Fine wine investment: A closer look at Burgundy
14.02.17
Somewhat against tradition, far from stalling in the immediate aftermath of Chinese New Year, the Liv-ex 50 which tracks the values of First Growths for fine wine investment purposes, has been powering ahead, and there have been very good year-to-date rises elsewhere in Tuscany and Napa Valley for fine wine investments. The Liv-ex has been trumpeting the activity in Burgundy over the last couple of weeks too.
A review of Burgundy fine wines
We have talked about Burgundy fine wine investments before, but given its propensity for grabbing the headlines, it might be worth exploring again in a bit more detail. These recent headlines specifically refer to the market share generated on a week by week basis.
The 3rd February Liv-ex blog entitled: “A big week for Burgundy”, explains that the Burgundy market share at just under 37% is very close to Bordeaux at just over 42%, notable because the monthly figures for January 2017 were 18.4% and 61.6% respectively.
Our mission to help you get a healthy return on your fine wine investment
At Amphora we are constantly trying to find new ways of enhancing fine wine investment returns, and are always examining interesting shifts in the marketplace. We would be doing this even if our clients and sales teams were not on our case asking AGAIN why recommended portfolios continue to exclude Burgundy.
When we are explaining the fine wine investment marketplace to a new investor, we are at pains to stress that there is no homogeneous “fine wine price”, unlike, say, the gold price or the crude oil price (allowing obviously for Brent and West Texas), and that the market is more like a mini stock market with its variety of producers, vintages and global geographies.
When we drill this down to sectors, such as “Bordeaux”, and sub-sectors, like “Super Seconds”, it is only valid if there is meaningful volume to be found at these subsidiary levels of the fine wine market. There is no point spending time finding out that Cos d’Estournel 2008 is the bargain of the century if you can’t actually pick any up at the bargain price.
The challenge of Burgundy fine wines
This is precisely the frustration with Burgundy. The aforementioned blog cited two very cheap (c £250-£270 per case of 12) Burgundies as top of the value and volume charts for that week, with a component of the “Burgundy 150” sub-index, Ponsot Clos Roche Vieille Vignes 2014 as 5thfor value, on the strength of 3 cases of 6 trading on the 23rd and 4 on the 27th January.
The fact is that the fine wines trading at £250 aren’t investible because the storage costs would represent too high a percentage of underlying value thereby eroding most of the investment return, whilst in the case of Ponsot Clos Roche, the combined trade total of £13,000 represents absolutely frenzied trading in Burgundy terms.
If you doubt this, check out trades for Ponsot Clos Roche (an index constituent) going back 15 years across post millennium vintages. Several register no trades at all, some last traded in 2013, and even the busy ones only rack up a couple of trades a year. It would be lovely to think that the feverish activity of the week of 23rd January might break the dam, but I wouldn’t hold your breath.
Much the same is true across all “investable” Burgundies. DRC Echezeaux 2010 is one of the higher rated vintages of recent years and only a single bottle went through the Liv-ex platform in 2016, and that was a bottle more than its sister producer, Grands Echezeaux, whose own 2010 fine wine last traded on 24/7/2015, again at a single bottle.
Should I consider investing in Burgundy fine wines?
So, is there a place in a diversified investment portfolio for Burgundy fine wine, in the unlikely event that you can actually get hold of some? This begs the next question, which is: what happens when you try to sell it? It is fanciful to believe that you would be able to find a buyer for a fine quality Burgundy wine. More fanciful, however, to believe you would get a reasonable price for it, where “reasonable” is defined as: “bears some recognisable relation to the offer price”.
Again, there may be some readers who, as long-standing clients of a Burgundy sole importer, receive an allocation at a decent price every year, and can re-sell through that merchant at a discount of around 10%. They can enjoy their good fortune, or prescience if you prefer because the broader market is not in their control.
Can I get a good return on Burgundy fine wine investment?
We would also argue that you don’t need a dalliance with Burgundy fine wine to engineer good returns out of the fine wine investment market. In most of the areas that we do business they are perfectly liquid and whilst we accept that there a no guarantees at the time a fine wine investor wants to sell, liquidity is something which ought to be near the top of an investment agenda most of the time.
Finally, I might beg to differ with my estimable friend’s opinion that Burgundy fine wine will lead the next correction. I actually don’t think Burgundy is investable at all for reasons of inherent scarcity, as I hope to have explained above.
In a world of inherent scarcity, to get a correction you have to have a black cloud of such epic proportions as to remove anyone who might hoover up the scarcely available stock from the marketplace entirely. Such a black cloud would have an extremely deleterious impact across the whole fine wine investment market and suffice to say, we cannot foresee what it’s like at this juncture.
Thinking of increasing your fine wine investment portfolio? Why not take a look at the Amphora vault today.