebrity endorsements have significantly influenced this market segment. For instance, the Louis Vuitton Pochette Accessoires bag retailed for $165 in 2001; today, it costs $1,520 – an increase of 821%. Over that period, celebrities like Paris Hilton, Nicole Richie, and even fictional character Carrie Bradshaw have boosted its value.

This phenomenon is less prevalent in the world of fine wine, though not entirely absent. Domaine Dujac, for instance, became a brand on the move (the highest riser in the 2018 Liv-ex Power 100 rankings) due to DJ Khaled’s endorsement in a music video.

Investor demographics

Another key distinction between these investment avenues lies in their typical investor demographics. According to the Financial Times, luxury handbags tend to attract younger female clients, who are drawn to both the fashion statement and the investment potential of these pieces. In contrast, the typical fine wine investor is often older and male, with a preference for the historical depth and long-term value appreciation that fine wines offer.

Risks and rewards

Investing in luxury handbags comes with its set of challenges. Unlike fine wine, which can be stored and aged with relative ease, handbags require meticulous care to maintain their condition and value.

Additionally, the market for luxury bags is more volatile, influenced heavily by trends and the limited number of high-value players like Hermès, Chanel, and Louis Vuitton. Future demand for specific models or brands can be unpredictable, and the resale market is often less liquid than that of fine wines.

Both fine wine and luxury handbags offer intriguing opportunities for portfolio diversification, each with unique benefits and challenges. The consistent performance and security of fine wine make it a reliable choice for those seeking steady growth. In contrast, luxury handbags can provide the pleasure of owning a piece of high fashion, though they carry higher risks.

As the luxury investment landscape continues to evolve, the blend of passion and profitability remains a compelling draw for high-net-worth investors globally.

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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Finding value in the Bordeaux second wines

Lafite Rothschild
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  • The average First Growth case price is £5,300, while second wines come in at £1,941.
  • Le Clarence de Haut-Brion is the most affordable second wine.
  • Le Petit Mouton has been the best performer over the last decade.

Following our article last week, which examined the performance and value of the Bordeaux First Growths, we take a look at the data behind their second wines.

What are second wines?

Most Bordeaux châteaux produce more than one wine each vintage, and some might make three or four. Each château’s second wine draws on the expertise and knowledge that goes into the Grand Vin. Generally, second wines are made with fruit from younger vines, or vines and parcels that are not quite up to the quality of the Grand Vin in any given year.

However, they are often produced using grapes from the same vineyards as the flagship wines, receiving the same technical treatment in both vineyard and winery. Considerably less expensive than their siblings,  second wines represent a particularly attractive and accessible option for investors.

Second wines – at what price?

Second wines prices and scores

White the average First Growth case price is £5,300, second wines come in at less than half the price (£1,941).

Interestingly, prices of the first and the second wine are not always rising in unison. For instance, Château Latour is the second most expensive Grand Vin after Château Lafite Rothschild. Les Forts de Latour, however, sits directly in the middle, with Le Petit Mouton and Carruades de Lafite being pricier.

When it comes to value for money, Le Clarence de Haut-Brion has the lowest price per point of £16, similar to its Grand Vin. As examined last week, Château Haut-Brion is the most affordable of the First Growths, while also boasting the highest average Wine Track score. Yet while Le Clarence is also the most affordable of the second wines, its Wine Track score is lower.

But looking purely at scores is not the best indicator of value when it comes to the second wines. Second wines differ from the Grand Vins, as the dominant relationship is between price and age, not price and quality. As time passes, their value rises, following the traditional wine investment dynamic.

Moreover, this group of wines is often bought by collectors and investors as they present access to a brand. Though suitable for aging, these wines are built for earlier consumption, offering an alternative to opening bottles of the Grand Vin as soon as they are delivered.

Performance of the second wines

In the last decade, Le Petit Mouton de Mouton Rothschild has been the best-performing second wine, up 111.9%.

The most affordable, Le Clarence de Haut-Brion, has delivered the second-best returns of 76.2%. It has been followed by Carruades de Lafite (64.7%) and Pavillon Rouge (63.1%).

