From Brexit and Covid to runaway inflation and the Russian invasion of Ukraine, it has been one macro event after another testing the global markets over the past few years. Once again, the fine wine market has risen to the challenge and investors have found themselves in good stead to weather periods of economic uncertainty where other markets have seen volatility and sharp downturns. With the run of good form the market has been enjoying, it should come as no surprise that Q1 of 2022 has been prosperous and there may have never been a better time to hold fine wine than now.


The Market

The last 15 months will live long in the memory as a period of mass uncertainty in the global markets. As 2021 drew to a close, a renewed sense of hope abounded as the vicelike grip of the Covid pandemic seemed to be loosening and the global economy began to reopen. However, this was short-lived. The new year brought with it continued runaway inflation in many of the world’s economies, attributed largely to periods of quantitative easing implemented in an attempt to kickstart the economy from its stupor. The situation was only worsened in February when the tragic decision was taken by Russia to invade Ukraine. Historically, when war breaks out, stifled growth and inflation are not usually far behind. Furthermore, the effects of inflation have been compounded by the broad package of sanctions imposed on Russia.

 

Inflation

Inflation has largely been under control for many years, however, in Q3 of 2021 a number of macro factors, such as heightened demand for goods as lockdowns eased, supply chain issues, rising energy prices, and quantitative easing caused a shift and inflation began to soar. Earlier this month the Office for National Statistics published their CPI figures for March 2022. The outlook is bleak: CPI levels have reached 7% in the last 12 months, with a rise of 1.1% in March alone (compared to the 0.3% rise in March 2021). In such times where cash is eroding in the bank faster than ever before, investors look for assets with a demonstratable ability to hold their value or appreciate. Fine wine has historically fit the bill and is therefore an excellent addition to investment holdings now more than ever.

 

Investment Basket

Since the start of 2019, IG Wines have been tracking the movements of a basket of wines we deem as excellent inclusions for an investment portfolio. Weighting has been applied to give an optimal regional split and the performance of the basket has been tracked since. The regional split can be found below:

Within each of these regions, the individual components are as follows:

BurgundyItalyBordeauxRhoneChampagneNapa
DRC EchezeauxMassetoHaut BrionBeaucastel CNDPBollinger Grande AnneeDominus
DRC Grands EchezeauxOrnellaiaLafite RothschildChapoutier Ermitage PavillonCristalHarlan
DRC La TacheSassicaiaLatourClos Papes CNDPDom PerignonOpus One
DRC RichebourgSolaiaMargauxDomaine Jean Louis Chave HermitageKrugScarecrow
DRC Romanee St VivantTignanelloMouton RothschildPaul Jaboulet Aine Hermitage ChapelleSalonScreaming Eagle
DRC RichebourgPegau CNDP Reservee
DRC Romanee ContiRayas CNDP Reserve
Leroy Chambertin
Roumier Musigny
Rousseau Chambertin  

The average UK market bottle price is then taken for each of these wines and rebased into an overall index. Comparing this to the FTSE 100 over the same term gives a stark contrast.

A shortcoming of this comparison is the exclusion of dividends, but the immediate divergence between the two markets is undeniable. Over the term, the FTSE 100 has been volatile and while it is currently at its highest point since the chart began of 99.65, it too has dipped as low as 83.08 over the term. The fine wine basket however has consistently posted gains each month (aside from a small contraction between November and December 2020) and is currently at a return of 34.88%.

Burgundy

Burgundy kicked off the year with a successful En Primeur 2020 campaign showing good quality, strong demand and low volume. This spurred on a continuation of the excellent run of form the region has enjoyed in recent years, aided by a string of banner vintages which have only added to its renown.

It is safe to say that Burgundy has been a standout star fine wine region of Q1: posting gains of 14.62%, the Burgundy 150 index from Liv-Ex continued to build momentum and while our investment basket has not quite reached these levels, there have still been positive gains of 9.20%. Remarkably, since the start of 2020 the Burgundy 150 and our basket have achieved 48.87% and 39.90% growth respectively. This can be seen in the chart below:

A breakdown of the individual 2020, 2021 and 2022 to date performances for each basket component is as follows:

