Q2 2020 Investment Overview

Cult Wines Financial Overview and Quarterly Performance Summary

•  Global Markets Overview
•  Fine Wine Market Overview
•  Trade Overview
•  Cult Wines Performance
•  Market Outlook

 

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Cult Wines Q2 2020 Performance Introduction

Portfolio based investment grade wine is one of the most established alternative assets available to investors looking for tax-efficient, asset backed diversification and capital growth opportunities. Over 13 years, Cult Wines has become the global leader in wine asset management, providing analytically based, fine wine investment advice. Combining our experience in the fine wine market, statistical and quantitative research and algorithm based modelling, our unique approach has driven our Assets Under Management (AUM) to £140 million. Our own CW index returned +122.40% since October 2009 (annualised returns of +7.78%). With low interest rates, inflation concerns, low returns from traditional financial assets and an uncertain economic outlook, many investors are looking at ways to enhance their portfolio returns, diversify exposure and generate consistent capital appreciation.

This Second Quarter overview summarises the global financial and fine wine market performances to June 2020.

Q2 Fine Wine Market Overview

  • Liv-ex 100 declined by 1.3% overall, while Liv-ex 1000 – the broadest measure of the fine wine market – has risen by 1.6% in Q2.
  • All sub-regional indices have made positive gains except for ROW 60, which lost 0.5% for the quarter.
  • Champagne 50 saw the largest increase, rising 4.1% over the quarter, and is followed by Rhone 100 (+2.1%) and Bordeaux 500 (+1.6%).
  • Italy 100 continued its upward trend starting from Q1, delivering 1.1% in Q2.
  • Burgundy 150 and CA 50 slightly improved with returns of 0.5% and 0.4% respectively.
  • Fine Wine 50 – tracks First Growth in Bordeaux – has seen its performance significantly improved from previous quarters with a return of 2.9%.
  • Bordeaux En Primeur (EP) 2019 campaign miraculously (and successfully) got under way in June 2019 in a post Covid- 19 format.

Q2 Cult Wines Performance

CW main index ended the quarter on a positive note, gaining 0.8% in total return. All of CW’s regional indices closed Q2 in positive territory, offsetting losses from the previous quarter. Wines from the rest of the world (ROW) led the gain in Q2, with CW ROW index rising 2.4%. Next to the best-performing region, CW US and Italy index are in the top 3 performers of the quarter, delivering returns of 2.1% and 0.8% respectively. Ridge 2010 & 2013 and Harlan Estate 2008 from US, and Chiara Boschis (Pira), Barolo Via Nuova 2016 and Luciano Sandrone, Barolo Cannubi Boschis 2009 from Italy are among the top-performing wines this quarter, the two latter benefiting from a successful 2016 Barolo campaign.

Despite a difficult start to the year CW Bordeaux index closed the 2nd quarter 0.6% up, boosted by increased demand from Asia. The early exit from lockdown and a favourable GBP FX rate generated interest across the region for big names in Bordeaux and was followed by a successful 2019 En Primeur campaign. The index registered its best single month since May 2019. Taking a detailed look at the performance of the First Growths, a few older vintages, such as 1982 from Chateau Lafite Rothschild and 1983 from Château Margaux performed particularly well in Q2, delivering quarterly returns of 51% and 33% respectively (it only takes a transaction to move the prices of those wines). The 2017 vintage also saw some interest particularly in the second wines category after reaching some very attractive prices. Clarence Haut Brion 2013, Chapelle de La Mission Haut Brion 2012, and Le Carillon de l’ Angelus 2010 were also wines attracting Asian bids in the quarter.

The outlook for the Italy market remains highly optimistic, with CW’s Italy index again generating positive returns in Q2. It is currently up 1% in June alone. Taking a closer look at the performance on an individual wine level, La Spinetta, Barbaresco Valeirano 2016, Chiara Boschis (Pira), Barolo Via Nuova 2016 and Luciano Sandrone, Barolo Cannubi Boschis 2009 were among the top-performing wines, returning 67%, 62% and 59% respectively.

Of the three best-performing wines, Chiara Boschis (Pira), Barolo Via Nuova 2016 was given 100 points by Antonio Galloni from Vinous in Feb. 2020. The wine came to the market just below £600 per 12×75 – it has now traded at £950 per 12×75, representing a 63% jump in price. In Super Tuscans, Sassicaia has been on the move, with its 2005 vintage delivering 14.8% in Q2, bringing its YTD return to 24.2%.

In line with its Liv-ex counterpart, CW’s Burgundy index* closed the quarter 0.7% up.

*Please note that CW’s Burgundy index has a diverse base containing more than 500 wines in the index, in comparison to the more concentrated Liv-ex Burgundy 150 index, which carries 40% in DRC.

