The Ongoing March of Italian Fine Wine

 

Given the stark price difference between premium Italian & Burgundian wines it makes sense to sample what Italy has to offer, even if it means purchasing multiple cases to increase your return.

 

It’s no secret to us that Italian fine wine has been making great price movements in recent years but market statistics have recently placed Italy just behind Burgundy in terms of the growth it has delivered. As covered by various articles in both the trade, and regular press – Italian wine is somewhat of the market’s darling right now and its performance is predicted to continue for the foreseeable future.Even though the price of premium Italian wine on the secondary market trails far far behind that of top flight Burgundy, the price performance gap is closing. Over the last five years the Burgundy 150 index which tracks the price performance of Burgundy’s most tradeable wines, has grown by 97%. Over the same five year period Italy is the next best performer at 39%. To be fair, both statistics are appealing but if you compare the buy-in price of prime examples from both regions, Italy’s 39% comes at a much more cost effective level – a good Burgundy can cost considerably more per bottle than a top Tuscan example does per case.

You could take a position with a very good Super Tuscan wine for less than £1,000 but a similarly scored example from Burgundy could cost more than £10,000. Given the stark price difference between premium Italian & Burgundian wines it makes sense to sample what Italy has to offer, even if it means purchasing multiple cases to increase your return.

 

Italy’s market share has risen from 6% to 8% (over 2 years), a sign perhaps that the region’s potential is only now being discovered

Anthony Maxwell,
Liv-Ex Director, August 2019

None of the above is news to Cult & Boutique. We have been recommending top flight Italian wines regularly since 2013 and many clients that purchased Italian wines through us have seen good growth and sold at a profit. Here are a few historical examples:-

Although Tuscany dominates Italian trades, taking more than two thirds of total sales but this level of performance is not limited to the traditional go-to Super Tuscans. Other regions are also taking big strides – top wines from Piedmont have grown by more than 12% since December 2017 and trades in Piedmontese wines have risen by an astonishing 3,300% over the past ten years, with price performance year-to-date reaching 40%.

 

Other regions are also taking big strides – top wines from Piedmont have grown by more than 12% since December 2017

 

If you missed out on our previous Italian recommendations there is still time to act. We have an impressive range of Italian wines currently available, at varying price levels that allow us to cater for all budgets. Speak with your Portfolio Manager directly to discuss your options and find a wine that suits your budget, and also fits in with your wider investment strategy.

By Spencer Leat

Californian Wildfires

 

I’ll never forget what the region went through October of 2017, there were multiple fires burning at the same time and going off in different directions. It was like living in a war zone

Jeff Bitter,
President of California’s Allied Grape Growers

 

It has almost become ‘the norm’ to hear about various wildfires breaking out in different locations annually around the world.  Of course the loss of human life, livestock, livelihood and property are heart breaking and the damage to the environment very concerning.  But there is another by-product of certain wildfires that could have an effect on your fine wine portfolio.California has suffered more than its fair share of wildfires in recent years, which has had a dramatic effect on the region’s ability to provide successive vintages of some of its most favoured wines.  The Californian wine industry is worth an estimated $114bn to the US economy and pays around £35bn in wages, not to mention $250bn of charitable contributions at the last count. So, any disruption to the big Californian wine machine could have huge knock-on implications.

The 2017 wildfires have proved particularly damaging, not only physically but also psychologically in the minds of consumers.  Only a fraction of the 2017 Cabernet Sauvignon crop was directly affected by the fires and these were non-reserve grapes that would be destined for $60 – $80 bottles.  In fact, by the time the fires took hold around 90% of harvest had already been picked and stored from Napa and Sonoma growers.

 

At the recent Auction Napa Valley, we were able to connect with buyers and collectors from all over the world who are still concerned about the 2017 vintage.  There’s no way we wanted to compromise the brand we spent 25 years building and put out wine that might taste fine now, but could start exhibiting signs of smoke taint a year or more down the road. So we sold off about half of our Napa Valley Cabernet Sauvignon in bulk. But at the Auction, we realized that collectors are still concerned.

