Divergence in fine wine market regional performance to continue, says Cult Wines
Last year’s uncertain macroeconomic backdrop will continue to weigh on investor sentiment and the divergence in regional performance in the fine wine market is set to strongly persist during the year ahead.
That's according to Cult Wines outlook for 2020 which says that both undervalued regions and those showing resilience in times of uncertainty should be the focal point for investors in 2020.
Cult wine writes: "Italy and Champagne warrant overweight stances as defensive regions with high-quality vintages. In a year of mixed results within the fine wine industry, Italy and Champagne both stood out as reliable high performers in 2019.
"With increased liquidity and quality, lower volatility and reasonable pricing, the outlook for Italian vintages in 2020 remains positive. Regionally speaking, Super Tuscans – which have provided steady returns and stability – and high-quality Barolo and Barbaresco should be well represented within a diversified wine portfolio.
"With its consistently high-quality vintages, Champagne should also continue to play an important diversification role in a multi-asset wine portfolio. Super-premium Champagne brands have reported an increase in global sales, and, with its accessible prices and improved market exposure, Grower Champagne is now too attracting investors who have generally only approached Grand Marques.
"With prices of back vintages largely appreciating over time irrespective of vintage variation or quality, an overweight approach in this region is strongly encouraged.
"Appetite in the Rhone region has grown considerably, with investors and their advisers becoming increasingly familiar with the region’s producers and their high-quality vintages, capable of yielding high profits. A noteworthy example is the Château Rayas, Chateauneuf-du-Pape 2005, which priced at GBP2,400 per case just ten years ago now trades at GBP9,000 per case – representing a 275 per cent return.
"As an emerging investment region with a performance less correlated with the wider fine wine market, adding Rhone to a portfolio is expected to provide investors with superior, risk adjusted returns and a strong opportunity for capital appreciation.
"Burgundy continues to offer opportunities despite the regional downtrend
Despite the underperformance of the benchmark index for the region, the Liv-ex Burgundy 150, ongoing demand and limited production mean Burgundy remains a reliable source of return.
"A notable spike in the minimum entry price for first-tier producers within the region has led to an appetite overspill into its up-and-coming and second-tier producers. These have been shown to perform well within the CW index and should remain the prime focus in the region.
"Bordeaux’s underperformance calls for an underweight stance, but the region should remain a core part of a long-term portfolio. Bordeaux has shown itself to be particularly sensitive to the broader market slowdown and is expected to continue underperforming, yet there is scope for investors to capitalise on the region by employing a selective and opportunistic strategy. As indicated by current price levels, prime vintages such as 2005, 2009 and 2010 have the potential to deliver decent risk adjusted returns over the coming months. Liquidity, brand, quality and robust overseas demand driven largely by Asia further support the region’s presence in the savvy investor’s portfolio.
Tom Gearing, Managing Director and Co-Founder of Cult Wines. says: “2019 has proven an undoubtedly challenging year for the fine investment market and beyond. The majority of Liv-ex indices saw a downturn, with geopolitical and economic uncertainty fuelled by US-China trade tensions, US tariffs and an impending Brexit weakening investor confidence over the course of year.
“There is nonetheless great scope to capitalise on both well-known and emerging regions, and we encourage investors to rely on experts with the experience and knowledge to navigate the increasingly complex fine wine landscape. It is vitally important that our clients take a medium to long term hold on their diversified portfolio allowing for volatility and risk to be managed in an active and professional manner.
“Going into 2020, we recommend an overweight stance to defensive and high-quality regions such as Italy and Champagne; a selective, relative value-based approach to more traditional investment regions such as Bordeaux and Burgundy; and an opportunistic allocation to emerging and better valued regions such as Rhone, Chile, Argentina and Spain.”