Cult Wines, a specialist in fine wine investment, has published its Q1 2021 report, revealing its latest fine wine investment outlook.
Despite coronavirus case rates remaining elevated in many countries, vaccine rollouts have allowed many to set out plans for reopening their economies, setting the table for fine wine – which has demonstrated it can remain stable compared to other asset classes – to carry forward its strong start in Q1 into the second quarter.
The recent four-month suspension of US tariffs on European wines will support US demand in the near term, coming at an opportune time for Bordeaux’s 2020 En Primeur campaign. The recent appreciation of the US dollar and British pound adds another measure of support for Bordeaux and other European regions, as these wines become less expensive for US and British buyers. Rhone wines also stand to benefit as the US forms its largest export market.
The outlook for the Bordeaux market will be driven by the upcoming 2020 EP campaign. The spring frosts that have ravaged many of Europe’s vineyards, including Bordeaux, are likely to have a significant impact on production levels for next year’s vintage, which could have a knock-on effect on this year’s campaign. Vignerons may decide to hold stock back to soften the blow of lower than anticipated volumes next year, and we can expect prices to rise in order to offset potential drops in revenues in 2022. Whether producers strike the right balance will determine the outlook for onward performance of the new 2020 releases and impact the wider Bordeaux market trajectory.
Burgundy’s successful 2019 EP campaign amid an improving macro backdrop, including the suspension of US tariffs, spurred increased activity that sought top tier names over Q1, with Domaine Romanée-Conti, Coche Dury, Comte Georges de Vogue and Musigny posting strong gains.
Going into Q2, relative value will also be found in second-tier and up-and-coming producers that can deliver consistent outperformance as investor demand returns to a broader perspective to include the whole Burgundy opportunity set.
Rhone is another region that saw a change in fortunes in Q1, with the increase and then suspension of US tariffs during the three-month period. The removal of the trade barrier to Rhone’s biggest export market resulted in a spike in activity late in March among the region’s top names. Some, such as Beaucastel’s 2012 Châteauneuf-du-Pape Hommage J Perrin, realised strong gains, whereas other lesser-known producers did not receive the instant post-tariff bounce.
The focus remains on long-term growth, which will come from a broader cross-section of the regional market as it gains more awareness from a global audience.
After a strong 2020, Champagne posted healthy returns again in January and February of this year, helped by sparkling wines remaining exempt from US tariffs. The CW Champagne index enjoyed a particularly strong start to the year, with a 5.1 per cent return – notably higher than the Liv-ex Champagne 50 index.
Investors benefitted from a focus on back vintages, which offer reliable appreciation potential over the long term as supplies are consumed. Krug Collection 1989 rose by 10 per cent over Q1, aiding CW Champagne’s performance.
With its consistently high-quality vintages, Champagne should continue to feature in a multi-asset wine portfolio. ‘Grower’ Champagnes will play an important diversification role, with smaller producers offering structural advantages due to their lower supply levels.
The CW Italy index posted a 3.8 per cent gain in the first quarter, with the firm’s overweight stance to the region including a positive view toward 2016 Barolos, which continue to receive warm receptions from investors and wine critics.
Italian wine prices continued their upward trajectory in March, when some noteworthy releases, including 2013 and 2015 Biondi Santi, spurred interest in the region. Adding Italy to a portfolio is expected to provide investors with superior, risk adjusted returns as Q2 unfolds.
Cult Wine’s US exposure saw mixed performance over Q1, ending down 0.5 per cent. The firm retained an underweight stance toward the US market due to high prices in the concentrated regional market.
Going forward, investors are advised to remain cautious and focused on identifying select relative value opportunities through a research-based approach.
Tom Gearing, CEO and Co-Founder of Cult Wines said: “Despite Covid-19 wreaking havoc on investor confidence over the past year, fine wine markets proved their resilience over Q1, delivering three straight months of positive returns, signalling a positive trajectory for Q2.
“As new producers and new regions gain increased exposure to global investors, this should help support fine wine’s overall stability. A tactical allocation to multiple regions will be key to wealth preservation and growth as we had into the second quarter. We recommend maintaining a diversified approach, with larger number of producers and individual wines.”
