WINE INVESTORS LOOK BEYOND BORDEAUX
Peter Ranscombe explores the changing landscape for wine investments and the ways that collectors choose to dip their toes into the market
Investments in liquid form can be hugely profitable, if you know where to look
For those investors with enough self-control to avoid uncorking their assets, Bordeaux and Burgundy have been the wine regions of choice for generations. Bottles from the two esteemed French areas were among the first to gain international popularity, triggering trading in their tipples among fans.
Wind the wine clock back to 2010 and Bordeaux dominated the vino investment market. The region accounted for 95.7% of all trading that year, according to figures from The London International Vintners Exchange, or ‘Liv-ex’ as it’s known to its friends.
In comparison, Champagne made up 1.3%, Italy 1.1%, and Burgundy crept in with 0.6%. Fast-forward to today and the picture looks completely different.
Bordeaux is still the most popular region, notching up 42.2% of all trading, but Burgundy has leapt to 17.7%, with a series of small harvests pushing prices higher. Italian wines take a 15.3% slice of trading, with Champagne now sitting at 9%.
Record prices charged by châteaux in Bordeaux during 2010 had already put pressure on the region’s trading volumes even before the Chinese government cracked down on expensive gifts being given by and to Communist party officials in 2012. Those same restrictions on presents also took their toll on Scotch whisky sales, with many distillers widening their focus away from China to other fast-growing Asian markets, including India.
With fewer Chinese buyers driving Bordeaux prices higher, trading on the fine wine market became more diverse, creating lots of opportunities for investors. Traders no longer needed to stump up thousands of pounds for a case of claret in order to join the market.
A recent report from Liv-ex highlighted the investment potential of the Rhône, another French wine region, which stretches from Lyon down towards the Mediterranean between Montpellier and Marseille.
Lying further south than Bordeaux or Burgundy, the Rhône enjoys warmer and more consistent weather, leading to reliably larger harvests, which in the past has not created the same scarcity that has driven prices elsewhere.
It’s a region of two halves: the Northern Rhône’s red wines focus on a single grape variety, syrah, with bottles from the Côte-Rôtie area among the most desirable, while the Southern Rhône is a land of blends, with grenache mixed with syrah and a catalogue of more minor players, including carignan, cinsault, and mourvedre.
Liv-ex’s report highlighted the Rhône’s slow and steady rise. While the category has underperformed
the wider fine wine investment market, analysts said the average market price for the Southern Rhône’s finest is under £1,000 a case, making it the cheapest entry point into the fine wine market for dry reds.
Now, you’ve heard about the FTSE 100, the S&P 500, and maybe even the CAC 40 and DAX 30. But how about the Bordeaux 500, Burgundy 150, or the Rhône 100?
Just like stock market indices bundle together the share prices of individual companies, so too do Liv-ex’s wine indices, taking the selling prices of cases and bottles to chart the changes in regions over time.
The Rhône 100 index has risen by 95.3% since it was created in 2003, yet the broader Liv-ex 100 index – which tracks 100 of the most sought-after wines from around the world – has climbed by 210.4% over the same period.
While the Liv-ex 100 has see-sawed amid market shocks – like the 2008 global banking crisis, China’s anti-gifting policies, and the Brexit vote – the Rhône 100 ‘has been a picture of calm’, according to analysts, with less abrupt peaks and troughs. That trade off between lagging performance and stability highlights the need for investors to know and understand their own appetite towards risk.
Those indices allow for interesting comparisons that put wine investments in context with other classes of assets. The Liv-ex Fine Wine 100 has edged about 5% higher over the past year and risen by around a third during the past five years.
In contrast, the FTSE 100 share index shed about 14% of its value last year during the coronavirus pandemic, although it’s about 8% higher compared to where it was five years ago.
That’s a crude comparison – companies in the FTSE 100 pay dividends to their shareholders, which they can then use to buy more shares and grow their investments, and the index itself has soared much higher at points during that arbitrary time-frame.
Wine, on the other hand, doesn’t pay a dividend. Investors only receive a return if they sell a case at a higher price than they paid.
Yet the comparison illustrates how wine sits among those other popular ‘alternative’ asset classes, such as art, stamps, and vintage cars. No one is going to go rushing out to invest their entire pension or life savings in wine, but it can be a useful tool within those riskier – and unregulated – alternative assets that make up a tiny sliver of investors’ portfolios.
A survey by Barclays Wealth found that 28% of high net worth individuals own a wine collection. Yet those high rollers only have 2% of their investments tied up in wine, illustrating its place as an interesting alternative investment.
When it comes to dipping a toe into wine, independent merchants can be a great place to start – just like they are when it comes to buying a bottle to open and drink. Local players like Woodwinters and the Scottish arms of Corney & Barrow and Justerini & Brooks all offer investment advice, as do merchants further afield, like Berry Bros & Rudd, Bordeaux Index, and Goedhuis & Co, all down in London.
Wine merchants offer a range of storage options, so investors aren’t expected to keep their assets hidden under the stairs. That’s particularly important when it comes to investing in wine – damage to a bottle, just like a tear in an expensive painting, could be a disaster.
There are also investment funds that specialise in wine. Investors need to do their homework though – many of the funds are based offshore, with different regulations to ours in the UK, so it’s important to understand how the funds operate and who – if anyone – is keeping an eye on them.
“Damage to a bottle, like a tear in a painting, could be a disaster