Vinovest Quarterly Report, Q2 2023

by Vinovest Council

We have a lot to cover in this edition of the quarterly report. Whiskey exits. Bordeaux en primeur. A $160,000 bottle of Scotch. Stick around until the end, and we’ll even share our favorite buying opportunities beyond the second quarter.

Further reading

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TL;DR

Quarterly reports are long, so let’s keep this short. Here’s the 30-second version.

Vinovest completed its first whiskey exit, delivering a 30% return to clients
Critics were pleased with the 2022 Bordeaux vintage, though buyers chafed at the year-over-year price hike
Wine prices cool across the board in the second quarter
Vinovest launched a new referral program
Top Champagnes present attractive buying opportunities for the third quarter

By the Numbers

30% - The seven-month return for a recent exit of high-rye whiskey casks invested in by Vinovestors
-2.64% - The quarterly return for Italy, making it the top-performing wine region
-4.45% - The average return for Vinovest portfolios in Q2; only the fourth negative quarter out of 15
3,619 - The number of bottles of 2022 Bordeaux en primeur wine purchased by Vinovestors, including bottles from Châteaux Margaux, Angélus, and Ausone.
$8.1 million - The total value of whiskey held by Vinovestors

Fine Wine and Whiskey Performance in Q2

No matter how you measure performance, the wine market unquestionably hit a lull in the second quarter. The average Vinovestor saw their portfolio decline -4.45% in value in that time. This downturn bucks a trend of positive growth in five of the last six quarters.

Here’s a breakdown of the month-by-month performance of the average wine portfolio.

A couple of factors precipitated this soft market. Most notably, Champagne and Burgundy entered a corrective period following stratospheric growth in the preceding years. According to Liv-ex, Champagne returned 62.5% from Jan. 2021 to Jan. 2023, while Burgundy returned 50.9%. In the second quarter, the regions dipped -5.75% and -6.70%, respectively, as buyers became more selective about what they added to their portfolios.

Global economic headwinds further contributed to the current wine market environment. Europeans face several hurdles ranging from slowing economic growth to looming gas shortages. Inflation has also been more stubborn in Europe than in the United States, where tech stocks led to an 8.74% rally in the second quarter. In June, the European Central Bank raised interest rates to the highest level in the last two decades. While rate hikes are designed to curb inflation, they have caused concerns about the cost of living and a potential recession.

Other major wine-buying markets are facing uphill battles. While China has managed relatively low inflation rates since the Covid-19 pandemic, it currently faces slowing economic growth. According to the South China Morning Post, Chinese consumers have remained cautious about spending amid the slowing economy. That attitude may be changing. China’s State Council introduced new rules that ease restrictions on wine labeling for imported wines, which could rejuvenate demand for high-quality wine imports.

While downturns happen, it’s important to maintain perspective. Fine wine is a long-term asset, and wine prices are much higher than they were a few years ago. You can see the long-term growth of fine wine by comparing the returns of the average Vinovest portfolio versus the Liv-ex Fine Wine 1000, which contains 1,000 of the most portfolio-worthy wines in the world.

Performance by Wine Region

Another way to measure the wine market is through an index. The most well-known one is the Liv-ex Fine Wine 1000, which features several sub-indices categorized by region.

Italy topped the list, thanks to strong interest in Super Tuscans such as Sassicaia, Ornellaia, and Soldera Case Basse. The region benefits by having the second most affordable entry point into the fine wine market, behind only the Rhône. In fact, its reasonable prices and high quality have allowed Tuscany to siphon interest from merchants and collectors away from stalwarts like Burgundy and Bordeaux.

While the 2022 Bordeaux en primeur saw mixed results, the region outperformed its French peers - Champagne, Burgundy, and the Rhône. The shining star was Barsac, a commune on the left bank of the Garonne. Inclement weather has hit the region hard in recent years, limiting its availability of wines on the secondary market. That diminished supply has led to upward pressure on wine prices from the commune, most notably for Château Climens.

Understanding Whiskey Returns

Since making whiskey available a few months ago, Vinovest has allocated casks of whiskey to one in ten portfolios. In total, clients own $8.1 million worth of spirits. Unlike wine, whose price is determined daily, whiskey prices are only determined once per year.

Vinovest is actively assessing the value of client casks. Since whiskey is a relatively new offering, the sample size of re-valued casks is relatively small. We will share our whiskey return data when it reaches statistical significance.

Top Performing Wines of Q2

It’s Château Climens' world, and we are just living in it. The 1er cru classé estate accounted for six of the top ten performing wines in the second quarter. The biggest winner was the 2010 vintage, which leaped from $504 to $792 per case.

The reason for Château Climen’s breakout quarter is two-fold. First, the 2022 vintage was released with a recommended retail price of $1,720 per case (12x75). That was higher than the price for high-scoring back vintages that had the benefit of several years in the bottle. As a result, collectors flocked to the low-priced and more mature back vintages. Moreover, bad weather in recent years has limited the production of Château Climens, making this small-batch wine even hard to find.

