The fine wine market entered 2022 carrying with it the momentum gained over the past year; whilst other markets struggled to find their footing after a difficult 24 months, fine wine went from strength to strength.
In our first report of 2022, we reported superb growth for the top wines from the Rhone and Burgundy, each leading the pack with 14.74% and 14.62% growth in Q1 respectively. By contrast, the FTSE 100 gained 1.78% over the same term, solidifying fine wine’s reputation as a standout performer in the investment market. Q2 saw a continuation of this trend, with a 1.61% contraction seen in the FTSE 100 equating to a 0.53% H1 performance figure (excluding dividends). Comparing this to the 4.77% figure seen in the Liv-Ex 100 over the same term only demonstrates the merit of fine wine further, particularly when taking the volatility observed in the global markets into consideration.
2022 began with a renewed sense of hope in the markets, the shroud of Covid lockdowns vanishing and the global economy seemingly springing back to life. However, the optimism was short-lived as Russia launched an invasion of Ukraine just eight weeks into the year. As such, investors were rightly concerned about where funds were placed and needed to hedge against possible downturns, volatility and inflation. Below is a breakdown of the performance that was observed by those using fine wine as a vehicle to mitigate these risks.
In the latter stages of 2021 inflation began to surge across many economies the world over, which we can mostly attribute to demand for goods post-lockdown, supply chain issues, soaring energy prices and periods of quantitative easing from the central banks of many prominent economies. H1 of 2022 has seen a continuation of this with UK inflation levels reaching 9.4% according to the ONS; the highest rate since February 1982. Cash in the bank is evaporating at a rate not seen in decades and as such, the demand now is stronger than ever for assets that possess a demonstratable ability to hold their value or appreciate in times such as this. Fine wine is one of those assets.
Since the beginning of 2019, IG Wines has been tracking the movement of a basket of fine wines. All the major fine wine regions are represented, and the basket is compiled of wines we deem as optimal inclusions in an investment portfolio. Moreover, a weighting has been applied to the basket to provide what we believe to be a prime regional split to give the optimal diversification. The regional split is as follows:
Within each of these regions, the basket is comprised of the following wines:
|DRC Echezeaux||Masseto||Haut Brion||Beaucastel CNDP||Bollinger Grande Annee||Dominus|
|DRC Grands Echezeaux||Ornellaia||Lafite Rothschild||Chapoutier Ermitage Pavillon||Cristal||Harlan|
|DRC La Tache||Sassicaia||Latour||Clos Papes CNDP||Dom Perignon||Opus One|
|DRC Richebourg||Solaia||Margaux||Domaine Jean Louis Chave Hermitage||Krug||Scarecrow|
|DRC Romanee St Vivant||Tignanello||Mouton Rothschild||Paul Jaboulet Aine Hermitage Chapelle||Salon||Screaming Eagle|
|DRC Richebourg||Pegau CNDP Reservee|
|DRC Romanee Conti||Rayas CNDP Reserve|
To monitor the price movement of our basket, the average UK market price for a bottle is taken for each wine and then processed into an overall weighted index. Not only does the plot below demonstrate the superb returns (1.43% compounded monthly), but the performance is cemented further when compared to the traditional index such as the FTSE 100, as seen below.
As mentioned in previous reports, a shortcoming of this comparison is the exclusion of dividends, but the immediate separation and trends established by the two indices are clear regardless.
Q1 saw a continuation of the run of form Burgundy has recently demonstrated, with 14.62% posted in the Burgundy 150 index and 9.20% in the Burgundy investment basket. In Q2, the Burgundy 150 gained 5.70% and the Burgundy basket 6.97%. This equates to H1 gains of 25.36% and 15.34% respectively (as seen below).
Performance by component can be seen in the table below:
|BURGUNDY||2020 PERF||2021 PERF||2022 PERF TO DATE||TOTAL PERF|
|DRC La Tache||-2.08%||29.87%||21.73%||54.79%|
|DRC St Vivant||1.26%||38.34%||27.09%||78.04%|
|DRC Grand Echezeaux||5.08%||48.03%||21.54%||89.06%|
|DRC Romanee Conti||-2.35%||15.82%||12.17%||26.87%|
The supply chain issues that hindered the Champagne market post-Covid lockdowns are ongoing, coupled with heightened demand as the hospitality industry reopened and a run of good vintages piquing the interest of collectors. This translates into a prosperous time for Champagne, which posted Q2 gains of 6.07% and 10.41% in the Champagne 50 and Champagne basket respectively. This has contributed to H1 gains of 16.02% and 21.49%. This allowed the Champagne basket to make up some lost ground in 2022 to date and is now performing almost equally to the Liv-Ex index. The price movements of both baskets and individual wine performance can be seen below.
