Among the chaos and uncertainty of 2020 fine wine persevered and remained buoyant at a time where other markets were plummeting. This run of form continued into the New Year and 2021 to date has largely been a profitable time for those with funds in fine wine.
The Overall Market
Whilst 2020 will live long in the memory of investors as a time where large losses were posted across many different markets and any recovery also brought periods of high volatility, 2021 seems destined to be remembered as a time of recovery as the world adjusted to the new normal and markets found their feet once again. This can be seen when looking at the year to date (YTD) performance of the FTSE 100, Nikkei 225, and S&P 500 which have posted gains of 9.69%, 7.32% and 14.68% respectively. The fine wine market is no different with the Liv-Ex 100 posting gains of 14.25% year to date. However, what sets the wine market apart from the more traditional indices is the overall performance seen between January 2020 to date. In the face of considerable adversity, fine wine had a comparatively stable year in 2020 posting only a minor contraction and largely escaped the large swings seen in other markets. As such, the chart below demonstrates the performance across a number of indices over the last 21 months.
Aside from the excellent performance over this period and the stark contrast in volatility between fine wine and traditional indices, what is particularly noteworthy is the wide range of fine wine regions who have enjoyed similar performance across the same term. Key regions will be investigated in more detail in the sections below.
In an attempt to bolster the economy after a troublesome twelve months governments have embarked on periods of quantitative easing. Increases to the money supply and stimulus packages have been delivered but have been met with widespread scepticism. The resultant inflation which tends to follow economic measures such as this has reached levels far beyond comfort for any government. In the UK inflation levels are reported to be at 3.1%, with an expected rise to 4% stated in the budget this week. Things are even more severe for the US with inflation soaring to 30 year highs, currently at 4.3%. Both are dramatically above their shared inflation target of 2%. In times of high inflation and low interest rates there is little incentive to keep swathes of money in the bank and watch it erode. As such, people look farther afield for investments who have proven resilient in the past and are often tangible goods; gold has historically been popular option. In recent years investors have turned to more unconventional options such as cryptocurrencies and more established alternative assets such as fine wine. Whilst those with a more risk loving investment stance may have seen spectacular returns from the former in recent years, few investments can match up to the performance and stability demonstrated by fine wine and now it seems more attractive than ever.
Performance Against Traditional Markets
If the Liv-Ex indices have a shortcoming it is that they deal with a basket of wines which is too wide to demonstrate performance in the blue chip investment wines and give a true representation of the investment grade wine market. As such, we have created a basket of wines consisting of some blue chip of blue chip wines, which is by no means an exhaustive list, but wines we would recommend for any investment holdings. The wine we have selected for our basket are as follows:
|Rousseau Chambertin||Sassicaia||Mouton Rothschild||Rayas CNDP Reserve||Dom Perignon||Screaming Eagle|
|Roumier Musigny||Tignanello||Margaux||Pegau CNDP Reservee||Bollinger Grand Annee||Harlan|
|Leroy Chambertin||Soloia||Latour||Chapoutier Ermitage Pavillon||Cristal||Dominus|
|DRC La Tache||Masseto||Haut Brion||Domaine Jean Louis Chave Hermitage||Salon||Scarecrow|
|DRC Richebourg||Ornellaia||Lafite Rothschild||Paul Jaboulet Aine Hermitage Chapelle||Krug||Opus One|
|DRC Echezeaux||Beaucastel CNDP|
|DRC Grand Echezeaux||Clos Papes CNDP|
|DRC Romanee Conti|
Taking the average bottle price and plotting this since the beginning of 2020 give a more representative comparison to traditional investment markets. Since the inception of the basket the split has remained unchanged and is as follows:
Using this split we can compare the performance of this basket against a traditional market such as the FTSE 100. The difference is clear.
During 2020 whilst the FTSE 100 experienced sharp downturns and volatility, comparatively, the investment wine basket was stable and in 2021 where the FTSE 100 began to reclaim some losses, the investment wine basket also posted gains. Since January, the two baskets are polar opposites with the wine basket growing 16.24% and the FTSE 100 contracting 6.05%.
In 2020 certain regions of the basket outperformed others and brought up overall performance. However, in 2021 to date every region is in the green. Moreover, of the 36 entries only two have posted losses in 2021 YTD!