 

Rich Frank,
Frank Family Vineyard

 

But direct fire damage is not the only concern on winemakers’ minds – grapes can also be affected by smoke taint, where smoke present in the air can be absorbed into the grapes themselves.  There is no definitive test for smoke taint and the majority of premium producers from affected regions have decided to pull entire vintages, in order to protect consumer confidence and reduce the risk of tarnishing their brand.  After all, wine develops over many years and a wine that tastes fine after a couple of years may go on to develop unwanted nuances of taste and aroma which would be catastrophic for many premium producers, who trade at heady prices based on the long held quality of their wine.

The fine wine investment market is a supply and demand environment and having most of the top producers from Napa and Sonoma reduce their supply to zero is bound to apply pressure on the overall supply and, in turn, put upward pressure on price as a growing number of consumers start to chase a dwindling number of bottles.  With climate change progressing and Californian wildfires becoming more frequent and widespread, it would be a good idea to consider taking a position in some of the unaffected vintages before demand pushes prices out of reach.

 

I got to the vineyard early on Monday morning [the first morning of the fires] and started tasting through the fruit. I knew right away it was gone

Nic Gislason,
Screaming Eagle

 

The upper tier of collectible Californian wines is already hard to break in to.  Most of the very best producers work with tightly controlled waiting lists, lasting for many years.  And if you dare to pass on a particular vintage release, you can be pushed to the back of the queue, just like snakes and ladders.  Working with Cult & Boutique is one way to gain access to some of these coveted wines, as our presence in the wine market allows us access to wines that otherwise would be out of the reach of most buyers.

Some of our recent Californian recommendations have performed well but you should always bear in mind that wine is a long term market that delivers the best returns over extended hold periods.  We will have to revisit these wines in five to ten years time to see what the full effect of the wildfires has been.

On a related note, if you are awaiting an allocation of Californian wine we have recently secured an impressive allocation of premium brands and will contact you soon with full details.  As always with this region, quantities will be minuscule so take what you can while it’s available.

Why Choose Fine Wine Over Stocks and Shares?

 

According to the 2018 Knight Frank Wealth Report wine investments rose by 192% in the last decade.

 

When thinking about investing, most people only think about stocks, shares and other traditional services provided by banking and financial institutions. However, other types of investment are becoming increasingly more popular - cars, watches, art and wine are also investment options to invest your money and increase your profit.

Stocks are a well-known investment vehicle but due to high volatility you could lose your entire investment, as demonstrated during the 2007 financial crisis. Hence investing in stocks can be quite a high-risk choice. It demands in-depth research prior to each investment that will cost you more than a couple of hours, on top of the ongoing portfolio management. In addition, another disadvantage is that you will be competing with professionals such as Institutional Investors and professional traders that probably have a greater knowledge and more sophisticated tools and resources at their disposal. You should also bear in mind that if the company you chose to invest in goes bankrupt, stockholders are the last to be paid, in other words you will probably have to wait some time to receive your money, if  it does happen.

On the other hand, investing in alternative solutions could offer more stability and profit. As mentioned before, classic cars, vintage watches, art as well as fine wine are all alternative options to stocks. According to Knight Frank’s Luxury Investment Index from 2018(i) and 2019(ii), alternative or “passion” investments such as fine art, classic cars, watches, rare whisky and fine wine have been showing very strong growth in the last decade. Investments in wine has been as lucrative as art over both the last year, showing a growth of 9%. When compared to classic cars and watches, wine also showed better performance: 7% higher than cars and 4% higher than watches. However, rare whisky was the market leader last year showing 40% in annual growth. The Knight Frank Rare Whisky 100 Index (KFRW100), which contains 100 bottles of the world’s most desirable rare Scotch whisky and tracks UK auction prices, increased by almost 40% through 2018.