Second wines performance

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 importance of wine storage

wine storage
  • Storage is arguably the most important factor in preserving the quality of a fine wine and is thus fundamentally linked to its value as an investment.
  • A well-documented history of storage and ownership can significantly increase a wine’s value, serving as proof of its authenticity and condition.
  • Storing wine in-bond has multiple benefits, including deferred taxes, easier international trading and guaranteed provenance.

Wine storage has undergone significant transformation over the years, evolving from traditional cellars in private homes to sophisticated, climate-controlled facilities that cater to the needs of serious collectors and investors. The way wine is stored can greatly impact its quality, and by extension, its value as an investment.

Why is wine storage important

A large part of fine wine’s performance as an asset is down to its ability to improve as it ages. If the quality increases in time, so does its value.

Storage is arguably the most important factor in preserving the quality of a wine. If a bottle is stored improperly, the opposite can happen. Fluctuating temperatures, exposure to sunlight, vibrations and humidity can all degrade the quality of the wine and lead it to lose its value.

By storing your assets in professional dedicated wine storage facilities, you can guarantee that when the time comes to sell, it will be in the best possible condition. This will give the final consumer confidence that the wine is of the expected quality, defending its future value.

The evolution of wine storage solutions

Historically, wine storage was the domain of underground cellars, designed to provide the cool, stable temperatures and humidity levels that wine needs to age gracefully. These cellars, often part of private homes in wine-producing regions, set the standard for ideal wine storage conditions: darkness, consistent temperature around 12-14°C (55-57°F), and relative humidity around 60-70%.

In recent decades, technology has revolutionised wine storage. Climate-controlled wine cabinets and refrigeration units can replicate the conditions of a traditional cellar, making it possible to store wine in any environment. Innovations such as dual-zone temperature controls, UV-protected glass doors, and vibration reduction technology have further enhanced the ability to preserve wine at optimal conditions.

Moreover, professional wine storage facilities offer a level of sophistication and security beyond what most private cellars can provide. These facilities are equipped with state-of-the-art climate control systems, backup power sources to protect against outages, and high-security measures to guard against theft. They also offer inventory management services, ensuring that wines are stored properly and can be easily accessed or audited by their owners.

For investors, the use of such facilities can enhance the value of their collection, as provenance – the history of wine’s ownership and storage – becomes increasingly important in the secondary fine wine market.

The role of provenance in wine investment

Provenance is a critical factor in the wine investment market. A well-documented history of storage and ownership can significantly increase a wine’s value, serving as proof of its authenticity and condition. Professional storage facilities often provide detailed records that can be invaluable in establishing provenance, making wines stored in these conditions more desirable to collectors and investors alike.

In contrast, wines stored in private cellars may lack comprehensive records, potentially diminishing their market value, regardless of their quality or rarity.

In-bond storage

Bonded status is what unlocks the secondary market for fine wine.

Storing wine in-bond means that the wine is kept in a secure warehouse under government supervision without the payment of duty or tax. For wine investors, this presents a significant advantage, as it allows for the storage of wine without the financial burden of taxes until the wine is either sold or removed for personal consumption. Typically, wines can be stored in-bond at their point of entry into a country or transferred to a bonded warehouse specifically designated for wine storage. The wines stored in-bond are trade-ready; they sit within the secondary market ecosystem and can be made immediately available for sale and collection.

Implications for wine investment

The ability to store wine in-bond has several implications for investors.

Deferred taxes: Investors can defer tax payments, improving cash flow and reducing initial investment costs. This is particularly beneficial for wines intended for resale, as the duty and VAT (value-added tax) are only paid if and when the wine enters the domestic market.

International trading: In-bond storage facilitates easier trading of wine on an international scale. Wines can be bought and sold multiple times while still in-bond, without incurring tax liabilities until they are finally withdrawn for consumption. This can significantly enhance the liquidity of wine investments.

Provenance and condition: Bonded warehouses are not only secure but are also designed to provide optimal storage conditions, similar to professional wine storage facilities. The rigorous documentation and oversight in these warehouses ensure the provenance and condition of the wine, crucial factors in maintaining and enhancing its value.

Market value: Wines stored in-bond are often more attractive to buyers, especially in international markets. The assurance of proper storage conditions and the ease of transfer without immediate tax implications make these wines more desirable, potentially increasing their market value.

