by Wine Owners
Posted on 2020-04-08
Miles Davis, 2nd April 2020.
If we look at the performance of the wine market relative to the major asset classes, wine has, once again, demonstrated some fine defensive qualities. The wider wine market has traded in a narrow range in the last couple of years, but the WO 150 is still up 57% over a five-year period. So far this year the WO150 is -1.3%. The WO First Growth 75 Index is down 6.6% - not bad compared to the FTSE slide of over 26% (peaking at -34%). There is a correlation in that the Covid 19 crisis has brought both classes down but the difference in magnitude and the speed in which it happens is significant:
Perhaps there will be a time lag response to the wine market as liquidity is so relatively small and because professional investors will not even stop to think about wine in times such as these (a good thing!). Following the Global Financial Crisis in 2008, The Fine Wine Fund, which I was co-managing and invested entirely in blue chip Bordeaux, lost an average 5.5% a month between September and December.
| Wine |
Current Value |
MTD |
YTD |
1 Year |
5 Year |
10 Year |
| WO 150 Index |
306.56 |
2.00% |
-1.52% |
-0.26% |
54.19% |
83.43% |
| WO Champagne 60 Index |
488.78 |
2.24% |
1.73% |
6.53% |
62.87% |
151.71% |
| WO Burgundy 80 Index |
786 |
5.20% |
7.57% |
17.87% |
155.27% |
256.58% |
| WO First Growth 75 Index |
251.92 |
-0.29% |
-7.14% |
-9.68% |
34.15% |
46.01% |
| WO Bordeaux 750 Index |
365.35 |
2.71% |
0.08% |
8.06% |
68.39% |
105.06% |
| WO California 85 index |
685.88 |
1.42% |
0.04% |
2.46% |
94.94% |
292.25% |
| WO Piedmont 60 Index |
312.96 |
2.44% |
-5.89% |
-2.24% |
68.28% |
101.01% |
| WO Tuscany 80 Index |
339.75 |
2.33% |
5.82% |
15.45% |
77.51% |
96.32% |
So far, the current market does not feel like it is going to react in quite the same way as either back then or like the major asset classes. To start with Hong Kong (and therefore China) has been inactive for the last nine months, first with the political troubles and now the virus and inventory must have reduced but, more importantly, the strength of the US dollar versus sterling is in play. At the start of the year GBP/USD was 1.33, falling to 1.15 on the 20th March and now at c. 1.24. The depreciation of GBP has protected sterling holders of wine and encouraged dollar buyers back into the market – indeed, we have seen this as a noticeable trading pattern, one which will probably continue.
Our own experience is that we have seen buyers of first growth Bordeaux, village and premier cru Burgundy, 2016 Piedmont and some of the super Tuscans. Most of the sub-indices are in good shape but there are two points to note here; one is that merchants rarely mark stock down unless they have to and the other is that these are calculated using the only readily available price – the offer price. Bids may well tell a different story.
Overall, the wine market is going to struggle this year and I would predict mainline prices, i.e. liquid Bordeaux and expensive Burgundy will be up against it. There will be lots of opportunities however and I do not expect a sudden crash, as we would have seen that by now. In a normal market 2016 Piedmont would have been extremely difficult to buy but, as it is, it is proving a joy. This will not be the case when the dust settles and as there’s very little to go around, I repeat my buy recommendation.
N.B. Our Burgundy index needs reworking as it has too many older, illiquid vintages contained within it.
by Wine Owners
Posted on 2017-05-24
With the 2015 Burgundies arriving in the market these days and with more to come over the next period the market is showing mixed signals - some of continued excessive demand and some spell disaster for lesser producers trying to claim high prices.
The prices of the 2015 vintage
The price development for the 2015s shows a rather mixed picture at the primary level - some producers have showed great restraint and have in some cases kept the prices at 2014 level, whereas moderate increases have been seen even amongst the top producers in very high demand.
