Q3 2020 - Positive Quarter For Wine Investors

3rd Quarter 2020 - Positive Quarter for Wine Investors

Stability must be the headline for the third quarter of the year for wine investors. The positive trends from the second quarter have continued into the third quarter, and thus there are again positive returns to report.

Despite a drop in the trading activity in the first quarter of the year caused by Covid-19, wine as an investment has once again proved its strength as being resilient, and as a result we can look back on another positive quarter.

It will probably be optimistic to conclude that the world is normalized. Quite the contrary. The Covid-19 pandemic is not yet over. Restrictions and periodic shutdowns across most of the world are still part of everyday life in relation to the Corona's so-called 'second wave'. The British are holding their breath and the whole world is waiting in restlessness for a final agreement on post-Brexit. Hong Kong, a key hub for wine trade in the East, is still in a state of emergency. Also imminent is the US election, which could turn many things upside down - not least punitive tariffs on several European goods, including wine, as well as the ongoing trade war with China.

In short, in a world where great uncertainty still characterizes the financial markets, wine still represents the stability that many seek. Both prices and trading activity have taken another step towards the level seen before Corona and normalization of the market is within reach.

The investors' reported return for the period is calculated at 0.89%, which overall means that the wine investors at RareWine Invest are at 2.44% for the year. Therefore, things look good ahead of the year's 4th and final quarter as well as for the year as a whole. For every quarter that passes, we must assume that we are getting closer to a Corona vaccine, final clarification regarding Brexit and a US election result - and therefore also a gradual normalization of everyday life.

The RWI Index

If you, as a new investor, are to relate to the RWI index for the first time, it is important to note that it is based on third-party data from the English wine exchange Liv-ex and therefore represents wines traded in the UK and in GBP. The index is composed of four Liv-ex indexes; Bordeaux 500 (10%), Burgundy 150 (40%), Champagne 50 (30%) and Rest of World 50 (20%), rebalanced monthly, converted to EUR.

In addition to the fact that the wines traded in the UK are not necessarily representative of the wines traded in the rest of the world, the index is retrospective, which means that it may take several quarters before changes in both wine prices and exchange rates are directly reflected in Liv- ex 'data.

However, the RWI index provides an opportunity to compare historical price developments, and therefore the opportunity to monitor previous patterns in price developments compared with the political worldview.

The RWI index shows a positive 3rd quarter with 2.2%, but -6% for the year at the end of the 3rd quarter. It is worth noting that the GBP has fallen by almost 7% over the same period, which is a large part of the reason why the RWI index shows a negative result for the year. As mentioned above, investors at RareWine Invest are up 2.44% for the year.

Burgundy

For the past 15 years, Burgundy has been the region that has offered the greatest returns. The region is particularly characterized by small productions and high demand. Add to this the large consumption and growing interest, and then you actually have the perfect composition for an investment wine.

All of the above conditions are still met, and despite a stagnant 2019 and a hard start to 2020 in the form of Covid-19, the wines from Burgundy are once again finding their way back on track. The RWI index shows price increases for the third quarter of 1.3%. The trade activity in the wake of periodically lock-down in large parts of the world is generally increasing, and this also applies to the wines from Burgundy.

That Burgundy is showing its strength again is partly due to decent increases in the 3rd quarter on a wide comb of the wines Comtes Lafon, which we last recommended in May. Read the recommendation here: World-class White Wine: The Count Of Lafon Challenge Romanée-Conti

The legendary top producer Domaine de la Romanée-Conti also delivers a positive return of just over a 2% for the third quarter and therefore follows up on the second quarter, which also offered price increases.

The top wines from Domaine Leroy have performed stably in the third quarter and are again delivering positive returns. Therefore, Domaine Leroy seems to be going almost unaffected through the Corona crisis.

Also well-known producers, among investors at RareWine Invest, such as Comte Liger Belair, Raveneau, Leflaive, Rouget, Louis Jardot, Bonneau Martray and Lambrays are generally delivering positive returns in Q3. Read our September recommendation from Lambrays as an example here: Burgundy Wine, Luxury Giant And A Strong Business Case: Invest In Clos des Lambrays

The wines from, for example, Ponsot and Joseph Drouhin have yet to show their potential after the Corona crisis and deliver minor negative returns for the third quarter, but our belief in these wines is still great, and it must be considered a matter of time before we also will begin to see normal conditions again and hereafter the consequent price increases. Not least Drouhin's Musigny we have high expectations for. A wine that over the past five years has delivered an average return of up to 9.7% per year.

Burgundy is slowly starting to show its strength again on top of a challenging start to the year, which is also reflected in Liv-ex 'data with an increase of 1.3% in the 3rd quarter but still negative result for the year. The actual trading figures for Investors in RareWine Invest, on the other hand, show that Burgundy is up by 1.24% for the year.

