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11/09/2018

Fine Wine Fundamentals: Beyond Bordeaux (City AM column)

by Matthew O'Connell (Head of Wine Investment)

Not so long ago, the wine investment universe was split into Bordeaux and The Rest (i.e. non Bordeaux regions); the former being “investment grade” and the latter much less of a focus.

As we outlined in last week’s column, Bordeaux has consistently been the cornerstone of the wine investment market due to the combination of high quality, international demand and consistent availability meaning it is most obviously suited to constituting a transparent and liquid asset class.

However, a number of factors have meant that, from around 10-15 years ago, wines from other regions have gradually moved firmly into investment grade space: easier access to information (including critical reviews) around the wines; broader global rather than just European demand; and resulting greater market liquidity bringing down trading spreads.  At the same time, more robust and progressive pricing in Bordeaux En Primeur (new release) campaigns has also diverted the focus of some market participants towards the alternative areas.

These wines can be split broadly into two categories: larger production (relatively) and rare. 

In the first category we find the following regions, with a few examples: Champagne – Krug, Cristal, Dom Perignon, Bollinger; Tuscany – Sassicaia, Solaia, Tignanello; Rhone – Guigal, Jaboulet, Chave; Spain – Vega Sicilia; US – Dominus, Ridge, Opus One; Australia – Grange.

The second – rare – category comprises predominantly Burgundy, although areas such as Italy’s Piedmont are increasingly receiving focus.  In Burgundy, Domaine de la Romanée-Conti is at the top of the tree, but numerous other producers – Leroy, Armand Rousseau, Georges Roumier et al. – have seen exponential price rises over the last decade.  The quantities produced are very small compared to other regions, meaning that market liquidity is materially lower: this is therefore an area where the risk/reward profile is skewed towards the higher end of the spectrum.

Our LiveTrade screen – the only platform in the market offering guaranteed / executable two-way prices on top wines – now has 20% non-Bordeaux wines (Champagne being the largest component) and this will continue to increase.  LiveTrade does not currently include Burgundy wines, but BI is of course responsible for a substantial portion of secondary market volumes, particularly given the level of Asian interest in the region.

Our bespoke wine investment portfolios increasingly include up to 50% of non-Bordeaux wines and the ability to modify and tailor parameters such as return horizon, risk profile and liquidity via the use of these other regions has helped to move wine as an alternative asset class to a new level of significance.  In addition, the added complexity of certain of the regions, particularly Burgundy, means that the potential for those at the forefront of the space to generate “alpha” (outperformance) through better sourcing, selection and distribution, has never been greater.

Over the coming weeks we will look in more detail at some of these regions, as well as another more embryonic but particularly exciting area of the investment market: Spirits.

See below our previous City AM columns:

1) Making Money Takes Bottle

2) Fine Wine Fundamentals: Bordeaux