Burgundy2020 Perf2021 Perf2022 Perf to DateTotal Perf
Rousseau Chambertin-10.36%66.87%7.62%56.34%
Roumier Musigny2.25%5.32%24.20%10.67%
Leroy Chambertin5.88%61.47%-12.81%55.29%
DRC La Tache-2.08%29.87%16.90%40.52%
DRC Romanee St Vivant1.26%38.34%19.32%52.72%
DRC Richebourg-0.99%31.58%15.64%38.79%
DRC Echezeaux1.75%48.34%12.86%56.47%
DRC Grands Echezeaux5.08%48.03%11.21%61.15%
DRC Romanee Conti-2.35%15.82%8.55%18.51%
Burgundy AVG0.17%27.90%9.20%31.09%

 

Champagne

While posting excellent gains, Champagne supply has been severely hindered by recent events. Supply chain issues caused by the global pandemic, which experts suggest will have a knock-on effect for several years, coupled with renewed demand as the hospitality industry boomed post-lockdown has translated into a bumper run for the premium cuvees of the region.

Since the beginning of 2020 our investment basket has largely moved in lockstep with the Champagne 50 index from Liv-Ex. Both saw a sharp rise begin in the latter stages of Q3 2021 which continued into Q1 2022, where our basket achieved 8.34% growth. This can be seen in the chart below:

The individual components’ performance can be seen in the table below:

Champagne2020 Perf2021 Perf2022 Perf to DateTotal Perf
Dom Perignon5.37%35.03%0.00%50.34%
Bollinger Grande Annee9.52%7.61%12.12%25.00%
Cristal-0.52%12.50%17.59%27.46%
Salon2.52%55.41%7.70%69.41%
Krug-18.79%45.85%10.18%20.92%
Champagne AVG2.94%40.34%8.34%55.04%

 

Bordeaux

For most investment portfolios, Bordeaux remains the largest segment and with good reason. It consistently shows excellent returns and has demonstrated resilience during times of market downturns elsewhere in the economy.

As the most established investment market, a comparison to the FTSE 100 has also been included in the plot below (without dividends) where you can see the stark difference between the two markets. Since the start of 2020, the FTSE 100 has experienced troughs as low as 73.95 and is currently 99.65, or a 0.35% loss over the term. Bordeaux, however, tells a very different story. What is particularly interesting in the below chart is how closely correlated the Bordeaux 500 index from Liv-Ex is with our Bordeaux basket, specifically 0.979. This indicates that investment returns can be found across a broader basket of wines than other regions and suggests Bordeaux could be a good access point for smaller investment portfolios.

Moreover, Q1 of 2022 has seen an extension of recent performance where our First Growth basket posted 5.16% appreciation. The performance of individual wines can be seen in the table below:

Bordeaux2020 Perf2021 Perf2022 Perf to DateTotal Perf
Mouton Rothschild5.57%9.40%3.35%15.50%
Margaux5.94%5.17%5.74%14.38%
Latour0.20%6.76%8.75%10.36%
Haut Brion2.27%11.33%2.65%13.10%
Lafite Rothschild2.26%7.74%4.84%11.79%
Bordeaux AVG3.08%7.94%5.16%12.83%

 

Rhone

In our final report of 2021, we surmised that Rayas CNDP Reserve had to be considered an outlier due to its stratospheric performance, up 85.31% in 2021 alone at the time of writing. However, in the final quarter of 2021 Rayas only went from strength to strength, ending the year 122.22% up. Astonishingly, Rayas has continued this growth into 2022, posting 14.4% additional gains in the first quarter. As such, we have made the decision to leave Rayas in the Rhone basket which comes out at a 14.74% appreciation in the first quarter of 2022. A chart of this can be seen below:

The performance of individual components can be seen below:

Rhone2020 Perf2021 Perf2022 Perf to DateTotal Perf
Rayas CNDP Reserve9.46%122.22%14.94%145.50%
Pegau CNDP Reservee-9.09%14.00%-1.75%1.82%
Chapoutier Ermitage Pavillon-3.61%4.81%6.12%1.03%
Domaine Jean Louis Chave Hermitage-2.45%8.96%32.89%22.38%
Paul Jaboulet Aine Hermitage Chapelle3.25%9.45%2.88%13.01%
Beaucastel CNDP-1.75%5.36%5.08%3.51%
Clos Papes CNDP6.90%8.06%0.00%15.52%
Rhone AVG3.54%63.89%14.74%73.87%

 

Napa

The pinnacle of Napa Valley wines is typified by minuscule productions and uber scores; in recent years demand for these cult bottlings has gone through the roof, so it should come as no surprise that they have quickly become a must-have inclusion in many investment portfolios. As such, demand has only gone upwards, as is reflected in the sterling 24.52% performance observed across our investment basket in 2021 and the 3.01% growth seen in the first quarter of 2022.

