By continuing to shop we will assume that you are happy to receive all cookies, otherwise you can find more information here.
Is now a good time for fine wine investment?
With Bordeaux 2019 postponed and COVID-19 rampant, is now a good time to collect and invest in fine wine?
It’s hard to overstate the impact of COVID-19 on stock markets globally. As of 8th April 2020 the FTSE 100 is sitting at 5,649.35, almost 2000 points down from this time in February. Fine wine investment, on the other hand, is doing admirably well in the current climate, barely changing as tracked by Liv-Ex and down by only 2% and 4% year-on-year in the Fine Wine 100 and 1000 indices.
So, why is fine wine investment resistant to economic slowdown? Like cars and coins, wine is a passion asset that provides intrinsic, long-term value. Intrinsic because people will love fine wine regardless of what is happening in the world, and long-term because new releases require many years maturing in the cellar before they are ready for consumption. Many fine wines are also produced in miniscule quantities so downturn or not, the demand from high net worth investors will always be there.
Does all this mean now a great time to invest in fine wine? Yes, according to many companies that specialise in investment-grade wines and portfolio management. Then again, it’s not hard to see why they would say that, since they want to sell you expensive wine, and lots of it!
Warren Buffet famously said be “fearful when others are greedy and greedy when others are fearful”, a poetic way of saying buy low and sell high. That fine wine indices are plodding along despite the pandemic is not in itself a sign that the market is any riper for investment than it was three months ago. It simply illustrates that the performance of fine wine has little in common with the wider performance of the economy, something we already knew.
Our opinion is that now is a good time to put money behind fine wine, but only selectively, and for different reasons entirely.
Investing in pleasure
At Honest Grapes we like to think of wine investment a little differently – it's about investing in your future drinking pleasure. Few things are more exciting in the world of wine than building your own cellar and it’s a real pleasure to enjoy the wines as they mature and see your portfolio grow over time. And with the right approach, your cellar can even finance itself after 10 to 15 years.
Click here to download our ‘investing in pleasure’ brochure.
So, which are the best wines to collect? A cursory glance at any fine wine investment company’s brochure would overwhelmingly suggest that blue chip Bordeaux provides the best returns. While we are huge fans of Bordeaux (especially the drinking bit) and the first-growths generally do appreciate in value, the wines are typically produced in such high quantities that you are rarely going to see the kind of 13 to 16% rises promised by some brokers.
We always offer Bordeaux En Primeur because we love the wines ourselves and they form a sensible cornerstone of many Club Members’ cellars. However, we’re also big champions of Burgundy, Italy and Champagne and it’s no co-incidence that they are becoming more attractive to collectors while Bordeaux’ iron grip on the investment market continues to loosen.
There are many factors behind this but at Honest Grapes we know that the highest return on investment comes from coveted, low-production wines produced in a manner more akin to Burgundy than Bordeaux. For example, Argentinian growers PerSe only made 750 bottles of the 97-point scoring Jubileus 2016, while in an average year Lafite Rothschild makes between 15,000 and 20,000 cases of their Grand Vin. Of course, the market for top Bordeaux moves very quickly and liquidity is higher, but hold onto your Jubileus if you have it because you are sitting on a potential gold mine.
Bordeaux 2019 En Primeur has of course been postponed and we’ve prepared a very short survey with questions about wine collecting, Bordeaux and En Primeur buying that will form the basis of an online Bordeaux summit to be held via Zoom on Wednesday April 15th at 6:30pm. We’ve brought together a panel of Bordeaux experts comprising Gavin Quinney, Nick Martin and Rupert Millar and anyone is welcome to join us!
Special situations and inflection points
Most investment-grade wine is released En Primeur or at pre-release when the wine is still in the barrel. Critics score the wine based on barrel samples and the release value is an estimate of its future in view of market conditions. Sometimes the wine is mispriced, as was infamously the case with Bordeaux 2017.
At Honest Grapes we always have our eyes open for a good deal. After the initial En Primeur release there are four inflection points when prices change, and these provide some of the best opportunities to trade-in on value:
1) After release
2) When wines are re-scored by critics
3) When the wine becomes physical and there is an overhang on past stock
4) When stocks start to be depleted
Being able to spot an undervalued wine before its next inflection point is a sure-fire way to net you some great returns. The best gains often happen between points three and four when much of the vintage has been consumed, or is sitting hidden in collectors’ cellars and the laws of supply and demand take effect, so your strategy should almost always be long-term buy and hold.
There are also ‘special situations’ - undervalued wines with a bright and profitable future ahead of them. These tend to come in small quantities from artisan winemakers (notice a trend here?) and we’ve fought tooth and nail to get allocations of these star wines.
For example, only 300 cases are made per vintage of our Club Exclusive Saint-Émilion, Château Pontet Labrie from our friend and 100-point Bordeaux winemaker Jonathan Maltus. Compare that with the 6-10,000 cases of neighbouring Angelus and Pavie for scarcity! We’re also expecting the value of this and all of Maltus’ wines to shoot up after completion of his Le Dôme winery next year, designed by Lord Foster.
So, now is a good time to collect wine for your future drinking pleasure but only expect value appreciation where there is a ‘special situation’. Apart from being our co-founder and chairman, Nathan is also a prolific Angel investor and has an unflinching eye for value – here are his tips on how to get the most bang for your buck.
- Buy the wines you’d want to collect anyway, especially if they pass the sniff test of being the right future drinks for you and scarce enough that you wouldn’t want to miss them.
- Keep some money on the side for ‘special situations’. It’s amazing how many normally scarce wines I’ve found while other people are watching the news on TV.
- The pound has dropped this last month (although it’s strengthening) and that 6% fluctuation is an extra bit of gain on wine priced in pounds.
- Don’t expect to make quick investment gains on wine just yet, although I expect there will be rich pickings over the next few months.
Published on: April 14, 2020