As we have approached each quarterly update this year, international current affairs have brought us nothing but surprises. Since the Q2 report, the global economy has continued to endure more seismic macro events, each the next in a seemingly endless onslaught since 2020. From the repercussions of the pandemic, the ongoing conflict in Ukraine and most recently the turmoil created by the ex-Prime Minister and her Chancellor’s ‘Mini Budget’, which left markets reeling and currency in freefall, the outlook for fine wine remains somewhat different.
In 2022 to date, fine wine has continued its run of good form and has posted superb gains across the board. The benchmark index, the Liv-Ex 100, is up 8.11% at a time when most conventional markets have contracted in 2022. A breakdown of a selection of traditional markets and fine wine indices can be seen below.
|Brent Crude Oil||9.46%|
As discussed in the Q2 report, cash is eroding in the bank quicker than at any time in recent memory. This is a symptom of a myriad of issues, from heightened demand for goods post lockdown, supply chain issues, runaway energy prices, quantitative easing in major global economies, and the ongoing war in Ukraine. Over Q3 inflation did come down slightly, but it is currently back at the highest rate of the year and still far above the target set by the Bank of England. As such, this has created a heightened demand for assets with a demonstrable low correlation to inflationary assets: enter fine wine.
At the start of 2019, IG Wines established an idealised basket of big-hitting fine wines. All the top fine wine regions are all represented and proportioned by risk, return potential and value among other things, the exact split of which can be seen in the following pie chart. Since its setup, we have closely monitored the basket’s performance.
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|
The wines are all priced as an average bottle price, across all available vintages, at monthly intervals then processed into the index below.
When comparing the index to the FTSE 100, the IG Wines’ basket performance is undeniable. Over the same term, the FTSE 100 has decreased 8.6% while the fine wine basket has increased a staggering 50.55%. It should be noted that a shortcoming of this comparison is the omission of dividends from the FTSE 100 but irrespective of this, the immediate and sustained divergence of the two plots in the chart above is clear.
Our Burgundy basket, as well as the broader Burgundy 150 index from Liv-Ex, has historically demonstrated the best performance across the regions we monitor. It is a region that never fails to amaze; since its inception in December 2003 the Burgundy 150 index has risen a staggering 802.75% and even just since the beginning of 2020, our basket of top Burgundy has rocketed 54.42%. A comparison between the two can be seen in the chart below which documents our basket and a rebase of the Burgundy 150.
Supply chain issues continue to haunt the Champagne market and the resulting squeeze on supply has helped drive prices up. Both the Champagne 50 index from Liv-Ex and our Champagne basket have climbed considerably since the start of 2020 (spurred on notably by the easing of Covid lockdowns) and are currently sitting at 86.48% and 100.49% respectively.
Bordeaux is long established as the bedrock of wine investment and constitutes the largest component of most portfolios. This is with good reason as superb returns have been observed in the wines at the apex of the region for decades. Our basket consisting of the five First Growths has appreciated a rewarding 20.98% since January 2020, and the broader Bordeaux 500 basket from Liv-Ex has risen 277.4% since December 2003. As Bordeaux has the most established presence in the wine investment market, the natural comparison is to a traditional market. As such the plot below includes the performance of the FTSE 100 over the same time frame.
The aforementioned omission of dividends from the FTSE 100 plot is noteworthy but makes little difference what can be observed here. The separation between the FTSE 100 and the two Bordeaux plots is immediate and sustained. An interesting point of note is that the two Bordeaux lines move in almost lockstep with one another suggesting the Bordeaux market is deeper than some other regions with a greater number of wines generating capital returns.
The fine wines of the Rhone have enjoyed a particularly fruitful time of late. As is often the case with fine wine, a rising tide lifts all boats and growth was seen across a broad range of Rhone wines following on from the huge success of Rayas Chateauneuf which is up 155.26% since January 2020. However, the growth of Rayas has cooled in recent months giving back 8.7% to date since its March 2022 peak. This can be seen in the plot below with our Rhone basket decreasing somewhat in recent months. However, we believe that this is a natural stabilisation of the Rayas market and after a flatter period in Q4, growth could return in 2023.
Recent years have seen Italy firmly stake its claim as a region at the top of wine investment. Since bursting onto the scene, the five Super Tuscan wines have enjoyed breakout success; the average price has appreciated 53.83% since the start of 2020 alone. Although these dominate within investment parcels of Italian wines, the performance seen from the broader Italy 100 index below is indicative of the potential that lies beyond the Super Tuscan realm, and subsequently a broader priced basket of Italian wines is generating price appreciation too.
The fine wines of the Napa Valley are a newer addition to investment portfolios compared to their European counterparts. Nevertheless, what the investment Napa market lacks in age, it makes up for in performance. Our basket of some top wines from the region has appreciated 45.77% since January 2020, 17.14% of this has been in 2022 alone. The performance observed in the wines at the peak of Napa Valley can be seen below. Please note there is no corresponding index available from Liv-Ex.
IG Wines has recently branched out into the world of investment-grade cask whisky. Scotch in particular enjoys a reputation the world over as the premier whisky, and as such there is colossal demand for the ‘liquid gold’; an estimated £4.5bn is exported every year! Alongside towering demand, Scotch whisky has historically demonstrated exceptional price appreciation averaging 12% per annum. Over Q4, we will have a selection of superb casks available for clients. A comprehensive guide on cask whisky investment and the market will be distributed shortly. In the meantime, please email firstname.lastname@example.org to schedule an initial conversation.
Impressive growth continues to be demonstrated in the fine wine investment markets. Champagne leads the pack in both 2022 to date and overall performance. Rhone enjoyed a breakout 2021, which has propelled it into second place overall with Burgundy and Italy coming in third for total performance and 2022 to date performance respectively. A breakdown of each regional basket performance can be found below.
|Region||2020 Perf||2021 Perf||2022 Perf to Date||Total Perf|
Since December 2003, when the region-specific indices from Liv-Ex began, fine wine has consistently outperformed almost all traditional markets. This is demonstrated below in the Total Gain and Compound Annual Growth Rate (CAGR). Burgundy and Champagne lead from the front with eye-watering performance figures; 802.75% and 634.44% respectively.
|Brent Crude Oil||185.61%||5.73%|
Risk vs Reward
A key characteristic of fine wine which makes it such a spectacular investment opportunity is the above-average returns and below-average risk. This can be seen in the following graph where all the fine wine markets are clustered in the top left of the plot, denoting a high return (y-axis) and low comparative risk (x-axis).
As posited in the Q2 market report, the fine wine market has seen a continuation of the prosperous run it has enjoyed in recent years. Growth has been shown not only in the basket of wines at the peak of the market but across the wider indices too, a testament to the health of the market and that the fevered interest in top investment wines can also trickle down to other, more affordable wines too. This continues to present superb buying opportunities for investors wishing to expand their fine wine holdings with a wide range of budgets.
Q4 will bring more growth for the fine wine market and particularly, a continuation of the growth seen in Champagne and Burgundy. Inflation continues to be an issue for economies the world over and cash positions are eroding at an alarming rate. This will likely be coupled with a recession and opportunities to protect funds against this will become more valuable than ever. As such, supplementing investment holdings with fine wine or cask whisky could be a wiser decision than ever before.