Taking a closer look at the fine wine investment market, according to Knight Frank’s Luxury Investment Index from 2018(iii), wine investments rose by 192% in the last decade and the most lucrative brands in this market have been rising in value since 2016 by 165% according to The Telegraph(iv). Demand for top Burgundies is stronger than ever, driven by the scant quantities produced in recent vintages. Sotheby’s October 2018 sale saw a single bottle of La Romanée-Conti 1945 fetch US$558,000(v). The sale highlighted the level of premium that the market is prepared to pay for impeccable provenance. Considered as a passion investment, it could become a lucrative hobby and more pleasurable to manage than traditional investments. Wine investment can also offer further advantages, such as

Low Levels of Risk and Stable Returns: It has been proven that when investing in wine, the returns are consistently higher when compared to traditional investments such as stocks, shares and commodities. The wine market has also been showing less volatility, as well offering comparatively lower levels of risk.

Physical Asset that Improves with Age: Fine Wines get better over time. This is another great characteristic of investing in fine wine. Your investment will not only improve with age but should consequently also rise in value. In addition, you have the possibility of investing in a particular vintage to mark a special occasion, such as the birth of a child or grandchild, wedding anniversaries or other landmark occasions.

A Tax Efficient Market: The tax efficiency of investing in wine is another great advantage that makes it even more attractive to invest in. Investing in wine doesn’t attract Capital Gains Tax since it is considered a wasting asset. You can also avoid paying VAT and Duty by storing your wine in a bonded warehouse. The Capital Gains Tax exemption is for UK residents and will depend on your tax status, for more detailed information we suggest you consult your tax advisor.

Positive Supply and Demand Correlation: Bordeaux and Burgundy are regarded as the blue-chip element of the fine wine market.  Due to tight controls and limited vineyard space, the quantity of wine produced by the best Chateaux is strictly limited. On the other hand, demand for these attractive wines continues to grow and tends to outweigh supply. This is a major driving force of the market and naturally pushes values upwards, which benefits investors.

Financial Securities: Your investment portfolio should have a mix of high-risk/reward and low risk/reward in order to minimize the overall risk of financial loss. Fine Wine investments are a perfect vehicle to diversify and protect against movements in traditional financial markets.

Support to Increase Your Knowledge: We provide a wealth of information and support to help create, monitor and manage your fine wine portfolio. In addition to our blog, we also provide up to date market information through a private online client portal and regular newsletters. You will have all the support needed to expand your wine market knowledge as well as your profits.

These are just some of the benefits you can enjoy when investing in fine wine. Apart from the obvious financial benefits, it is also a fun and exciting form of investment. For more information about the wine market contact us directly and follow us on Instagram, Twitter and Facebook.

If you are considering investing in fine wine the team here at Cult and Boutique are available to help on +44 20 8948 9430 with all you need to know about this market. For more information request our free wine investment guide.

[i] https://content.knightfrank.com/resources/knightfrank.com/wealthreport2018/the-wealth-report-2018.pdf

[ii] https://content.knightfrank.com/resources/knightfrank.com/wealthreport/2019/the-wealth-report-2019.pdf

[iii] https://content.knightfrank.com/resources/knightfrank.com/wealthreport2018/the-wealth-report-2018.pdf

[iv] https://www.bizepic.com/2019/01/07/is-fine-wine-still-a-worthwhile-investment/

[v] https://content.knightfrank.com/resources/knightfrank.com/wealthreport/2019/the-wealth-report-2019.pdf

The Importance of Good Storage

 

The physical condition of stock is one of the biggest influences on a wine’s value

 

Our longer standing clients would have recently received storage invoices for 2018 and we thought we would take this opportunity to offer some detailed information on the quality of storage that we provide, the processes involved and the importance of good storage for fine wine.