A lot of Burgundy producers are aware of the dangers of high prices even on village level, as these wines are now becoming very expensive in restaurants. If they want to maintain a good representation in restaurants the prices for a village level wine are near the limit - aside from the producers in extremely high demand.
Other producers seem not very aware of these dangers and have increased the 2015 prices by more than 20% - and while this may be viable in the very short run - I have talked to several wine bars and restaurants that have cut allocations already, and many will do so after the 2015 vintage. This will perhaps not have a huge effect on the 2016 vintage as the quantities are very small in some cases .. but in the long run some producers have priced themselves out of the market so to speak.
The 2016 vintage - what to expect
I have tasted some 2016s already and there are plenty of reasons to be optimistic, as quality looks very fine indeed. The wines are cooler than the 2015s, and in that way more classic. It's still too early to be very firm on the quality - but potentially a quite outstanding vintage - very well balanced and enjoyable for both the reds and the whites.
The quantities are very low due to the April frost, but also very uneven across the producers and appellations. My expectation would be that the low quantity will ensure a continued upward pressure on prices for the wines in demand, but the tendency could be trouble ahead for increases in prices for the wines with no real demand in the secondary market.
Francois Millet, Domaine Comte Georges de Vogüé - Picture: http://winehog.org/
The long-term effect of prices
In my view, we will see continued increases in prices on the wines in very high demand - i.e. wines getting high prices in the secondary market thus ensuring a margin for those who buy the wines in the primary market.
These wines will still be in demand, as many people will keep allocations as it's a good investment, but larger share will eventually end up in the secondary market. Some of these wines are now priced beyond the limits of the average quite well off consumer, and will be traded accordingly. Restaurants will do the same, and as it becomes more difficult to sell the wines at the tables - they will also cash-in offering wines on the secondary market.
The wines not in demand in the secondary market will eventually have problems, as consumers will cut allocations and move on to other products.
This is where Bordeaux was 15 - 20 years ago, and while the top Bordeaux wines have managed to increase prices the lesser wines from Bordeaux are struggling with low demand and low prices even though quality and the value of these wines often can be tremendous these days.
Take a look at the wine lists of today and note how limited the Bordeaux offerings often are these days - compared to 20 years ago.
Burgundy will prevail but demand will be more volatile
With the small quantities produced in Burgundy the risk of a full meltdown is not imminent even with the latest increases in prices. Some producers will struggle as they will be caught between the need or urge to increase prices and the restrain shown by some of the top estates regarding the prices on the low-level wines.
A good negociant will be facing the fact that their Vosne village will cost the same as the wines from a top end producer in the primary market. That is not sustainable in the long run - and these producers could well see a collapsing demand within a few years.
As prices go up I expect demand to be more volatile, as the focus on the great vintages will increase. This has happened in Bordeaux and with the globalisation and available price information around the clock this will also be the case with Burgundy.
So, I expect increasing and more volatile prices for the wines in demand, and a sluggish market for the producers with high prices without a good demand from the secondary market.
The calculative consumer
As the prices increase the consumers will be more calculative and look at the historic prices and the development in the prices and availability of back vintages. Is it the right time to buy, can the same wine in an equally good back-vintage be found on the market at a lower cost.
The conscious consumer will check these things, and will search for information, to ensure a good price and ensure a good investment, even though the wine is bought for pure pleasure. Importantly consistency in the prices seen in relation to back vintages will be needed at least for wines produced in relatively large quantities.
This will increase the focus on services that offer historic data on prices and the possibility to validate and research the “true” market price.
The rising stars will emerge and shine brightly
Furthermore, we will see new talented producers pop up - and become in fashion within a very short time - and achieve high demand for these wines in the secondary market very rapidly as the producers get the acclaim from the wine press. So, exciting times where buyers and investors must be on their toes to follow the trends in Burgundy.