Storing wine with WineCap

WineCap use London City Bond’s newest storage facility, Drakelow. Three and a half miles of tunnels were blasted out of solid rock, as part of the lavish refurbishment of this former nuclear bunker, which started operating as a dedicated wine storage facility in 2023. Highly secure with entirely natural permanent temperature control supported by the latest dehumidification equipment, Drakelow is the natural choice for maturing reserves.

Every wine in our storage facility gets its own unique identification number (UIDS), thus ensuring that each case has clear ownership.

The practice of storing wine in-bond in bonded warehouses represents a critical aspect of the wine investment landscape. As the wine market continues to mature, the importance of professional storage and provenance documentation is likely to grow, influencing both the strategies of investors and the broader dynamics of wine collecting and investing. Whether opting for a meticulously maintained home cellar or entrusting a collection to a professional storage facility, understanding the impact of storage on wine’s quality and value is essential for any serious wine investor.

Speak to one of our wine investment experts and start building your portfolio. Schedule your free consultation today.

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The growing market for alternative investments

  • The market for alternative investments has seen robust growth owing to burgeoning demand for non-traditional assets.
  • Alternative assets offer a hedge against inflation, and often provide investors with higher returns.
  • Some of the main challenges when it comes to alternative investments are accurate valuations and liquidity.

Alternative investments, those that fall outside traditional financial assets like stocks, bonds, and cash, have garnered immense popularity among affluent investors. From classic cars and luxury handbags to fine art, these assets represent both a passion and a store of value. According to the results of our global wealth management survey, fine wine emerged as the most in-demand passion asset. This article explores the burgeoning market for alternative investments, with a special emphasis on fine wine, contrasting and comparing their attributes, risks, and potential.

Alternative investment landscape

Alternative investments, often tangible assets, are known for their rarity, craftsmanship, and cultural relevance. Watches, luxury bags, art, whisky, and fine wine fall under this category, offering diversification for investment portfolios.

The market for alternative investments has witnessed robust growth owing to rising global wealth and a burgeoning demand for non-traditional assets. According to Richard Bacon, Head of Business Development at Shard Capital, ‘in the last two years there has been a tangible increase in how accessible and democratized these assets have become’.

As traditional markets have faced increased volatility, clients have turned to passion assets to safeguard their wealth. Economic uncertainty and inflation have fuelled interest, as these assets tend to retain value over time and provide investors with higher returns outside of their traditional portfolios.

This can be noted in the performance of the luxury goods market, which posted a record year in 2022, reaching a market value of €345 billion, despite geopolitical tensions and macroeconomic uncertainty. This momentum persisted into the first quarter of 2023, achieving 10% growth over 2022, according to Bain & Company.

The luxury group Louis Vuitton Moët Hennessy (LVMH), which owns Champagne houses Moët & Chandon, Dom Pérignon, Veuve Clicquot, Krug, Ruinart and Mercier, also had a record year in 2022, and reported a 15% growth in the first half of 2023.

Alternative assets compared

While alternative investments have enjoyed growing popularity, each asset class operates by its own market dynamics. There are some notable differences and similarities, for instance, between fine wine, art and luxury goods. Below we outline some of the differences.

Investment nature:

  • Fine wine: A consumable and perishable asset produced in multiple quantities (vintage-dependent) with value appreciation due to age, supply-demand and quality.
  • Art: A unique, non-perishable asset, valuing subjectivity and aesthetic appeal.
  • Luxury goods: Tangible assets like watches and bags, offering functional utility and value based on brand prestige and condition.

Value determinants:

  • Fine wine: Producer reputation, age, rarity, condition, critic scores.
  • Art: Artist reputation, uniqueness, historical significance, and condition.
  • Luxury goods: Brand reputation, craftsmanship, condition, and rarity.

Risks:

  • Fine wine: Market fluctuations, storage conditions, and provenance verification.
  • Art: Market trends, authenticity, and condition degradation.
  • Luxury goods: Counterfeiting, fashion trends, and wear and tear.

However, all these assets share common grounds, including tangibility, scarcity and uniqueness driving value, a strong connection to culture and lifestyle, and being a hedge against inflation and economic uncertainty.