The other Bordeaux entry in the top ten includes 2015 Le Clarence de Haut-Brion. Mixed weather limited Le Clarence de Haut-Brion to 7,150 cases in 2015, down from its usual total of 11,000 cases. The limited availability wasn’t the only factor. The 2015 vintage is priced almost 25% lower than the 2022 vintage, even though both have 92-point ratings from Neal Martin.

Top Traded Wines by Volume of Q2

Champagne has seen impressive growth over the last two years. From July 2021 to July 2023, the region returned 42.8%. The second quarter told a different story. The region saw a slight downturn, but that hasn’t diminished demand. In fact, three of the four most traded wines by volume in the second quarter came from Champagne.

These market conditions present enticing buying opportunities, especially for blue-chip Champagnes. Top labels are particularly attractive because they are largely unaffected by market conditions, especially older vintages. Moreover, some Champagnes are trading slightly below their release price despite robust track records of growth.

Take 2013 Dom Pérignon, for instance. The average case sells for 2% below its release price of $2,350 (12x75). That’s despite this iconic brand consistently returning 10% to 16% per year. If Dom Pérignon and other top Champagnes rebound, buyers with those cases should be handsomely rewarded.

Investing Outlook for Q3

We are entering a buyer’s market. Here’s why.

The wine market has taken a slight downturn over the past few months. That trend is apparent whether you measure performance through your Vinovest portfolio or an index such as the Vinovest 100. Even the 2022 Bordeaux en primeur campaign did little to improve market sentiment, in part, because of the sizeable price hike from châteaux.

Declining prices should be setting off alerts in the minds of active buyers. That’s because they can find discounts and opportunities that may not present themselves in a bullish market. Here is where to start.

Champagne Opportunities

The Champagne market has cooled in recent months, dipping -5.75% since March. That downward trend should not deter buyers. If anything, it’s a “golden” opportunity, even among the elite wine regions experiencing a down moment.

Champagne is the best-performing region over the last two years (42.8%) and the second-best-performing region over the last five years (71.7%). That stratosphere growth has likely contributed to the current market correction as Champagne prices attempt to find a new level.

As a result, many top Champagnes are trading below their initial release price despite strong track records of growth. These built-in discounts offer a rare opportunity to snag great wines at even better prices. Keep an on eye on your inbox for grand marquee Champagnes such as Dom Pérignon, Taittinger, and Cristal that have long track records of appreciation.

The 7 Biggest Stories from Q2

Vinovest Completes First Whiskey Exit

In late May, some Vinovestors received good news - their whiskey sold for a profit.

It all started in November. Vinovest offered a handful of high-rye bourbon casks to clients for $1,415 apiece. Seven months later, an alcoholic beverage producer inquired about buying those same casks. The agreed-upon price: $1,850 each, making for a 30% return.

While these casks of high-rye bourbon are gone, it’s not too late to add whiskey to your portfolio. Learn more about our American and Scotch offerings here.

Highs and Lows for 2022 Bordeaux En Primeur

The reviews are in. Critics found plenty of things to like about the 2022 Bordeaux vintage. Despite some inconsistencies and underperformances, the average wine received a 96.2 rating, one of the highest marks in the last 15 years. For a region with a strong correlation between critic scores and price, it bodes well for anyone lucky enough to own a case or two.

The 2022 growing season was one of the hottest and driest on record. Typically, this weather contributes to wines with higher alcohol, less acidity, and sweeter fruit notes. Châteaux well-equipped to handle climate challenges were rewarded with some of the best wine in two decades.

Our winery relations manager, Olivier Bouchard, visited Bordeaux for en primeur and came away impressed; “Considering the hectic growing conditions, this vintage is a very pleasant surprise to all, with freshness and superbly integrated tannins. We saw a little bit of inconsistency from one château to another, but overall this might go down as “the vintage of the decade.”

As expected, merchants raised prices to account for increased demand. On average, en primeur releases were 19% more expensive than last year, a hike that hasn’t sat well with some buyers. After all, collectors want wine prices to rise after they’ve purchased it.

As Olivier Bouchard, noted, “Prices are up across the board this year. Volumes have been low this year, which has contributed to the price spikes. For instance, Châteaux Margaux, Pavie, and Montrose released 40% to 70% less wine than last year. As a result, we have had to “fight” to get allocations of top-performing wines.”

While the 2022 price hike may deter some, it should reward active buyers. After all, the relatively low outputs make this vintage inherently scarcer than previous releases. This positions the 2022 vintage favorably for long-term appreciation. The already low supply should see continuous upward price pressure year-over-year, especially as the number of bottles in circulation declines due to consumption.

The spin. Thereare instances where the price hike may be a good thing. Take Château Cheval Blanc and Château Angélus, which left the Saint-Émilion classification last year. There was some concern that giving up a prestigious title like premier grand cru classé A may hurt prices.