As a wine writer, it's exciting times in Burgundy as new talents emerge all the time, and old somewhat lacklustre estates are transformed to a new star within a few years with the arrival of a new generation.
So, stay on your toes, stay tuned in and informed on winehog.org - a yearly subscription is only 29€ - sign up here
Steen Öhman
Chief Tasting Officer
Winehog.org
NB:
The team at Wine Owners love Steen’s Burgundy reviews. Just like us, he was an impassioned collector, until he decided to pack in his day job and apply his palate to Burgundy for the good of mankind (and perhaps to gain a little personal enlightenment along the way).
An annual subscription with https://Winehog.org is a bit of a bargain; plus the reviews are accessible, and when we taste the wines that Steen’s tasted, we ‘get it’. Furthermore he’s a real discoverer, so if you're the sort of collector who loves the idea of buying into the next young Burgundy buck before the rest of the world catches on and spoils the price, you really should subscribe!
by Wine Owners
Posted on 2017-05-17
Latour’s conversion to organically produced vines began almost 20 years ago when they stopped using chemical herbicides. Since then, they started experimenting with new techniques, and in 2015, 100% of L’Enclos was organic and 50% of it was biodynamic.
Producing according to biodynamic techniques is not new. This method applies ancestral practices of using only ingredients from the farm and maximising their impact. For example, fertilizing is from the manure from the cows and horses living on the estate, mixed in with different flowers of certain specific properties. This main idea is to create a sustainable and circular ecosystem aimed at protecting the earth and make it more fertile by freeing nature to multiply the microbial activity in the soil.
Pontet Canet can be considered as one of the pioneers. They did their first biodynamic trial in 2004 and the results turned out to be very positive: the vines were brighter and tighter. Alfred extended the test parcel and First floor became fully converted in 2006; a first for a Médoc Classified Growth. Ten year’s on, and their most recent vintages show an aromatic complexity that is quite clearly much more evident when compared to their wines from the mid 200s.
Now more and more vineyards use biodynamic practises to grow their vines and in the winemaking. After decades of intensive farming many of the top vineyards in Burgundy and Bordeaux, including Domaine Leroy and Domaine Leflaive, began looking for new options since their soils were being exhausted and couldn’t sustain healthy vines with good grapes.
The biodynamic label, Demeter, has recently gained popularity in the Bordeaux region. Chateau Durfort-Vivens has this year been fully certified by Demeter, with the designation proudly added to their bottling in the form of a strip label. In a variable year the Margaux appellation, Durfort-Vivens 2016 showed out of cask as a wine of character, with a lovely aromatic profile,crunch fruit and a chewy, black cherry infused finish.
But it’s far from a one-way argument. As weather patterns become more extreme, protecting the plant and its fruit from the element under a strict biodynamic regime can be risky.
A wave of quality obsessed Burgundy producers increasingly use biodynamic treatments in a mixed approach to vineyard husbandry where the focus is on the soil’s microbial strength. But with repeated hailstorms, and the risk of rot in a warm humid environment, it takes a brave man or woman to forgo other practical fall-back options.
It’s a rich man’s game. Small Burgundy producers cannot afford repeated losses to disease when conditions get really rough and biodynamics might not be sufficient without heavy and repeated doses of copper sulphate,something which producers adopting biodynamic viticulture are reluctant to do with concerns about creating copper residues in the soil.
Château Palmer is a leading proponent of biodynamics and has been undertaking a great deal of research on test barrels of recent vintages, both in First floor and in the cellar and reducing use of sulphur as a stabilising agent. In 2016 they misjudged with one too-few copper sulphate treatments resulting in an attack of mildew, reducing their overall production volumes to just 28hl/ha, a miserly figure for Bordeaux in a generous year where most quality producers cropped at 45-50 hl/ha.
Yet biodynamics is ‘back’ here to stay, even if those who apply for Demeter certification are likely to be outnumbered by those who simply practise biodynamic principles and use many of the treatments.
