Fine wine market achieves five year high as investors diversify

A portfolio approach is the key to investing in fine wines, explains Cult and Boutique's Daniel Paterson


The fine wine market is enjoying a strong bull run for the first time in a number of years. Daniel Paterson from Cult and Boutique Wine Management discusses the main factors driving this growth, the role that Asia is playing, and how the auction market is trending compared to the fine wine indices. He also talks through some sample bottles in the studio, including a Château Mouton-Rothschild 1982, which has boasted 4,000 percent growth since its first sale.

European CEO: What are the main factors driving this growth?

Daniel Paterson: Most importantly, strong demand has returned back to the market, following its correction in 2011, with demand for such vintages from the 1980s, 1990s, and the 2000s.

The wine market tends to have a low correlation to traditional investments, which is a big draw for many investors.

With the uncertainty in the climate, and with the recent weakening of the pound, we have found there are more international-based buyers looking to take advantage of UK wine holdings.

European CEO: Tell me more about those international buyers. Asia for example is seeing a surge in the middle and upper classes; how big a role are they playing?

Daniel Paterson: Well Asia… when they first burst onto the scene, the prices of fine wine were astronomical. However things are now settled, and the general outlook by many people in the trade is that Europe is the traditional heart of the fine wine market, and Asia is the more contemporary heart of the fine wine market.

Last year in Hong Kong there was an auction held titled A Gentleman’s Collection, which featured once-in-a-lifetime wines on sale, such as the Mouton-Rothschild 1945, Cheval Blanc 1947, and the Lafite-Rothschild 1959.

In total the sale brought in just over HKD 30m, which is around $4m. 82 percent of all lots sold, with 38 percent of that 82 percent selling above their low estimates.

However, interestingly enough, when you look at the overall auction result for 2016 for Hong Kong, it did increase by 6.1 percent, but we did see their price per lot drop, versus what they were paying in 2015. So we saw a lot more blockbuster sales happening in the US.

European CEO: So how is the auction market trending compared with fine wine indices?

Daniel Paterson: We’re really seeing some extraordinary results happening in the auction market, versus what we’re seeing in the indices. Especially in the case of rarer, more collectable wines.

To give you an example, there was an auction that was held at Christie’s auction house back in November 2013, where a case of Domaine de la Romanée-Conti, which is from the Burgundy region, had fetched $476,000 – but at the time had a UK-based wine price of $114,000. But everything is dependent on product and timing.

European CEO: Let’s go into some of those details a little more deeply. You’ve brought us some examples here; talk me through some of the growth that these bottles are seeing.

Daniel Paterson: These are some great examples. Example number one: the Château Mouton-Rothschild 1982. Back in 1983 you could have bought a case of 12 bottles for only £275. Today that has boasted a 4,000 percent growth. So that’s just something that can happen in the long term.

More recent example is this 1996 Côte Rôtie from northern Rhône, which in the last two years has shown 48 percent growth.

From farther afield we have this 2011 Italian wine, a Sangiovese from the producer Bibi Graetz, his most famed wine Testamatta. In the last year that has shown 23 percent growth. So it shows the growth that you can have in Bordeaux, but also outside of Bordeaux as well.

European CEO: Do people tend to focus on that region?

Daniel Paterson: Before the correction in 2011, as we mentioned earlier, there was a lot of focus on Bordeaux. Anybody who has a wine portfolio, or is looking to get involved into wine, needs to have a spread of everything.

The Liv-ex Rest of the World 50 – which is basically all of these wines from outside of the old world – has been able to achieve 45 percent growth in the last five years. Far outpacing the Liv-ex 50, which is the most in-demand wines from Bordeaux.

In 2010 we decided to expand the products that we were going to offer to our investors, by focusing on regions such as Burgundy, Rhône, Champagne, Italian wines, wines from California. And we became a lot stricter in terms of the scores of the wines – so, anywhere between 96 to 100 points out of 100 by Robert Parker Junior’s wine advocate.

Having that portfolio approach is really the right approach to take when getting involved in wine.

European CEO: What’s the long-term view then? Is the market likely to settle down at this higher level it’s achieved?

Daniel Paterson: Wine has always performed well over the long-term. And traditionally that should be a consideration when entering the market.

The market has shown a steady rate of growth, with more buyers and sellers than the market has ever seen before.

We only deal with the top one percent of wine that is produced in the world; and with the ever-growing interest in this finite commodity, we’re seeing demand massively exceed supply, which is helping drive the market.

The market’s at a five-year high. So there’s definitely a lot to feel very positive about. And we’re confident that it is set to grow – but there is general optimism throughout the trade.

European CEO: Daniel, thank you very much.

Daniel Paterson: Thank you.