There is no publicly available Napa index available from Liv-Ex so no comparisons can be drawn.

Napa2020 Perf2021 Perf2022 Perf to DateTotal Perf
Screaming Eagle0.96%33.16%0.82%33.15%
Harlan-2.55%23.19%7.49%24.06%
Dominus4.12%9.90%6.76%21.13%
Scarecrow-3.33%4.08%7.98%2.58%
Opus One2.12%1.73%1.02%3.89%
Napa AVG-0.06%24.52%3.01%24.95%

 

Summary

Overall, Q1 of 2022 has seen a continuation of fine wine’s superb performance. All investable regions have posted positive gains in the opening quarter, and look set to continue going into Q2. The IG Wines Rhone basket continues to lead from the front with a 14.74% gain, largely thanks to the runaway appreciation observed of Chateau Rayas CNDP in recent months. The Burgundy 150 index from Liv-Ex has also posted double digit growth, with 14.62% on the board this opening quarter. One thing is clear: every single wine index examined has eclipsed the 1.78% observed in the FTSE 100 over the same period. A full summary of performance by indices can be seen below:

IndexPerf
Rhone Basket14.74%
Burgundy 15014.62%
Champagne 509.55%
Burgundy Basket9.20%
Champagne Basket8.34%
Italy Basket6.74%
Bordeaux Basket5.16%
Rhone 1005.07%
Italy 1004.65%
Napa Basket3.01%
Liv-Ex 1002.93%
Bordeaux 5002.70%
FTSE 1001.78%

All over the world, investors are looking for reliable opportunities to place funds in these uncertain and uncharted times. Inflation is running wild through the global economy and tangible goods with low correlation to conventional markets are few and far between. Not only can fine wine act as a protection of funds, but as demonstrated in the table above, it can be an inflation beating asset capable of generating capital growth.

For an overview over a longer period, the chart below shows overall regional performance from the start of 2020 to date.

Historical Performance

Looking at total gains since December 2003 further demonstrates the excellent performance fine wine has achieved in recent years; four of the top five and six of the top eight performers in the list below are fine wine indices.

MarketTotal GainCAGR
Burgundy 150679.76%12.09%
Champagne 50534.01%10.82%
Gold Price365.92%8.76%
Liv-Ex 100304.02%7.91%
Italy 100274.69%7.62%
Brent Crude Oil261.99%7.27%
Bordeaux 500257.81%7.30%
Dow Jones IA231.72%6.76%
S&P 500190.56%7.96%
Nikkei 225160.58%5.36%
Rhone 100133.92%4.89%
FTSE 10067.88%2.87%

 

Risk vs Reward

Fine wine continues to demonstrate the below average risk and above average returns investors have enjoyed from the asset. Since December 2003 the benchmark Liv-Ex index, Liv-Ex 100, has yielded a total return of 340.02% with a compound annual growth rate (CAGR) of 7.91%. Comparing this to the FTSE 100 which has yielded 67.88%, with a CAGR of 2.87%, illustrates fine wine’s merit once again. However, perhaps the most valuable takeaway from the comparison is the low relative risk fine wine offers. As can be seen in the chart below, the fine wine regional indices are all grouped in the top left of the plot (red rectangle) demonstrating this trend starkly against comparative indices.


Conclusion

Fine wine has stood up against considerable adversity over the last 18 months, demonstrating its pedigree not only as a tool to shield capital, but as an asset that can appreciate in times where other markets are experiencing volatility and downturns. Fine wine has enjoyed a bull market over this term and considerable price appreciation can be observed across key fine wine regions and producers.

In times of heightened inflation, few assets possess as many desirable qualities as fine wine does; a tangible good with a globally priced market, finite supply and naturally increasing demand as the wine ages equates to a portfolio diversification that is undeniably special. Moreover and at least in the short-term, it looks like inflation is here to stay which when coupled with a UK money supply that increased more than £100bn in 2021 alone, means raised interest rates will surely follow.

As more and more investors further diversify into fine wine, a continuation of the current bull run can be expected. It is therefore our forecast that fine wine’s run of form will follow into Q2 and beyond, likely building further momentum until the next recession – there may have never been a better time to bolster your holdings than now.

Looking to start or grow your portfolio? Speak to our expert team at sales@igwines.com or contact your account manager for tailored guidance.