Is there still shine in trading fine wine?

Fine Wine market update from Senior Wine Advisor Will Hepworth

As the summer break draws to a close for many of us now returning suitably refreshed to our desks it is with some anticipation that we chart a course away from the August doldrums towards (hopefully) a final quarter of the year that will bring a fair wind and calmer waters in the fine wine market. There is little doubt that the last twelve months in the fine wine market have been choppy, with the occasional deep depression and poor visibility – proving that it is not entirely immune to the vagaries of the state of the wider global economy.

The primary drivers for the impressive gains seen in the market over the last five years are now those largely responsible for its overall decline over the last twelve months, namely the Bordeaux First Growth châteaux and their associated second label wines. It is widely felt that the high values seen at the peak of the market just over a year ago were unsustainable, having been propped up by speculation on potential future increases in value. However, the slide in value experienced by brands such as Lafite are so dramatic as to be seen by many as an  overcorrection. Prices on some of the more “unfashionable” vintages are now low enough to be considered a relative bargain, offering room for growth, indeed it is worth looking at some of the ‘04s, ‘06s and ‘08s we are currently offering at prices that have dropped considerably from this time last year and now look a good buy as a result.

Whilst Bordeaux continues to form the backbone of trading activity on Liv-ex, its proportion has dropped to 86% over the last few months. Burgundy (albeit at the very top end) continues to be of interest for speculators, together with premium Italians and top-end Champagnes. Against a backdrop of falling Bordeaux prices, these sectors have outperformed the wider market, seeing modest value growth. It’s not all doom and gloom in Bordeaux however, as a second string of châteaux have risen to prominence over the last few years. The significant investments made by the owners of these properties over the last decade are now paying dividends as the quality of the wines they produce has risen to a level that is often consistent with that of the First Growths. This band of rising stars was given recognition late last year by the influential American wine critic, Robert Parker, naming them in his “Magical 20” list. Further credence was lent to this selection with Parker’s re-assessment of the extraordinarily successful 2009 vintage, with a record number of wines receiving a perfect 100 point score amongst which there was a high proportion from Parker’s Magical 20.

From an investment perspective, we are talking about a surprisingly narrow universe of wines. The top 25 châteaux in Bordeaux and a handful of properties from other regions dominate. Indeed, Liv-ex figures would appear to indicate that just eight wines – the five First Growths, plus Petrus, Cheval Blanc and Ausone – account for more than 80 per cent of a typical wine fund’s “portfolio” by value. Given the stratospheric pricing on these wines from the best vintages the emergence of this “second tier” of investment grade Bordeaux provides a useful entry point for those priced out of the top tier.

Many of these so-called “Magical 20” wines– such as Leoville Las Cases, Lynch Bages and Pontet-Canet – have seen an increase in demand over the last 12 months and it is possible that this trend could continue.*

Will Hepworth

*The market for wine can be volatile, and no guarantee can be given as to the likely future value of wines. Past performance of the wine market is not necessarily a guide to its future performance. Lay & Wheeler cannot be held responsible for any loss suffered, whether due to a downturn in the market or otherwise. Lay & Wheeler provides advice on the basis of its best endeavours, however all decisions to purchase and sell remain with the client. The information provided above is only for your general guidance and is not intended to address your particular requirements or to be relied upon in making (or refraining from making) any specific decisions, investment-related or otherwise.


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