Market challenges and opportunities

Some of the main challenges when it comes to alternative investments are valuations and liquidity. Some assets may need longer time to trade compared to traditional investments. Values may fluctuate based on trends, and condition. It is often harder to value a single piece of art accurately, compared to fine wine, which is often made in significant quantities and cases regularly trade internationally.

The main opportunities in the alternative investment market are diversification, their potential for appreciation and pleasure and fulfilment beyond the monetary benefits. Alternative assets offer a balanced and diversified portfolio, mitigating risks from traditional markets. Meanwhile, rarity and cultural significance can result in substantial value appreciation. Beyond financial rewards, these investments offer emotional and aesthetic satisfaction. Navigating the market for alternative investments requires an understanding of the underlying dynamics, diligent verification, and a discerning eye for value.

To find out more about fine wine as an alternative investment, download our special report below.

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La Place 2023: Critics’ verdict and top-scoring wines

  • Major critics have released their ‘Beyond Bordeaux’ reports, accessing the quality and value of this year’s La Place releases.
  • Tom Parker MW stated that there were ‘not as many hits as usual’.
  • Jane Anson awarded three wines 100-points.

As the La Place de Bordeaux campaign takes centre stage in September, major critics have shared their views on this year’s releases, including Jane Anson (Inside Bordeaux) and Tom Parker MW (JancisRobinson.com).

Both have commented on the quality of the wines but also on their pricing strategies and the value to be found. As discussed last week, a recurring theme in the campaign has been the price increases for the new releases, compared to previous vintages. This has done little to invigorate the market for buying at release for investment.

Tom Parker on the campaign’s ‘ambitious pricing’

In his ‘beyond Bordeaux’ assessment, Tom Parker MW expressed his wary view on the campaign’s strategy and pricing. He wrote that ‘the styles and regions are diverse, and the stories risk being lost in such a compressed release timetable’.

He added that ‘given the ambitious pricing for many of these wines, it is hard to see how they can all be sold through successfully’. Indeed, the campaign’s reception so far has been mediocre.

In terms of overall quality, Parker stated that ‘there were some excellent efforts though perhaps not as many hits as usual’.

Regional observations

Delving into individual regions, Parker noted the Californian producers’ split strategy, with ‘some releasing wines from the complicated 2020 vintage, with others choosing instead to offer museum releases and a few choosing to do both’. One such instance was Opus One, which opted for library release of its 2018 and 2019 vintages.

In terms of the Rhône releases, he observed that ‘Hommage à Jacques Perrin was good rather than great, and newly added and renamed Domaine de la Chapelle (formerly Jaboulet’s Hermitage La Chapelle) left a little to be desired in the tricky 2021 vintage’.

For him, ‘Argentina produced two of the most exciting wines’. He awared 18 out of 20 points to Zuccardi’s Finca Canal Uco and 17+/20 for Adrianna Vineyard from Catena Zapata.

Parker also complimented Australian wines which were ‘technically immaculate’ and named Wynn’s John Riddoch ‘a personal favourite’.

His top Italian pick was Masseto (18/20), which he described as ‘almost a guilty pleasure in 2020’ though ‘only for those with the deepest pockets’. Although the wine was released at a 10% premium on last year, the new release still offered value in the context of back vintages.

Jane Anson awards three wines 100-points

Among the releases so far, Jane Anson awarded three wines 100 points – Bibi Graetz Colore 2021, Yjar 2019, and Giaconda Chardonnay 2021. The La Place newcomer Chappellet, Pritchard Hill Cabernet Sauvignon 2019 received a near-perfect score of 99-points from the critic.

Anson drew attention to Sicily as a region that offers both quality and value, saying that ‘Sicilian reds, as ever, offer some of the best value wines not just of the September Releases, but of the wine industry in general’.

She also acknowledged that ‘there’s no doubt that the wider economic stresses globally are both helping and hurting the September Releases’.

Once again, this highlights the importance of correct pricing in a broadening fine wine market.

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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New World releases from the autumn La Place de Bordeaux campaign

  • The La Place de Bordeaux campaign is in full swing, with releases from Chile, Italy, USA, France and more.
  • A recurring theme in the campaign has been the price increases for the new releases, compared to their previous vintages.
  • While La Place remains an exciting global marketplace for New and Old World wines, the ultimate value of the releases should be judged in a broader context.