Further north in Saumur, the legendary Loire estate Clos Rougeard has been practising biodynamics for ever. In the 1960s and 1970s when their neighbours embraced synthetic fertilisers and chemicals, they were mocked for holding true to their ancestral principles practised since the time of their great grandfather.
The last word goes to Nadi Fourcault, the remaining brother of Clos Rougeard (only recently bought by the Bouygues family who also own Chateau Montrose). “The only thing that’s revolutionary about us is that we’ve never changed.”
by Wine Owners
Posted on 2014-08-14
As prices of fine Bordeaux continue to tumble, the chancers, city trader refugees, the numerically challenged, con-merchants and worse - who set up so-called wine investment companies over the last few years and who attracted hot money and gullible consumers’ hard-earned cash - are continuing to go bust as their mini ponzi schemes or lop-sided balance sheets run out of road.
The latest to hit the headlines are Encarta Wines, Canary Wharf Wines and the snappily named En Primeur Ltd. These add to the list of Culver Street, Premier Cru Fine Wine Investments (who transferred their clients to Cult Wines), and European Fine Wines this summer.
These events do serve to further depress prices, as two things happen: distressed stock comes onto the market and is quickly traded; and consumers who have been stung take flight and get out at any cost. I suspect these events contribute to the overshoot that is a typical behaviour of all bear markets. Whether we’re already in overshoot territory, only time will tell.
It is really rather depressing how people get seduced into putting money into these businesses. Very often we see prices being offered to consumers that are far higher than market rates. For Christ's sake, don’t buy from cold callers you’ve never heard of! At the very least buyers really need to check the value of wines via Wine Owners Market Level pricing or by browsing the range of merchant prices listed through Wine-Searcher. One such consumer contacted Wine Owners earlier this year after they’d been offered a case of Montrose 2003 by a firm selling prestige fine wine at £2,100 per 12x75cl IB when the market price was £1,350-1450 at the time. The implication was that it had been rerated 100 points by Parker and that it was primed to go rise to £2,500 per case. In the event it had not been rerated, was not rerated, and today stands at £1,450.
Then there’s the story of Nobles Crus (the wine fund of Elite Advisors) who were forced to suspend redemptions last year by the Grand Duchy of Luxembourg’s financial regulator due to insufficient assets to meet the demands of clients heading for the exit door. Then in May this year something akin to a sweetheart deal was stitched up with leading creditors that led to redemptions at a notional value of €37M (Read the FT article Luxembourg embroiled in fine fine row).
What the true worth of the fund is, no one really knows. Ernst & Young were apparently used to bring authenticity to a suspect valuation method that included punchy Hong Kong auction prices. Supposedly there are €51M of assets left in the fund. Yet the fund has not filed accounts since 2011. Rumour has it that a variety of potential buyers have sniffed the assets over the last year only to walk away, believing values to be too high. One thing is likely: investors would be lucky to get out with the 28% discount to valuation that Banca Generali achieved when it recently sold their shares in Noble Crus to an unnamed 3rd party, as and when they manage to redeem.
How can a global leader like Ernst & Young have accepted a proprietary valuation methods for auditing a fund’s value, especially when that valuation was being questioned by other parts of the mainstream fine wine market including Liv-ex? How can the presumed oversight of a leading Italian Bank, who was a shareholder in Noble Crus, have still allowed a situation like this to develop? Not that regulated markets are necessarily any better. And they say the opaque derivatives market is booming once again…
But doesn’t this further demonstrate the value of being in control of your own portfolio of fine wine? A bit unfair perhaps on the good guys such as The Wine Investment Fund, Wine-Source and other reputable, well-run funds. But of course people who want to build their own portfolio are a different breed to those who are happy to go into a collective, so you can’t really compare. Collectives address a certain market seeking financial diversification and targeted returns, which isn’t the same as the mainstream fine wine market of collectors and lovers.
