By Anthony Russell, Managing Director at Quantum Vintners
When looking at high-performing wines from an investment perspective, there is a strong leaning to Bordeaux, followed by Burgundy and Champagne, more recently Tuscany and lastly to certain ‘trophy’ wines of the New World. But when and why did these wines become an asset class of their own, with their own performance charts and pricing indices?
To answer this question it is firstly important to review the history of the most prestigious wine-producing regions in France right back to the 12th century. This insight gives us a greater understanding of how they are defined, and the factors which have and will continue to influence their impact on the global wine market.
Bordeaux has a long trading history with England. Its wines were given ‘royal approval’ when Eleanor of Aquitaine married Henry Plantagenet in 1152. The wine producers benefitted from proximity to Bordeaux as a key port and nexus for international trade for many centuries. Tradesmen were attracted to the cosmopolitan city and its wines became well known on a global platform. Over time, the region benefited from significant foreign investment and many of the chateaux founders have English, Irish and Dutch origins. The area became closely associated with success and entrepreneurialism.
During this period, although Bordeaux wines became increasingly popular in England, a preference for burgundies was maintained amongst the French aristocracy. Up until the French Revolution it was Burgundy, known as ‘the wine of kings’ that graced the royal courts at Paris and Versailles. The region was thrown into turmoil with the execution of Louis XVI in 1793 and the withdrawal of the Church from France. When the Church sold off its land to peasants as its members fled, the nobility saw right to do the same.
To understand the development of wine as an asset class it is also worth remembering that investing in wine has always been more to do with the enjoyment of continued consumption of quality than straight financial gain. The landed gentry would buy ten cases from a leading chateau, keep them for ten years, sell five and buy another ten with the profits. In this way, the family would constantly improve their cellar. This practice of ‘laying down’ and selling off continued well into the 1980s.
Thirty years ago, Bordeaux was not the mighty financial force it is today. Its winemakers lacked cash, the infrastructure found in the chateaux was old and, in many cases, broken. The sea change towards wine as an asset class came about primarily because the chateaux required funds for renovations. Viniculture relied heavily on signals from the weather and growers had none of the expertise that now allows them to protect their vineyards and produce very drinkable wine, even when they are regarded as poor vintages. Today the true value for money is to be found in these ‘off vintages’. The top chateaux hardly produce any poor wine these days so investing in the wines from 2002 or 2007 will yield not only some great drinking wines but, hopefully, profit as well.
A further reason for the development of the investable wine market has been the introduction of buying wine ‘en primeur’, the opportunity to buy wines still in barrel. This trend began in the 1970s, providing the chateaux with healthier cash flows and offered the consumer an opportunity to buy at a price that would increase considerably once the wines were bottled and available in the market. This process, whilst still in place, no longer offers investment benefits to the consumer. If anything it has been reversed and wines are often cheaper when available for delivery than when produced.
Why should this be? As the Bordelaise turned a financial corner and found new markets, they started to invest in upgrading their infrastructure and, more recently, in technology. Quality and prices quickly increased, especially for top vintages. There was a general belief that the chateaux could sell as much wine as they liked, due to popularity of consumption. This was, of course, wishful thinking and many ‘negociants’ in Bordeaux still have cellars crammed full of unsold wine.
The golden rule of wine investment is simple; buy a great wine with limited production, ensure that your investment is stored in a reputable bond and watch the price appreciate as others consume it and thus reduce the supply. Buying Bordeaux no longer affords us this luxury. Burgundy, however, is a different story. Production levels are considerably lower and the finest Grand Crus such as Romanée-Conti, Musigny, Richebourg and Clos Vougeot produce as little as 450 cases compared to over 25,000 cases of Chateau Latour each year. For some white wine in Burgundy, such as Montrachet, a single grower’s production can be as little as two barrels – just fifty cases for the global market!
We hope you will be lucky enough to secure something this special for your own cellar.
Buying wine as an investment: Our advice
- Buy from a reputable merchant
- Purchase Burgundy at opening offer prices. Prices vary considerably; opening offers are usually made around December and January for the most recently released vintage
- Buy finest growers Grand Cru and Premier Cru wines from Burgundy
- Domaine Romanée-Conti, Armand Rousseau, Domaine Leflaive, Domaine Dujac
- Clos du Tart, Domaine Ponsot, Domaine des Lambrays
- Store wines in bond
- London City Bond, Octavian, Vinothèque
Our investment strategy committee, which consists of seasoned strategists and investment managers, meets regularly to review asset allocation, geographical spread, sector preferences and key global market drivers and our economist produces research and views on global economies which complement this process.
Our quarterly report presents our views on the world economic outlook and equity, fixed income and foreign exchange markets. Please click the link to download.
