Italian wines - ripe for investment

2019-11-15

This article is a republished version of one that appeared earlier in the year. Why? Because there’s another reason to sing about the virtues of Italian wines; the Trump administration have recently introduced a 25% tariff on all wines from France, Germany and Spain below a 14.1% alcohol level (Champagne is exempt). This has caused a loss in confidence in the French heavyweights and Bordeaux and Burgundy prices are on the slide. Italy’s cheese industry was the one selected to take the hit in this particular trade war, leaving their wine sector sitting pretty. We’ve been bullish on Italy all year, this adds further grist to the mill.

The Italians are not only the largest wine producing country in the world, they have been making wine for over four thousand years and cultivate over two thousand grape varieties on a multitude of different soils in twenty different regions! They are not bad at food either. Their climate seems to suit most of the finer things in life.

Italian wine being recommended is nothing new, but having it recommended as a collectable asset bearing an investment case is another matter. Ten years or so ago, a few canny collectors realised some of the ‘Super Tuscans’ (red wines typically made of a Bordeaux blend in Tuscany) such as Masseto, Ornellaia, Sassicaia (recent blog) and Solaia were ripe for decent returns. Traditionalists were a bit put out by these glossy new pretenders turning up on the Italian wine scene with their fancy French grape varieties and lots of marketing but it is fair to say they have helped the overall attention given to Italy and, as a result, the ‘Bs’ are blossoming – namely, Barolo, Barbaresco and, to a lesser extent, Brunello.

Wines from the best producers of Italy’s most venerable regions have been collected by the cognoscenti for years but now their appeal is becoming more widespread. The problems of Bordeaux, following an explosive China-driven period, have been well documented in the last decade and in its place, the smaller top-quality regions have been profiting. The indices for the last five years show Burgundy +120%, California +79%, Piedmont +76%, Tuscany +62% and First Growth Bordeaux +47%, the broad base WO 150 is +55% (all nice numbers!).

The reason for Burgundy’s performance is that old tried and tested wine world fundamental of genuine demand outstripping supply - who knew!? I think it is fair to say prices in Burgundy have been coming off the top for nearly a year now. Californian prices were a little more ‘forced’ and are in retreat now, but both these regions produce tiny quantities in comparison to the number of people looking to access these markets and gain exposure. Very widely held Bordeaux has been steady but is beginning to slide in this difficult environment. Piedmont and Tuscany are holding firm to gently positive.

The complex nature of Burgundy, California and Piedmont with their tiny (compared to Bordeaux) vineyards is attractive. This adds to the aesthetics, spurring on both the well-seasoned and newcomers alike, keen to learn more and invest time and money accordingly. More of the written word is more easily accessible to interested folk, and with platforms such as Wine Owners to trade on, the visibility of the product and the liquidity of the commodity has increased.

Grand Nebbiolo from Piedmont is yet to hit the big time, apart from a special few producers, but the word is spreading and there are ‘new’ names coming through; dedicated collectors and the inquisitive are homing in. It is a Burgundian-like network of vineyards, producers, families and reputations and you need to know what you are doing. Famous names like Conterno, for example, have six listings in my favourite reference book: Aldo, Diego, Fantino, Franco, Giacomo (the big one) and Paolo.

Some of the bigger names like Giacomo Conterno famed for his Montfortino vineyard, Giuseppe Rinaldi, Bartolo Mascarello, Bruno Giacosa and Gaja are already highly sought after superstars, with prices to match, but there are a host of others with reputations and demand beginning to swell; Brovia, Cappellano, Fratelli Alessandria, Sandrone, Voerzio and Vietti to name a few.

The ‘Super Tuscans’ of Bolgheri are much simpler to understand, like Bordeaux versus Burgundy, and are produced in larger numbers. The names mentioned earlier are virtually household names (in wine terms!), are less exciting right now overall but tend to deliver very steady returns.

Brunello di Montalcino, made from Sangiovese, is also comparatively easy to piece together in relation to Piedmont. Biondi Santi, Poggio di Sotto, Salvioni and Soldera are the big names with the fancy price tags. The secondary market for Brunello has not yet developed so, for now at least, it is a case of keeping a watchful eye although Soldera has been added to several portfolios already. There are many other less well-known names that have been attracting huge plaudits from the top critics that remain under the radar. This group haven’t matured into the darlings of the market, so far, and back vintages are cheap and well worth consideration.

There have been some excellent vintages in Italy in the last decade or so, attracting fantastic media coverage and now the battle-weary Bordeaux buyers and profit takers of Burgundy are moving in. Another reason for favouring Italian wines in the current climate is that the U.S. and Germany are the biggest export markets, so the market unlikely to be affected by any potential fallout from Brexit.

Most of all, however, these wines are barely scratching the Asian surface as yet and we all know what happens when that changes!

Miles Davis 15th November 2019