EVERY YEAR Berry Bros & Rudd, Britain’s oldest wine merchant, publishes a pocket price list. Reading old copies makes fans of quality quaff want to travel back in time. In 1909, a 12-bottle case of Domaine de la Romanée-Conti 1891, Burgundy’s most famous Grands Crus, cost 180 shillings (about £ 1,000, or $ 1,300 in today’s currency). In his historic London store, which opened in 1698, a single 18-year-old bottle of similar quality now sells for £ 25,000.
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Good wine is expensive to store, and its scarcity and high transaction costs make it, oddly enough, an illiquid asset. Despite this, its appreciation with age and its perceived ability to diversify portfolios have made it popular with investors over the past two decades. The value of wine traded annually between consumers, connoisseurs and collectors – the secondary market – has quadrupled to $ 4 billion since 2000, says Justin Gibbs of Liv-ex, a wine trading platform. He estimates that only 15% of those who buy wine from his website do so to drink it. Others see it as a store of value.
Fine wines are traded privately, at auction or through exchanges like Liv-ex, where members bid for listed vintages. The equivalent of an IPO occurs when the estates release their last vintages. There are also asset managers in the wine world, who buy and sell hundreds of cases on behalf of clients in the hope of making a profit. Great Britain is a major trade hub, not least because it offers the possibility of storing wine duty-free and VAT provided that it is kept in one of the few warehouses approved by the tax authorities. Many professional buyers thus hold their stock under the same immense vaults. Sometimes updating the records is all it takes to transfer ownership.
Investing in wine has long meant buying Bordeaux. But that is changing: the French region now represents 60% of secondary transactions, against 95% in 2011. The new selections are attractive. Bordeaux prices have performed well over the past three years, increasing by a third. But the value of fine Burgundy has more than doubled, according to the Liv-ex 1000 index.
One of the reasons is that greater price transparency has boosted buyer confidence. Fine wines, which do not generate cash flow, cannot be valued using financial indicators such as price / earnings ratios. But exchanges and sites like Wine Searcher, which collects quotes from merchants around the world, provide benchmarks. Apps that collect reviews from critics and consumers are also useful; The same goes for gadgets to improve traceability (although counterfeits remain a problem). Part of this money finds its way to new terroirs.
Investors are also increasingly sophisticated. Chinese buyers, whose thirst for Bordeaux kept prices afloat during the financial crisis, fled the region after 2012, when a crackdown on corruption caused demand for luxury goods to dry up. Many have since turned to Burgundy. Most wine investment funds, which in the 2000s managed 350 million euros ($ 396 million), almost all of them invested in Bordeaux, went bankrupt when the market fell. Such outfits have since reformed, increasingly trying to diversify.
Recent currency changes have made the main vintages a bargain. Burgundy was already cheaper than Bordeaux, and a dollar rally after 2015 put the region on the radar of American and Asian buyers (the Hong Kong dollar is pegged to the greenback). Italian, Californian and French regions have also become fashionable, explains Philip Staveley of Amphora, a wine portfolio manager. But the best of Burgundy is produced in very small volumes. Château Margaux, Bordeaux star, produces 11,000 cases per year; The Domaine de la Romanée-Conti produces 450. This amplifies the price movements.
Experts fear a bubble. “Everyone tells us that this is becoming absurd,” says Philippe Masset, oenologist. Younger vintages have become more expensive than older ones, the equivalent of a yield curve inversion. The Burgundy region gained 8% in November, while all the others peaked. Whether it lasts may depend on the price-performance ratio of the vintage released this month. But for now, investors see the glass as half full.
This article appeared in the Finance & Economics section of the print edition under the title “Fumer des barrels”