In recent years Burgundy has been the standout region in fine wine investment, a run of banner vintages saw a frenzied interest in the ever popular wines of Burgundy and the result was the top wines from the region soaring to new highs. 2020 saw a slowing of the growth enjoyed in previous years but to date 2021 has seen a return to form. Individual appreciation of the basket components can be seen in the table below and the results are staggering.
|Burgundy||2020 Perf||2021 Perf to date|
|DRC La Tache||-2.08%||16.17%|
|DRC St Vivant||1.26%||12.89%|
|DRC Grand Echezeaux||5.08%||19.47%|
|DRC Romanee Conti||-2.35%||7.30%|
2020 saw 0.17% growth whereas 2020 YTD has currently posted gains of 14.21%! This has been helped by the breakout performance of Leroy Chambertin equating to 42.07% gains in 9 months!
During 2020 our Burgundy basket had inverse correlation to the corresponding Liv-Ex index, however, from May 2021 to date, the pair have been moving in lockstep, posting solid gains. A plot of the two can be seen below.
Italy is the only region in the list which posted larger gains in 2020 than 2021 to date. This is likely a small correction after the growth observed in the region in 2020. This can be attributed to elevated demand from the US as the region was excluded from the prohibitive import tax levied by President Trump.
The basket is made up of the five Super Tuscans, all of which have posted positive growth in both timeframes. The region had a bumper year in 2020 with 10.12% growth posted across the five wines. In 2021 the region has so far posted gains of 7.14%. Over both terms the growth of Sassicaia and Solaia have been unwavering. However, the gains seen in 2020 from Tignanello and Ornellaia, 7.69% and 12.33% respectively have slowed to 7.69% and 1.18% in 2021.
|Italy||2020 Perf||2021 Perf to date|
The Super Tuscans represent the peak of Italian wine, they are considered among the best wines anywhere in the world and as such move of their own accord. It is noteworthy that the Italy 100 index is made up in no small part of Super Tuscan wines.
The Bordeaux basket, consisting of the five First Growths, posted positive gains over both periods, which can be seen in the table below.
The results are clear, in the past 21 months both our blue chip basket and the more general Bordeaux 500 index have outperformed the FTSE 100 at an astonishing rate. The FTSE dropped sharply as the pandemic took hold and has to date failed to reach pre-pandemic levels. The Bordeaux baskets on the other hand shook off a small downturn and then posted strong growth throughout.
Champagne was another region with a standout year in 2021 to date. The blue chip entries from the region have posted gains of 13.26% YTD. This eclipses the gains seen in 2020, specifically 2.94%. The demand for Champagne is unwavering and as the world opened back up the region was kickstarted back into top gear after a flatter 2020. The wines in the basket are as below with Dom Perignon, Salon and Krug leading the pack with gains of 12.12%, 16.95% and 19.23% respectively.
|Champagne||2020 Perf||2021 Perf to date|
|Bollinger Grand Anee||9.52%||4.30%|
Below is a plot demonstrating the difference between our basket of Champagne and the Champagne 50 index. Volatility can be seen in the Liv-Ex index during Q1-Q3 of 2020 followed by a period where the Champagne basket leaves the pairing and posts elevated gains.
The Rhone region is the only one in the list which contains a wine which had such outstanding performance in 2021 to date it has to be considered an outlier. Rayas Chateauneuf du Pape Reserve generated 9.46% in 2020 but in 2021 so far the wine has gone parabolic and is currently 85.31% up YTD. For those in the know Rayas wines have long been considered amongst the finest in the world and is often referred to as the Rhone’s Domaine Romanee Conti. With exceptional scores and minuscule production it was only a matter of time before the world woke up to the potential of Rayas and all things point to 2021 when it received the recognition it deserves. With more eyes on the wines of Rayas and speculation increasing across the market, it seems Rayas’ star will continue to shine in Q4 and into 2022.
As such, we should remove it from the average bringing it down to 4.11% growth in 2021 so far. This equates to the Rhone being the worst performing region YTD.
|Rhone||2020 Perf||2021 Perf to date|
|Rayas CNDP Reserve||9.46%||85.31%|
|Pegau CNDP Reservee||-9.09%||11.54%|
|Chapoutier Ermitage Pavillon||-3.61%||8.51%|
|Domaine Jean Louis Chave Hermitage||-2.45%||6.83%|
|Paul Jaboulet Aine Hermitage Chapelle||3.25%||4.65%|
|Clos Papes CNDP||6.90%||6.45%|
Since January 2020 the Rhone basket has moved closely with the Rhone 100 index, until March of this year where it shook off the correlation and moved sharply upwards – although this is largely due to the aforementioned Rayas. A plot of the pair can be seen below.