Fortunately, that was not the case. The respective releases from Cheval Blanc and Angélus during en primeur were 20.5% and 32% more expensive than last year on an ex-Bordeaux basis. Cheval Blanc even sold out of allocations by May 11, a few days after its campaign debut.

Rare Whiskey Auctions Remain Hot

Auction houses such as Sotheby’s and Zachys reported record spirits sales in 2022. That momentum has carried over into the new year. With limited supplies and an increasing number of wealthy collectors seeking premium labels, demand in the whiskey auction market has remained strong.

Here’s a glimpse at some healthy hammer prices from the second quarter:

1940s Jack Daniel’s, $5,000: A heavy metal bar in London closed its doors, leading to the sale of its rare whiskeys. Most notable was a discontinued 6-year-old Jack Daniel’s that fetched $5,000 at auction.

72-Year-Old Gordon & MacPhail’s Glen Grant, £95,000: Glen Grant ranks among the oldest and most revered Scotch single malts of all time. Only 290 bottles of its 72-year-old expression were ever produced, making this whisky exceedingly rare. When a bottle went up for a Bonham’s Hong Kong auction, the single malt reached a record price of £95,000, more than double what it sold for in February 2021.

Macallan Fine & Rare Collection, $980,000: In May, Sotheby’s offered the most comprehensive set of Macallan Fine & Rare in a single auction. It featured 56 bottles with nearly 40 expressions, some dating back to 1937. A total of 42 bottles were sold for just shy of $1 million, with the 1957 vintage earning the highest price tag at $160,000.

Foreign Exchange Rates Stabilize

For much of last year, dramatic swings in foreign exchange rates resulted in favorable buying opportunities for those with US dollars and the appearance of stagnant returns for wines purchased in British pounds.

Fast forward to this year. The good news is that those rates have stabilized. In the second quarter, the pound showed resilience, rising about 3% against the dollar. The pound’s gains stem from policymakers raising interest rates to tame inflation. Meanwhile, the pound rose 12% against the yen following the Bank of Japan’s decision to maintain its long-standing, ultra-loose monetary policy.

The takeaway: As foreign exchange rates stabilize, Vinovestors should expect more predictable buying conditions than the first half of the year, especially if they invest with pounds, dollars, or Swiss francs.

Vinovest Launches New Referral Program

Our old referral program was good. But our team knew we could do better. In April, we rolled out a brand-new referral program.

Originally, clients could only refer friends to our managed wine portfolio. In return, both the referrer and referee would receive three months of no fees. Our new referral program is bigger and more rewarding. Now, you can refer friends to a managed wine, managed whiskey, or trading account. That’s not all. You’ll also receive up to four months of no fees.

Want to save on your monthly fees? Find your unique referral code and refer a friend here.

Legendary Winemaker Jean-Michel Cazes Dies at 88

On June 28, Château Lynch-Bages’ winemaker, Jean-Michel Cazes, died at the age of 88. A revered figure in the Bordeaux winemaking scene, Cazes helped elevate his family’s estate and the region as a whole.

As Wine Spectator noted in its obituary for Cazes, “He was one of the first in Bordeaux to combine modern winemaking methods with savvy international marketing to achieve a worldwide reputation for his family's wineries.”

The passing of a larger-than-life figure such as Cazes often has a ripple effect on the secondary market. After all, there will never be another wine made with Cazes’ exact touch and sensibilities. The wines that do remain will gradually diminish over time as people consume (or accidentally break) bottles.

While there is no guarantee that back vintages of Château Lynch-Bages will soar in price, it wouldn’t be unusual. A similar phenomenon happened following the death of winemaker John Shafer died in March 2019. Demand for his flagship wine, Shafer Hillside Select Cabernet Sauvignon, jumped noticeably for its 2011, 2012, 2013, and 2014 vintages in the following year.

You can add Château Lynch Bages to your portfolio in two ways. First, you can invest in bottles of the 2018 vintage on the Vinovest Marketplace. If you prefer cases or different vintages, contact your portfolio manager to learn more.

Vinovest Takes Clients Inside Château Ausone

Bordeaux en primeur is arguably the biggest event in fine wine. If you’re unfamiliar, it’s an annual campaign where wine buyers can purchase the latest vintage while it’s still in the barrel. Buyers are often able to invest below the secondary market price, while châteaux receive essential working capital.

So, what’s it like working at a winery leading up to en primeur? We decided to take clients behind the scenes at the Château Ausone to get some answers. During the one-hour webinar in Saint-Émilion, viewers were treated to an inside look at the vines, wines, and cellar of this premier grand cru classé A estate. Viewers also got to pick the brain of Edouard Vauthier, a co-owner and manager, about the past, present, and future of French wine.

If you missed the event, you can watch the entire webinar for free in the Vinovest community.

Photo of the Quarter

Did you know you can ship your wine and whiskey? It’s true. One Vinovestor decided to take us up on that offer. In April, he added a case of Penfolds Grange to his at-home collection, alongside bottles from Caymus, Stap’s Leap Wine Cellar, and Jean-Louis Chave.