We use the services of London City Bond’s Vinotheque facility in Burton-upon-Trent. Unlike many other bonded warehouses available, Vinotheque is dedicated to the storage of fine wines only, which offers a more mindful approach to handling and storage of your wine.

If you’re a stickler for security you should be impressed with the steps that are taken to protect your portfolio. Your wines are stored in a private reserve within our account, under your unique client reference and full name, so your wines are not deemed as part of Cult & Boutique or LCB’s assets. In addition to this, Vinotheque’s state of the art security system, which includes movement detectors, infrared beams, security cameras and a security guard, is also constantly monitored by an off-site specialist enabling LCB to deliver maximum security 24 hours a day, seven days a week.

Vinotheque is a Grade II listed building constructed in the late 19th Century with metre-thick walls. This substantial foundation was built upon with the addition of a one million pound air conditioning system, described as unique within Europe and the most advanced air conditioning system within a warehouse. Together they create the perfect controlled environment for the long term storage and maturation of fine wine.

In addition to the bricks, mortar and hardware within, all staff at LCB Vinotheque are enrolled on to the Wine & Spirits Education Trust (WSET) Level 1 course in order to increase thier expertise and enthusiasm for the role. Some members of staff have continued to expand thier knowledge and pursued this to diploma level – so with staff this knowledgeable and and professional, you can be sure your wine is in good hands.

Vinotheque provides the ideal storage conditons for fine wines. Temperature and humidity are maintained at a constant, suitable level with light and disturbance also kept to a minimum. The physical condition of stock is one of the biggest influences on a wine’s value, so it’s very important to ensure that variables such as temerature, humidity, light and vibration are kept under strict control and continuously monitored. Vinotheque also has a purpose-built photographic studio to provide full condition reports, including bottle/case photographs and fill-level assessment. Such reports are available on request and can help with the sale of your stock should the buyer have any questions regarding condition.

Vinotheque has also been a recipient on the Best Supply Chain Innovation Award in recognition of the investments they have made to create the perfect environment for fine wine maturation. The warehouse is linked in to London City Bond’s national transport network and through Cult & Boutique your wines are fully insured, both whilst in storage and in transit. LCB’s transport drivers are equipped with the latest EPod units which provide real-time electronic proof of delivery enabling us to track shipments to their destination and confirm safe delivery with our clients where neccessary.

We include five years of storage and insurance with every purchase you make, so you will not be asked to pay any additional storage fees until you have held your wines for longer than five years. Once your inclusive storage expires we charge annually in arrears. If you would like to sell your wine before any additiional storage fees are due, you should contact us before your inclusive storage expires allowing enough time to arrange and execute the sale of your wine. If you are unsure of timescales it would be advisable to keep in regular contact with your Portfolio Manager who will be able to discuss these matters with you and offer information specific to the wines you would like to sell.

By Spencer Leat

Marchesi Antinori Tignanello 2009

In this series we follow five examples from multiple regions and winemakers using historic financial data from liv-ex the largest online exchange for fine wines to demonstrate the financial gains achieved within a five year period.

One of Italy’s world renowned Super Tuscan wines, Marchesi Antinori’s Tignanello has shown some very impressive growth in recent years. Available for purchase in January 2014 for around £495 a case, the 2009 Tignanello grew in value by 9% the following year to reach a value of £540. The next year saw just £40 added to the value of a case but performance picked up over the next two years reaching a market value of £668, a 35% growth against the 2014 purchase price. As the secondary picked up, the gains continued and after a full five year hold the market value has reached £850 representing a 77.8% growth, or 15.5% CAGR over five years. With such an affordable unit price you should consider buying multiple cases in order to maximise your potential returns.

Domaine Jean-Louis Chave Ermitage Cuvee Cathelin 2009

In this series we follow five examples from multiple regions and winemakers using historic financial data from liv-ex the largest online exchange for fine wines to demonstrate the financial gains achieved within a five year period.