Champagne

As often before, we find again the great success stories in Champagne - also in this quarter, where especially Louis Roederers Vintage Brut from the legendary 2008 vintage and the famous single field champagne, 2005 Bollinger VVF, are among the high jumpers. In addition to the great well-known names, one of the new stars in Champagne is also starting to move. Billecart-Salmon, which we last recommended in September, also shows a slight increase in  1999-, 2002- and 2006 vintage - and the positive rates bode well for the future. Read our investment recommendation for Billecart-Salmon 2006 here: How long time before the prestigecuvée Nicolas Francois from Billecart-Salmon becomes as expensive as Krug Vintage?

The closure of discos, nightclubs and restaurants negatively affected the consumption of Champagne in the first quarter, which opening up for a number of opportunities for purchases at particularly attractive prices.

As one of the few areas, Champagne was already back on track with price increases of 2.1% as a result in the second quarter of the year. Champagne has on several occasions been referred to as the wine's answer to government bonds, and therefore Champagne has also proved resilient to the Corona crisis. The vigilance in the first quarter has partly disappeared, and there is again capital in the market, which is reflected in the price increases in the third quarter of the year. Therefore, it is realistic that Champagne can end the year in plus, according to the RWI Index, if the 4th quarter is similar to the previous two.

The positive trends from the second quarter have been followed up in the third quarter, with the RWI Index showing an increase of as much as 4.5% for Champagne. The reported trading figures from RareWine Invest confirm the good quarter and investors have generally picked up a return of 2.2% for the year even despite Covid-19.

Bordeaux

For Bordeaux, it has been a year unlike many others. Not least exemplified by this year's En Primeur campaign in the spring, which for the first time in many years offered attractive purchase prices - a much-needed hope for Bordeaux producers. Covid-19 has been blamed for many things, but if you really need to find something positive, you may need to look to Bordeaux.

The price level of Bordeaux wines has for several years been too high as a result of great speculation, large productions, and less consumption. However, the Corona crisis paved the way for lower prices, which was expressed for the first time during this year's En Primeur. A good reason to lower prices without losing dignity was exactly what the Bordeaux producers needed. It has been several years since there have been as attractive trades to do in Bordeaux as we have seen in the last two quarters.

It gives hope that there are still good investments to be made in Bordeaux for the future, where Liv-ex data for the second quarter in a row is reflected in the positive direction in the RWI index. It is still too early to conclude that Bordeaux overall is back, but there are certainly attractive investments to be found in the region. One of the most in-demand producers from Bordeaux is without comparison Petrus, whose range of wines in the 3rd quarter increased by more than 3%.

The RWI index shows another quarter of progress for Bordeaux, up 2.4% for the third quarter. The reported trading figures for investors at RareWine Invest even show an overall increase of 3.49% for the year.

Rest of World

Rest of World is a category that includes wines from Italy, including the great supertoscans, as well as wines from the USA, Australia, Germany, Spain and not least Rhône. The category also embraces both Scotch and Japanese whisky. The broad composition of Rest of World also means that there are both bright spots and low points to be found in the category.

One of the bright spots is to be found again in Italy, which also in 2019, was the best performing sub-index on Liv-ex, which reports an increase of 2.8% for the third quarter of 2020. As mentioned earlier this year, the Italian wines went, as opposed to the French, free of the US punitive duty of 25%, which may be part of the explanation for the great result. Also general increasing interest in the best Italian wines contributes to this. The growing interest in Italian wines is mainly driven by the big supertoscans, where Solaia in particular across vintages excels in the 3rd quarter with an increase of more than 11% overall. Back in March, we recommended 2015 Argiano Brunello Montalsino, which is rising by as much as 13.6% this quarter. Also, the Piedmont favorite Gaja delivers nice increases across vintages of over 7% for the quarter.

Compared to the USA and the wines from Napa Valley, the quarter has been characterized by large wild fires and therefore uncertainty around the 2020 harvest for several of the producers. However, this has not had a significant impact on trading activity in the past quarter, where, after all, there are small price increases to be traced. Harlan Estate, Hundred Acre, Opus One are all well-known names among investors from RareWine Invest and these are delivering price increases in the quarter.

Of notable Spanish wines, we find a decrease of well over 3% percent for the wines from Vega Sicilia, while the investors who managed to buy Pingus back in September are already rewarded with returns. Only in very special circumstances do we consider Pingus to be suitable for investment, and this special case is due to a recent 100-point assessment.

If we look at Moselle, the wines from Markus Molitor are still affected and also fell by more than 3% in the quarter - However, we expect price increases again, as the Corona situation will hopefully normalize within the next year.

Whisky is a guarantor of solid returns but is also associated with greater risk. Liv-ex testifies to a small fall in prices in the first quarter of the year of 0.4%, which was replaced by fine increases in the 2nd quarter of as much as 4%. The third quarter of 2020 offered another great result specifically for whisky, with Liv-ex's Rare Whisky Icon 100 index reporting an increase of 3.8%.

Whisky must be attributed a large part of the credit for the Rest of World in the 3rd quarter of 2020 up by 0.2%. For investors in RareWine Invest, it is true that Italian wines and whisky account for the majority of Rest of World, and therefore the reported return for the year as at present is at 4.8%.