CW’s Champagne index gained 0.4% over the 2nd quarter. After a relatively muted performance in Q1, a few vintage Champagne from major houses found interest among wine collector/investors. For example, Perrier Jouet, Belle Epoque 2008 (+31.4%), Moet & Chandon, Dom Perignon P2 1998 (+13.3%) and Bollinger, Vieilles Vignes Francaises 2005 (+13.3%).

Earlier in the year, we increased our tactical allocation to Rhone for return enhancement based in relative value. Our optimism for the region paid off starting from the beginning of the Q2. For example, Rayas, Chateauneuf-du-Pape 2005 (+36%) and Beaucastel, Chateauneuf Du Pape 2011 (+28%) from the Southern Rhone and Domaine Jean Louis Chave, Hermitage 2010 (+28%) from the Northern Rhone contributed to the region’s outperformance in the quarter.

As a result, CW’s ROW index, which captures the price movement of wines from Australia, Rhone, Spain and Chile, returned 2.4% in Q2, making it the top-performing CW regional index. Outside Rhone, Henschke, Hill of Grace from Australia had attractive price performance, with its 2008 and 2010 vintages delivering 30.4% and 21% in the quarter.

CW’s US index, the 2nd best performing regional index, ended the quarter also on a positive note, gaining 2.1% in Q2.

2019 Bordeaux EP

COVID-19 impact is widespread, humanly and economically. The virus spared no one and no area of the world. Bordeaux and the wider wine community were certainly not immune. With France and the rest of the world in full lockdown, it was impossible to travel to the usual Bordeaux En Primeur week to taste the new 2019 vintage and run an effective campaign. The Union des Grands Crus therefore suspended the campaign indefinitely.

Even before Coronavirus was part of our daily vocabulary, Bordeaux was experiencing severe headwinds. Its market share of the wine trade was gradually eroding to reach an all-time low of 41% this year. Mixed return performance of recent vintages despite quality, evolution of tastes and global demand, competition from other wine regions all weighed on Bordeaux wines. Then, USA imposed a 25% tariff on European goods, targeting French wines, threatening to increase it to 100% in trade war escalation. The added uncertainty from the second biggest market for Bordeaux was the last blow to confidence. By the end of Q1, Liv-ex Bordeaux 500, the benchmark for the region, has dropped 4.9% year on year.

As with everything post COVID-19, we witnessed a great experiment of adaptation from Bordeaux and the wine industry, demonstrating once again the resilience of this unique product which has been part of human history and heritage for centuries. After all, Bordeaux survived wars, revolutions, and epidemics throughout time.

Samples of the wines were shipped to major critics and merchants across the world and as France gradually exited lockdown on 11th May and the prospect of a pre summer En Primeur campaign became real and excitement for Bordeaux 2019 started to build up fuelled by rumours about favourable pricing.

While barely two months ago the traditional EP campaign was faced a very uncertain future, 28th of May marked the first major Bordeaux 2019: Pontet Canet released at a price 31% lower than its 2018 En Primeur price. By the end of June, EP 2019 was finished successfully in a noticeably short 3-week period (the traditional campaign normally spreads across 2 to 3 months).

Quality – It is now widely publicised that 2019 is a very good to exceptional Bordeaux vintage which might stand shoulder to shoulder with 2016 and 2018, with impressive results from some of the producers. Most wine critics have now published their full review along with scores. Neal Martin published its EP 2019 report named “Uncertain smile” in mid-June stating that the 2019 is a wonderful vintage to finish the decade, and it is a style of wine that he personally adores.

Lisa Perrotti-Brown from the Wine Advocate also published her review of “the Miracle Vintage”, giving high praise stating that 2019 is an outstanding vintage and expressing her optimism by the consistency in quality across wine producers from different levels.

Top-scored wines from multiple wine critics include La Mission Haut Brion 2019 (98-100 WA & Vinous), Figeac 2019 (98-100 WA, 97-99 Vinous) and Pichon Lalande 2019 (97-99 WA, 98-100 Vinous).

Indeed, with the confirmation of the high quality of the vintage by the leading critics and producers, there were reasons the be excited about this campaign. With comments comparing 2019 to 2015, 2016 and 2018, a quasi-perfect growing season and the return to a more classic Bordeaux style, there will undeniably be some amazing wines, possibly legendary, once bottled. Volumes on offer though were 10 to 30% down depending on Chateaux, making it a competitive campaign for those trying to secure the best wines.

Prices – Our primary objective, as ever, was to assess the relative value and potential of the new releases, relying on past experience and quantitative analysis. We acted quickly when new opportunities emerged. Looking beyond quality, a comparison with the background of the 2008 EP campaign was inevitable for investors.

History remembers that it was an extremely successful campaign as prices were reduced by up to 50% from the 2007 release and it attracted strong interest. Historical performance of the 2008 vintage also confirmed the impact of attractive EP release pricing has on investment return over the long-term.

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Quarter Two Investment Overview 2020

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Quarter One Investment Overview 2020

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Quarter Four Investment Overview 2019

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Quarter Three Investment Overview 2019

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Quarter Two Investment Overview 2019

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