Fine wine goes well with a balanced portfolio – but it's getting scarce
As the best vintages outperform every asset but gold, Julian Knight goes to Bordeaux to get a taste of the business
Sunday 29 May 2011
The two-storey country house, modest compared with the other châteaux of the area, sits proudly underneath a perfect wide blue sky, surrounded by neatly trimmed vines festooned with lush red roses which would be any horticulturalist's dream.
I am in Bordeaux, the spiritual home not just of French but world wine making. Opposite me, examining a vine with dexterity and not a small degree of tenderness, is Oliver Berrouet, 32, the chief winemaker of Petrus, perhaps the finest wine producer in the world. "The soil is just different here and all the great estates of Bordeaux share similar characteristics of their terroir. When it rains, water is retained and can be drawn upon when it is hot and sunny. There is no excess of water to spoil the process," Mr Berrouet says of the small vineyard (just 11 hectares, 27 acres) which produces just a couple of thousand cases of wine a year, each one fetching several thousand euros – if you can get your hands on one, which is the difficult part.
All the winemakers I have met over the previous two days at Château Lafite, Latour, Haut-Brion and Cheval Blanc, have talked in the same reverential terms about the Bordeaux regions and – more specifically – their own terroirs. The mix of water-retaining clay in the soil, the ever so slight slopes which allow the vines to bathe in the warm sun and the gentle breeze from the river Gironde, have made this a unique locale for winemaking for centuries. It's difficult not to agree that it is a special place. But does this beauty spell a real investment opportunity for anyone but the super rich? The investors who have their own property, cash savings and some shares but who are looking for something different to add some much needed growth to their portfolios.
The local winemakers – happy to get their hands literally dirty – don't want to sully themselves with talk of pounds and pence or euros and cents. But, nevertheless, money is being made in huge quantities, with the price of investment wines comfortably outperforming nearly every other asset class – with the exception of gold – over the past decade. "There are a number of factors which have driven prices up, but they all, in effect, relate to supply and demand," says Sam Gleave, the sales director at Bordeaux Index, a wine merchant and investment specialist.
"Winemakers at the top vineyards are looking to produce the very best wine they can. This means that over the past 15 years or so they have reduced the quantity of fruit for their premier – or first – wines, just going for the best, and this has hit supply. On the demand side, we have more expensive, top-grade wine being consumed. This inevitably leads to price rises."
And chief among the consumers are the new, wealthy elite of the East. China, in particular, has proven a major market for some of the great Bordeaux brands, depleting stocks and forcing up prices. It is followed closely by other emerging Asian markets. "The Chinese tend to drink the wine a lot younger than we do in the West, and are attracted to very particular names – Lafite has found a major market there – but their tastes are now broadening and deepening, looking increasingly at other châteaux, including some second wines," adds Mr Gleave. "Remembering that the most famous châteaux, in addition to producing a first Grand Vin or Premier Cru wine, make excellent second or even third wines."
Bordeaux Index has also noticed a re-emergence of the North American wine market – for several years in the doldrums – and Malaysian, Indonesian and Singapore investors coming to the party for the first time. "We have an office in Hong Kong so can see precisely what wines are being consumed in Asia, and this helps us to spot the trends," Mr Gleave says.
Much of the investment and profile, though, rests on the so-called five first growth wines from Lafite, Margaux, Latour, Haut-Brion and Mouton Rothschild, as well as great producers in the Pomerol and Saint-Emilion appellations of Bordeaux, such as Petrus, Le Pin, Ausone and Cheval Blanc. The "first growth" title dates back to 1855 when the Bordeaux wine classification was decided – with the exception of Mouton Rothschild, which was added in the 1970s. Below these first growths are a legion of second, third, fourth and fifth growths that have stayed in situ for more than a century and a half. "It is often forgotten that the 1855 classification was based purely on price and yet apart from the addition of Mouton Rothschild we have not had any change since that time," says Alain Puginier, a historian at Château Haut-Brion.
The prices for the 2010 vintages of these wines will be released over the next few weeks and are expected to be higher than last year, particularly if the wine has received a high score from the team of the great American wine master Robert Parker.
A high – close to 100 – score from Parker, and a big-name wine, means a high release price. Once the release price is decided, the négociants, the middle men, place the wines with local and international distributors who sell them on to top restaurants and, through companies such as Bordeaux Index or Berry Bros & Rudd, to wine investors and consumers. Supplies can be so limited that even major wine houses outside France can end up with only a handful of cases.
Considering the vagaries of the release price, wine distribution and the importance of the Parker scoring system, it's easy to see why Andrew della Casa, the manager of the Wine Investment Fund, takes a cautious view of what constitutes a true investment wine. "Only about 1 per cent of wines from Bordeaux are what I would consider investment grade," he says.
"These vineyards aren't Coca-Cola factories. You can't just produce more. For our fund we look at some 35 châteaux – all from Bordeaux – with, say, 10 vintages from each. There are only around three or four good years a decade, so that narrows the universe of stock we pick from, but we are still talking about a market worth £5bn to £6bn."
"We only invest in wines where the historic data on prices is easily accessible. This means we tend to steer clear of château second wines and stick to first wines of first and second growths," Mr Della Casa says.
The expansion of interest in Asia leads Mr Gleave to look more widely at what constitutes investment wines. "The prices of some first growth second wines are similar now to the first growth first wines a few years back. You also have some strong activity in the second growth market, as well as growing interest in Burgundy wines, particularly from South- east Asian markets," he says.
The Wine Investment Fund seeks a minimum investment of £10,000, while Bordeaux Index will put together a portfolio from £3,000 to £5,000. But, more usually, clients invest £20,000, £50,000 or more.
If you choose to collect and store yourself, the advice is to do so in a bonded warehouse, so that the provenance of the wine and how it has been kept can be shown to potential future purchasers. Merchants such as Bordeaux Index and Berry Bros can arrange all this for a small annual fee.
Mr Della Casa says the usual maxim of putting no more than 5 to 10 per cent of your total savings and investments portfolio into alternative investments should be followed: "Wine doesn't tend to move in cycle with either property or shares, and does OK even in a downturn, but it should only play a part in your portfolio."
Sam Gleave, Bordeaux Index
"Try to gear your portfolio to wines – say 80 per cent – that are near the stage of drinking. That way you should find that as the limited stock is consumed then the value of your investment should go up. The Chinese market has become key with buyers there consuming first growth wines and now working through second and even third growths"
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