Napa continues its run of form since it burst onto the investment scene some years ago. Characterised by low volumes and uber scores the region has quickly become a diversification investors cannot overlook. After a flat 2020 where the Napa Valley basket was the only region which contracted, the region has changed path in 2021 with 14.43% gained YTD. This is largely due to the sterling performance seen in Screaming Eagle and Harlan.
|Napa||2020 Perf||2021 Perf to date|
Curiously, the Napa basket has had the second largest performance in 2021 so far (first with the omission of Rayas CNDP Reserve from the Rhone Basket), but also is the only region which has components with negative growth.
No Napa index is publicly available from Liv-Ex so comparison cannot be drawn. However, please find a plot of our basket over the last 21 months below.
A comparison of the above regions can be seen in the chart and table below:
|Region||2020 Perf||2021 Perf to Date||2020 Liv-Ex Index Perf||Liv-Ex Index Perf 2021 to Date|
The table above demonstrates the outstanding performance seen across the top wines of each region in 2021 to date and their corresponding index from Liv-Ex.
The resilience shown in 2020 and the exceptional growth seen in 2021 are both vindicating and reaffirming for those with positions in fine wine, but perhaps even more important is the performance seen over a longer term. Below is a table documenting the gains seen in various fine wine and traditional indices since December 2003.
|Liv-Ex Burgundy 150||10.88%||530.97%|
|Liv-Ex Champagne 50||9.30%||388.42%|
|Liv-Ex Bordeaux 500||7.21%||245.99%|
|Liv-Ex Italy 100||7.15%||242.70%|
|Dow Jones IA||6.81%||223.74%|
|Brent Crude Oil||5.58%||163.40%|
|Liv-Ex Rhone 100||4.46%||117.59%|
Unsurprisingly, Burgundy continues to lead the pack with stratospheric growth of 530.97%. Champagne has been closing the distance in recent months and is currently sat at growth of 388.42%. What is particularly striking is looking at the top seven entries; five of them are fine wine, edging out some traditional juggernauts such as the Dow Jones IA, Nikkei 225 and Brent Crude Oil. The FTSE 100 brings up the rear with 58.29%. In theoretical terms, an investment in the Burgundy 150 (if that were possible) would have yielded profits nine times greater than the FTSE 100 over the same term!
Risk vs Reward
Fine wine has long been regarded as an excellent portfolio diversification due to its above average returns coupled with below average risk. Since December 2003, the benchmark Liv-Ex 100 has generated a 7.52% compound annual growth rate (CAGR) alongside 8.63% annualised volatility. This outperforms all the traditional indices (aside from Gold) in CAGR and demonstrates lower risk alongside. What is particularly noteworthy is the cluster of all the fine wine indices (in the red rectangle in the chart below) demonstrating the aforementioned above average returns (Y-axis) and below average risk (X-axis).
After a flatter 2020 amongst much of the wine market, 2021 started strong and continued to excellent performance through Q1-Q3. All the fine wine regions have performed exceptionally in 2021 to date, both in the broader Liv-Ex baskets and the ‘blue chip’ baskets. Aside from Italy (due to the US import tariff), all regions have fared better in 2021 than in 2020. As such, Burgundy, Champagne and Napa Valley continue to lead from the front.
After an incredibly challenging 2020 where the world was turned upside down, 2021 saw a period where governments were fighting to get their respective economies out of the quagmire and periods of higher inflation were inevitable. As such, investors were looking for physical goods to place their funds which possess low risk and high returns. Fine wine has proven itself as an established option with a quantifiable and measurable market. 2021 to date has been a bumper year for the fine wine market overall with the six main regions averaging growth of 16.93%. The UK budget released this week forecasts inflation hitting 4% in 2022, this will likely see a continuation of demand for tangible assets which act as a hedge to the macro climate and prevent capital erosion from abnormally high inflation. As such, we predict the profitable run fine wine has enjoyed in 2021 to continue in Q4 and into 2022.