Rarity can be one of the biggest driving forces in the wine market and from this perspective, Chave’s Cuvee Cathelin fits the bill. Only produced in outstanding vintages, this single vineyard Northern Rhone Hermitage could be bought for around £25,800 in January 2014. And its financial growth has been fairly linear ever since.

The first year’s hold would have delivered you 21% growth taking its value to £31,200 and by the end of year two growth against purchase price would have stood at an impressive 48%.

Prices in the third year dipped back down, which isn’t out of the ordinary for fine wine but, as scarcity began to take effect, it recovered and by the end of the fourth year reached a value of £55,092 – a growth of 114%. Today a case of this wine will set you back around £70,000, if you can find it, which would be a financial growth of 171%, or 34.24% CAGR.

Opus One 2010

In this series we follow five examples from multiple regions and winemakers using historic financial data from liv-ex the largest online exchange for fine wines to demonstrate the financial gains achieved within a five year period.

This wine from the famous Napa Valley in California has been a great diversification for those looking to see what the new world has to offer. In January 2014 a case would have set you back just £1,620 but don’t be fooled by the comparatively low entry price. One year into a five year hold its value had risen by 18% to £1,910 and by year three it had grown by 85% to a value of £3,000. Performance over the following two years slowed but today’s value of £3,170 represents a growth of 95.7% over five years, or 19.1% CAGR. With this type of performance you could consider acquiring multiple cases to increase your returns and gain more flexibility when you sell.

Chateau Mouton Rothschild 2000

In this series we follow five examples from multiple regions and winemakers using historic financial data from liv-ex the largest online exchange for fine wines to demonstrate the financial gains achieved within a five year period.

One of the famous Bordeaux ‘First Growths’, this wine is a well known powerhouse within the fine wine market. We’ll take you through the last five year’s price performance but bear in mind this wine was released onto the market at £2,200 in 2001. Fast forward to January 2014 and its value had risen by 372% to £10,400.

Assuming you had purchased a case in January 2014, the first years hold term would have delivered a healthy 18%, reaching a market value of £12,200. Two years later this figure had risen to £14,826, a growth of 43% against the January 2014 purchase price. Today, at the end of a five year hold period, the ‘Mouton 2000’ has a market value of £19,339 and would have delivered a growth of 86%, or a CAGR of 17.2% per annum.

Domaine de la Romanee-Conti ‘La Tache’ 2009

In this series we follow five examples from multiple regions and winemakers using historic financial data from liv-ex the largest online exchange for fine wines to demonstrate the financial gains achieved within a five year period.

Hailing from Burgundy, twelve bottle cases of 2009 La Tache could be picked up in January 2014 for around £23,000. Market prices fluctuated over the following two years before values really started to rise. By January 2017 its market value had risen by 6% to just under £24,500. From here onwards performance has been stellar – just one year later in January 2018 its value had reached over £36,000 and this January you would need over £41,000 to acquire a case. This represents a growth 76.3% over the last five years, or a Compound Annual Growth Rate (CAGR) of 15.3%.

Historical Examples of 5 Year Hold Terms

In this series we follow five examples from multiple regions and winemakers using historic financial data from liv-ex the largest online exchange for fine wines to demonstrate the financial gains achieved within a five year period.

The fine wine market works on a supply and demand basis, every vintage is limited in production with the emphasis on quality not volume. Rarity is also influential on price performance with many of the market’s most prestigious wines proving very hard to acquire, even upon release where waiting lists are common.

Most wines have a slow start but as stock availability decreases and the wine mature we tend to see a good increase in market value. To demonstrate this we have given five examples below using historical market data taken from Liv-ex – the largest online exchange for fine wines and the most reliable source for market data.

We believe that a healthy fine wine portfolio should feature wines from various regions, producers, regions and price points – in order to protect against under-performance in any one particular area and this has been reflected in the examples below. Purchase prices range from £495 to over £25,000 allowing access for both sophisticated and modest investors.