The La Place de Bordeaux autumn campaign has gathered momentum over the past two weeks, with releases from Chile, Italy, USA, France and more.

The campaign kicked off with Paul Jaboulet Aîné’s Hermitage La Chapelle 2021, along with the re-release of some of its library vintages, namely 2013, 2011 and 2006. Napa Valley’s Opus One also re-released its 2018 and 2019 vintages, which led to heightened demand for the brand. Below we take a look at some of the recent New World releases from the campaign so far, examining their pricing and investment potential.

Seña 2021

The newly released 2021 vintage of Mondavi & Chadwick’s Seña is the highest priced wine across recent vintages from the brand.

Seña 2021 was released at €90 per bottle ex-négociant, up 5.9% on the 2020. The wine came with a recommended retail price of £1,344 per 12×75, representing a 30.6% increase on last year.

The 2021 Seña received 98+ points from The Wine Advocate’s Luis Gutiérrez, who described it as ‘one of the finest vintages’. Meanwhile, Joaquín Hidalgo (Vinous) gave it 96-points and said that ‘it will grow in the bottle’.

Other more attractively priced but similarly scored vintages include 2019 and 2018. Over the last ten years, Seña prices have increased 90% on average.

Almaviva 2021

Another release from Chile, Almaviva 2021, was offered via La Place at €122 per bottle ex-négociant, up 5.2% on the 2020. The wine was released internationally for £1,448 per 12×75. It received 96+ points from Luis Gutiérrez, and another 96-points from Joaquín Hidalgo, who praised its ‘enticing nose’ and ‘velvet texture’.

However, some back vintages such as the 2020, 2019 and 2018 offer better value. Our Almaviva index has recorded positive performance both in the short and the long term. Over five years, prices have risen 41%, and over ten – 147%.

Nicolás Catena Zapata 2020

The Argentinian wine Nicolás Catena Zapata 2020 was released at €53.30 per bottle ex-négociant, up 1.5% on the 2019. It has been offered internationally at £720 per 12×75, down 1.6% on the 2019’s opening price.

It received 95-points from Gutiérrez and 96-points from Hidalgo, who observed that this ‘meticulously crafted red achieves perfect balance in a warm vintage’. However, there are plenty of good value buying opportunities in back vintages, notably 2019, 2018 and 2016.

Nicolás Catena Zapata has enjoyed a positive performance over the last five (33%) and ten years (104%).

A recurring theme in the campaign has been the price increases for the new releases, compared to their previous vintages. Similar to the spring Bordeaux 2022 campaign, often back vintages available at a discount hold better investment potential. While La Place continues to showcase the diversity of fine wine, and remains an exciting global marketplace for New and Old World wines, the ultimate value of the releases should be judged in a broader context.

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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En Primeur Report – Bordeaux 2022: Unfulfilled Potential

Bordeaux 2022

Bordeaux 2022 is a great vintage that, despite its high quality, failed to reverse the waning sentiment for En Primeur. The excitement of the new was counteracted by the value on offer.

Although there was a significant increase in the number of visitors at the En Primeur tastings this spring, the campaign did not succeed in capitalising on this positive momentum.

Our latest report, Bordeaux 2022: Unfulfilled Potential, delves into the reasons why the campaign didn’t quite deliver on hopes and the event’s place within the industry in coming years.

Key findings:

  • Bordeaux 2022 is a high-quality vintage that has surpassed expectations, given the challenges of the growing season.
  • Neal Martin’s average 2022 in-barrel score was below 2020, 2019, and 2016, with most critics noting that it is a vintage to be selective.
  • The En Primeur tastings saw a significant increase in the number of visitors this spring, indicating continued interest in the region.
  • Some wines managed to offer value and were met with high demand upon release, including Château Cheval Blanc, Château Beychevelle, and Château Lafleur.
  • Average price increases between 15% and 25%, and as high as 55%, did not resonate well with the soft Bordeaux market.
  • Bordeaux 2022 vintage failed to reverse the declining sentiment for En Primeur due to high release prices in the context of older vintages offering better value.
  • Producers should evaluate the market dynamics to navigate the evolving fine wine market, and the role of En Primeur within it.

 

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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.