Q4 2018 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 Annual Results*

  • Global revenues grew by 54% to £52m.
  • Assets under management increased to £90m.
  • International revenue grew 64% led by Asia.
  • UK revenue up 40% year-on-year despite Brexit uncertainty.
  • New partnerships with banks and wealth managers scale investor base.
  • Strong investor appetite for Champagne and Burgundy.

* Cult Wines Financial Year 01/09/2017 to 31/08/2018.

Quarter Four Market Overview

  • Liv-ex 1000 had finished the year with a solid gain of 10%.
  • Burgundy 150, Bordeaux Legends 50 and Champagne 50 were the top 3 performing regions for 2018.
  • Burgundy 150 had its best year in a decade, rising 34.9%.
  • Next to Burgundy 150, Rhone 100 is one of the only two regions that managed to deliver positive gains in Q4.
  • Champagne 50 fell sharply after previous 9 month’s gains in Q4 but ended the year 7.8% higher.
  • Italy 100 fell 1.3%, while Bordeaux 500 closed the quarter 2.1% weaker.

Growth generated by UK and international network

Cult Wines’ annual revenues grew 54% to £52m over the last 12 months. Its fast-expanding international client base contributed 53% to total revenues, overtaking the domestic market for the first time. The company saw strong UK sales growth of more than 40%, reaching a total of £24.5m.

 

Asia leads global growth with further regional expansion

Asia was the fastest-growing region with revenues increasing 84% to more than £20m. Growth in the region was broad-based, with significant double- and treble-digit revenue increases in China, Singapore, Thailand, Indonesia, Malaysia and the Philippines. To spearhead continued growth in South East Asia, Cult Wines opened a new office in Singapore in October 2018.

 

Cult Wines’ portfolio returns outperform Liv-ex1

Achieving consistently strong investment performance has been central to Cult Wines’ growth and its average portfolio returns once again outperformed the industry benchmark; in the year ending 31 August the Cult Wines Index returned 6.35%, outperforming the Liv-ex 100 recognised benchmark, which returned 2.37% over the same period.

 

New partnerships with banks and wealth managers

Cult Wines grew its network of partnerships with leading global and regional banks, private wealth managers and investment advisers. Over the past 12 months the company agreed 20 new partnerships with leading institutions. Revenue from partnerships for the financial year reached more than £10m.

 

Demand for Champagne and Burgundy while Rhone emerges as one to watch

Over the past year Cult Wines saw sales of investment grade Champagne increase ten-fold, and Burgundy by 70%. Despite reports of a difficult en primeur campaign, Bordeaux sales were up 36% for the year, with the 2017 vintage accounting for £10m, a third of total Bordeaux sales.

Looking forward, early indications from the 2018 harvest in both Bordeaux and Burgundy suggest that this vintage will be both high quality and a bumper year in total production – a potentially winning combination for en primeur buyers in 2019.

1Liv-ex The Liv-ex indices track the prices of the most traded fine wines on the market, providing an industry benchmark for fine wine investment.

* Cult Wines Financial Year 01/09/2017 to 31/08/2018.

Cult Wines 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 10 years, Cult Wines has become the global leader in providing analytically based, fine wine investment advice, both discretionally, and non-discretionally, utilising algorithmically based models across historic and projected data. This, combined with over 150-man years’ experience in the fine wine markets has driven our Asset Under Management (AUM) £98 million. During 2018, our index returned 6.26% and since 2009 123.44%, annualised at 9.17%.

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 portfolio yield, diversify and gain consistent capital appreciation. This is the 4th quarterly overview summarising both the global financial and fine wine markets performance in 2018.

Quarter Four Trade Overview

Liv-ex 1000 – the broadest measure of the fine wine market - has delivered a solid gain of 10% for 2018, extending its 2017 gain but at a slower pace. In Q4, most of the Liv-ex sub-indices made loss. Encouragingly, Liv-ex’s Burgundy 150 and Rhone 100 were the sole advancers in a broader calm market, gaining quarterly returns of 8.8% and 1.8%, respectively. Moreover, Burgundy, a wine region that has consistently proven its return potential, had its best year for the past 10 years, with its benchmark index Burgundy 150 rising nearly 35% for 2018. Outside the Liv-ex 1000 index, the newly launched California 50 registered a gain of 21% last year.

