Why California Offers Great Wine Investment Potential

A handful of top California labels in recent great vintages have been flagged for investment potential by wine merchant Bordeaux Index, and here’s why.

Although the expected returns for fine wine investors should be highest in the Grands Crus of Burgundy and the Premiers Crus of Bordeaux as well as in the best Bordeaux wines from the Right Bank, for those looking to diversify their portfolio, California is “interesting”, according to Matthew O’Connell, who is head of investment at Bordeaux Index.

Having already said db about the growing demand and resulting price appreciation in top-notch Burgundy after the Biden administration removed US tariffs on most European wines – albeit temporarily – we asked Matthew about other potential areas for the fine wine investor.

Although he initially chose Bordeaux – in particular famous chateaus from the 2000, 2009 and 2010 vintages – as well as the big names in Burgundy from the 2018 harvest, he said labels such as California’s Ridge and Dominus could make good investments for a number. reasons, but mainly due to reduced supply following the catastrophic fires in the state, as well as increasing demand due to the increasingly global distribution of these brands.

“The 2017 vintage has been impacted by forest fires, and the 2020 vintage has of course been terribly affected, so supply will be down, and we’ve already noticed increased interest, helped by 2015, 16 being vintages so strong,” he said. db earlier this month, before also noting the high quality of the 2019 harvest.

“So we expect more scarcity and higher prices,” he added.

However, such expected price appreciation contrasts with recent performance of California fine wines, which have been weak, according to Matthew.

Noting that in fact the region has been “the worst performing region in the Bordeaux Index for the last year or so”, he said this was due to a turnaround.

The lower level of activity in 2020 for California fine wines (which was around -35% for the Bordeaux index) was due to a “combination of less inventory due to lower US domestic sales per collectors – who had fewer regions to recycle sale proceeds into tariffs – and the poor performance of some wines, like Screaming Eagle, which tends to dampen momentum,” he said.

In summary, he explained other reasons for California’s less than stellar performance: “Market disruption due to tariffs and also a strengthening of the GBP-USD pair (which is tricky as it drives prices down by sterling as the main effect) weighed on the region”.

However, looking ahead, he identified the following opportunities for fine wine investors.

“We see more potential in Ridge, possibly also in Dominus – mainly through price/quality valuation by the market,” he predicted.

And, while he said “Screaming Eagle prices should recover”, he added that the Bordeaux index “like the potential of Harlan, Hundred Acre, Colgin et al”, which he said offered a “price performance potential” as they get “a wider global market”. next”, although he also noted that these wines “are hardly undervalued from an intrinsic value point of view”.

Finally, he described Sine Qua Non as being “in a category of its own”, registering a “surprisingly large global buyer base considering the esoteric nature of the wines”.

Below is a graph showing the price performance of Screaming Eagle, Harlan and Ridge Monte Bello from the critically acclaimed 2013 vintage, highlighting the growing strength of the Ridge brand in particular.

Market price of the 2013 vintage, indexed to 100. Source: Bordeaux Index Executed Transaction Data

This analysis of the news of great wines was carried out in collaboration with Bordeaux Index.

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