|CHAMPAGNE||2020 PERF||2021 PERF||2022 PERF TO DATE||TOTAL PERF|
|Bollinger Grand Annee||9.52%||7.61%||18.18%||39.29%|
Bordeaux remains the main component of many investment portfolios and with good reason. The region remains the most established investment market and as such has historically demonstrated the closest correlation to traditional markets. However, during the sharp downturns observed in traditional markets in 2020, the FTSE 100 dipped as low as 73.95 in the rebase below, whilst fine wine remained buoyant. The plot below demonstrates the recovery seen in the FTSE 100 since 2020, currently at 98.42, whilst both the Bordeaux 500 index from Liv-Ex and our Bordeaux basket have shown steady growth throughout. Our First Growth basket appreciated 5.92% in H1 and the Bordeaux 500 index grew 4.05%, a considerable return when compared to the 0.53% growth seen in the FTSE 100 (excluding dividends) over the same term. As previously surmised, the movement in unison seen in the First Growth and Bordeaux 500 basket demonstrates a broader basket of Bordeaux wines showing similar percentage appreciation, indicating that potential investors with fewer funds at their disposal may find Bordeaux wines with a lower entry point still showing appreciation.
|BORDEAUX||2020 PERF||2021 PERF||2022 PERF TO DATE||TOTAL PERF|
As previously documented, our Rhone basket enjoyed a fruitful 2021 and although all components showed growth, the 122.22% outlier seen in Rayas Chateauneuf du Pape Reserve was largely responsible for the 63.89% appreciation. However, whilst Rayas has slowed (11.54% up in 2022 to date), the Rhone basket continues to climb and has grown 19.33% in H1. A plot of this parabolic appreciation and individual performance figures can be seen below alongside the Rhone 100 index from Liv-Ex which has moved up 7.58% in H1.
|RHONE||2020 PERF||2021 PERF||2022 PERF TO DATE||TOTAL PERF|
|Rayas CNDP Reserve||9.46%||122.22%||11.54%||171.32%|
|Pegau CNDP Reservee||-9.09%||14.00%||12.28%||16.36%|
|Chapoutier Ermitage Pavillon||-3.61%||4.81%||40.31%||41.75%|
|Domaine Jean Louis Chave Hermitage||-2.45%||8.96%||44.74%||53.85%|
|Paul Jaboulet Aine Hermitage Chapelle||3.25%||9.45%||19.42%||34.96%|
|Clos Papes CNDP||6.90%||8.06%||20.90%||39.66%|
In recent years Italy has cemented itself as a premier wine region for investment and our basket is composed of the five Super Tuscans which have dominated the investment market for the region. It comes as no surprise that these wines have performed excellently, growing 10.12%, 13.44% and 18.04% in 2020, 2021 and 2022 YTD respectively. However, the performance seen in the Italy 100 index is indicative of a broader basket generating capital growth alongside the Super Tuscans too. As such, the capital requirement to diversify into investment-grade Italian wines is lower than in some other investable regions. This is demonstrated in the plot below alongside the Super Tuscan performance figures.
|ITALY||2020 PERF||2021 PERF||2022 PERF TO DATE||TOTAL PERF|
A relative newcomer to the investment world, the cult wines of the Napa Valley are recognised for their minuscule production and often perfect scores. Demand is strong and continues to rise as more and more collectors and investors come to realise the merit of adding Napa wines to their holdings. As such, our basket of wines observed growth of 24.52% in 2021 and has built further on this with an H1 performance of 12.94%. There is no available index from Liv-Ex to compare to, but a plot of our basket and individual performance can be seen below.
When looking at the overall performance of the market in 2022 to date, impressive growth has been posted across the board. The Burgundy 150 index from Liv-Ex leads the way followed by our baskets of Champagne, Rhone and Italy. Interestingly, both Champagne indices feature in the top five. H1 has seen a continuation of the impressive growth seen in 2021. A full comparison can be seen below:
As runaway inflation causes increasing problems for people looking to allocate funds, performance such as those seen above become harder and harder to find. Moreover, the chart below demonstrates the sustained growth seen since the start of 2020:
This performance is cemented even further when looking at a comparison between fine wine indices and traditional markets. Below demonstrates total gain and compound annual growth since December 2003; note that seven of the top ten performers are fine wine markets.
|Dow Jones IA||214.20%||6.33%|
|Brent Crude Oil||207.86%||6.21%|
Risk vs Reward
Further cementing fine wine’s merit as an investment market is the demonstratable above-average returns and below-average risk. This can be seen in the plot below where all the fine wine markets are clustered together in the top left of the chart (in the red rectangle) demonstrating Annualised Compound Return at the higher end of the markets and low comparative risk.
Q2 has seen a continuation of the superb growth observed in 2021 and Q1 of 2022. As such, this has translated into a prosperous H1 for the fine wine markets. All of the baskets created by IG Wines have outperformed their Liv-Ex counterparts aside from Burgundy. Upon deeper analysis, it is clear that while our Blue Chip selection continues to perform strongly, the performance of the broader Liv-Ex Burgundy 150 is testament to the depth of the region, whereby it is now established enough for its success to trickle down to other producers. For this reason, it should remain a focal point for astute portfolios geared for investment.
Looking into H2 we anticipate that the momentum fine wine has generated will continue and key fine wine regions will prosper. Burgundy and Champagne have cemented themselves further as rewarding pillars for any portfolio and we anticipate them to lead the pack for the remainder of the year. Moreover, it is expected that as this performance continues a rising tide will lift all boats in these regions. As such the breadth of wines performing in H2 and beyond will continue to become more comprehensive. As cash continues to erode in the bank at the fastest rate seen in decades, investing in a tangible asset which possesses the qualities fine wine enjoys is a smart decision. All indicators suggest a recession is on the horizon and as such, there may never have been a better time to increase your exposure to fine wine.