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11/08/2018

La Dolce Vita: Investing in Italians (City AM Column)

by Giles Cooper (Head of Marketing & PR)

As we discussed in last week’s column, one of the key themes in the fine wine market across the last decade has been the increased diversification of wines considered “investment grade”, i.e. those that would be expected to deliver attractive financial returns. Champagne has proven over the past decade to deliver strong returns and another area of increasing relevance in the investment sphere is Italy.

Many of us associate Italian wine with ‘la dolce vita’: long, lazy Tuscan summer evenings glugging local reds and whites with lashings of rich, eggy pasta, crisp-edged pizzas and sea-fresh fish. However increasing global knowledge and understanding of the finest wines of Italy has led to a new and interesting thread of investment potential.

As with Champagne, Italy is home to both larger production and smaller production wines of investment grade quality, each of which can justify their place in a diverse portfolio.

The two key investible wine producing areas of Italy are Piedmont, in the north of the country between Turin and the coast; and Tuscany, from the upper-middle of the ‘boot’ between Florence and Rome to the western, coastal area of Maremma.

Piedmont is home to the legendary wines of Barolo and Barbaresco, red wines made from the Nebbiolo grape which delivers haunting aromas and potentially epic ageability. Comparisons are often drawn with Burgundy as the rolling landscape of Piedmont is divided into dozens of small ‘cru’ vineyards, many of which are under multiple ownership – thus the methods and style of the producer are often as crucial as the terroir itself. It’s a complex area and as few as 300 cases of a single wine may be made in each year.

Tuscany is most famously home to Chianti and Brunello di Montalcino – but it has been the rise of the ‘Super Tuscans’ which has driven both the fame and subsequent global demand for wines from the region. Whilst there is no prescribed formula for a Super Tuscan, typically they feature a mixture of so-called international grape varieties, such as Cabernet Sauvignon or Merlot, either alone or alongside the region’s most noble grape, Sangiovese. Comparisons can be drawn with Bordeaux as most are made in significant volumes, whilst retaining immense critical acclaim, and they rely on the importance of ‘brand’ to help grow their desirability.

Given the limited production of the top wines from Piedmont, and a tendency for producers not to retain historical library stock, liquidity is lower than for Tuscany; this skews the risk-reward profile towards the upper end of the spectrum. As a result, we do not feature wines from Barolo on our LiveTrade two-way market making platform, although we do trade significant volumes and recognise their place in a higher beta portfolio.

Since 2016 we have featured over 25 vintages of Super Tuscans on the LiveTrade screen: these are made up of the central ‘Chianti-shire’ pairing of Tignanello and Solaia, and the coastal superstars of Ornellaia and Sassicaia. From an investment perspective, the approachable style of these wines does create a rapidly decreasing availability pool, especially as Asian buyers become enticed by the power and status of the brands; however the wines have proven ageability, leading the more mature markets of the UK and US to generate constant demand for aged examples.

See below our previous City AM columns:

1) Making Money Takes Bottle

2) Fine Wine Fundamentals: Bordeaux

3) Fine Wine Fundamentals: Beyond Bordeaux

4) Champagne Investment: More fizz than froth