For investors, Rhone has had a strong year with encouraging price performance and improved brand awareness. The Rhone has underperformed other wine regions for the past few years, but that image is now going to change with new level of interest in its hidden value. Liv-ex’s Rhone 100 index has returned 7% for 2018, and Rhone’s trade share peaked at 6.7% in September. On top of that, the performance gap between Rhone and other major sub-indices has gradually tightened for the past few months.

The Rhone’s improvement in performance in 2018 is largely attributed to some big names that can be found from both the South and the North. Out of the Rhone 100 constituents, the names that stand out among these major movers are Domaine Jean-Louis Chave, Hermitage and Guigal, La La’s with some of their recent vintages posting attractive price return for the past few months.

The latest yearly return of Bordeaux Legend 50 suggests that the mood on older vintages of Bordeaux have brightened somewhat, despite last quarter’s muted performance. The Legend 50 index, which tracked a selection of 50 Bordeaux wines from exceptional older vintages (from 1982) on its monthly movement, rose 8.3% this year, compared to previous annual return of 5.5%. Additionally, in Bordeaux, with Haut Brion leading the First Growth’s trade in the last week of 2018, investor confidence for the First Growths of Bordeaux seemed to have returned to the market. In December, Bordeaux has seen its trading volume improve by 5% to 58%.

Champagne 50 moved one place down to the third-best performing regions after Burgundy and Bordeaux Legend 50, delivering an annual return of 7.8%. Having recently been considered as an investment asset, Champagne has seen consolidated prices despite some volatility surrounding other major regions for the past few months. Increased market share and the appetite generated from landmark celebrations are also positives for Champagne market next year.

All told, Burgundy continued to prove popular as consumer interest converge on the region. Also, with the First Growths capturing investor’s optimism and regaining momentum in the second half of 2018, Bordeaux’s market trade share rose in the December, helped by improved trading activity among some “on-vintage” Bordeaux classics. While global equities markets were all in sell-off mode, the Liv-ex 1000 has posted positive returns for every quarter in 2018.

Quarter Four Performance

Wrapping up the year with steady performance, CW has had a good year, remarkable not only for its stable returns, but also for its consistency and lack of volatility. CW main index returned 6.3% for the year, even as most of the equity markets declined sharply in October and stirred growing concerns over the health of the global economy.

Most wines from selected regions added into CW portfolio this year have solid fundamentals and are well positioned to grow faster than the broader market. Burgundy still leads the CW Index with yearly return of 27.1%, outperforming other regions.

Please be noted that CW’s Burgundy index has a diverse base containing more than 400 wines in the index, in comparison to Liv-ex’s Burgundy 150 index, which carries 40% in DRC.

2018 may not represent CW’s best performance in recent years, but its resilience in performance highlights the divergent strengths that fine wine can demonstrate as an investment asset during times of economic uncertainty.

Part of CW’s outperformance this year reflected the fact that a number of trends last year have been played out, with Champagne and Burgundy making their presence truly felt. As suggested by the graph above, CW’s Champagne index and Burgundy index delivered positive returns in every single quarters of 2018. Moreover, CW’s Rest of the World index ended the quarter 4.9% higher. Turning to other regions, CW’s Bordeaux index closed the quarter with a loss of 1.1%, while Liv-ex’s Legend 50 also dropped at a loss of 2.2%. Adding to that, Bordeaux’s trade share hit a record low in October 5. There have been concerns that the impact of tighter global trading conditions might have a negative impact on wine investment market. However, the yearly results of the region help cheered the mood for investors with a total return of 3.3%, outperforming Liv-ex 1000’s Bordeaux 500 in 2018.

Within CW’s Champagne index, Krug Collection 1989, Salon Mesnil 2004 and 1999 were among the top performing wines for the year, delivering outstanding returns of 78.5% and 28.6% and 25.7% for our clients.

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Quarter Four Investment Overview 2018

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Quarter Three Investment Overview 2018

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Quarter Two Investment Overview 2018

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Quarter One Investment Overview 2018

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