Tag Archives: Wine

Fine Wine Investing – Everything You Need to Know about Bordeaux

10/1/2013 Portland, Oregon – Pop in your mints….

Appellations, Banks, Gravel, and Clay all work together in the Southwestern region of France which has become legendary for its wine production:  Bordeaux

While the word Bordeaux may ring a bell, many of us would be hard pressed to hone in on specifics when it comes to selecting a fine wine investment from this or any other region for that matter.

Until now.

The following is a synopsis of the Bordeaux region and the fine wines that it produces.  Think of it as the Hitch Hiker’s Guide to the Galaxy of fine wines which fall under this prestigious umbrella.

THE BORDEAUX EFFECT AND THE VINTAGES SHE PRODUCES

Red Bordeaux (or “Claret” as the British have always known it) can be the epitome of fine wine. The best wines exhibit a wonderful complexity of aromas and flavours, great elegance and refinement and an ability to age gracefully – some for a hundred years.

Like all of France, quality wine production in Bordeaux is governed by a set of regulations known as “Appellation Contrôlée”, often abbreviated to “AC”. An AC covers a certain geographical district and governs production of wine within the district. The whole of the Bordeaux region is covered by a couple of catch-all, generic ACs: AC Bordeaux and AC Bordeaux Supérieur (the latter is higher in alcohol, but not necessarily better). An enormous quantity of inexpensive, “everyday” wine is made under these ACs. Though this is not the “great” Claret that all the fuss is about, it can provide very attractive, reliable drinking.

There are also many smaller, named areas, each entitled to its own AC: AC Fronsac, or AC Pomerol for example. These more specific ACs are usually superior to generic Bordeaux and have stricter regulations.

To the west of the river Gironde, the vineyards of the Médoc and Graves are based on gravelly soil and are planted mainly with Cabernet Sauvignon vines. To the east lie Pomerol and St-Emilion, two smaller areas of predominantly clay soil, planted with a higher proportion of Merlot. Hence we have “left bank” and “right bank” wines.

The wines from each area can have quite a different character because of the different soils and predominant grape variety. This also means that one is usually more successful than the other in any given year.

Bordeaux Grapes no matter where they are from, almost all red Bordeaux is blended wine: made from two or more grapes. Red wine grape varieties allowed in Bordeaux, in order of importance, are:

  • Cabernet Sauvignon,
  • Merlot
  • Cabernet Franc
  • Malbec
  • Petit Verdot

Bordeaux also produces considerable quantities of white wine. Grape varieties permitted are:

  • Sémillon
  • Sauvignon Blanc
  • Muscadelle.
Bordeaux Wine Regions
Map of Bordeaux Wine Regions created by Domenico-de-ga

Classic Bordeaux Regions – 

The Médoc

The Médoc is home to most of the great, classic Clarets. You will find wines labelled AC Médoc that are usually one step above basic Bordeaux, but the very best wines of the Médoc come from even more tightly defined ACs within the Médoc. The best of these individual ACs include:

  • AC Margaux,
  • AC St-Julien,
  • AC Pauillac
  • AC St-Estèphe.

This region is dominated by large wine-making estates, known as châteaux. Whilst many of these do indeed have a château as their HQ, others have nothing more than the vineyards and a collection of ordinary working buildings. Unlike many producers from other parts of the world, each château tends to produce only one “grand vin” which carries its name. Some of them also make a white wine, and many make a second wine, from vats not considered good enough for the “grand vin”.

Each of the top ACs of the Médoc has its own character:

  • Margaux is home to the most perfumed, elegant and “feminine” wines
  • Pauillac three 1ers Crus. Classic, powerful yet elegant wines
  • St-Julien the epitome of Claret: savoury, well-balanced and refined
  • St-Estèphe wines are structured, tannic, long-lasting, “masculine” wines.

In 1855 Médoc wines were classified. From the many thousands of wines produced in the area, just sixty were thought worthy of classification. These sixty were sorted into five ranks or, in French, “Crus” (meaning “growths”), i.e. “Premier Cru” (first growth), “Deuxième Cru” (second growth) and so on.

There are only five top ranking, Premier Cru wines:

  • Château Lafite-Rothschild
  • Château Latour
  • Château Margaux
  • Château Haut-Brion (actually in Graves)
  • Château Mouton-Rothschild.

All classed growth wines command very high prices, many of these, particularly the Premiers Crus, are bought by investors all across the world. To this day the classification remains more-or-less unchanged and many of the original classified châteaux are still producing some of the world’s greatest wines. Of course strong arguments could be made for promotions and relegations within the classification. A group of wines known as the “super seconds” are generally acknowledged to be Premiers Crus in all but name, and a few of the original châteaux have either gone or have lost their reputation. However, apart from some obvious anomalies, it is remarkable how the bulk of the classification holds up, even after 150 years.

The Médoc Crus Bourgeois

Just below these classed growth superstars of Bordeaux are a host of wines known as the “Crus Bourgeois”. Many fine wines can be found within this classification – some are worthy of classed growth status, yet are available at a fraction of the price. I have found properties such as Chasse-Spleen, Meyney, Coufran and d’Angludet to be consistently good. However, in 2006 a court case found that the classification of the Crus Bourgeois was illegal, and pending a restructuring which means wines will have to be independently assessed for inclusion each vintage, the whole classification was temporarily suspended.

Graves 

Graves lies to the south of the city of Bordeaux. This region produces both red and dry white wines on the very gravelly soils after which the region is named. The red wines tend to express a soft, earthy quality. Like the Médoc this region was also classified, but not until 1959. Only a couple of dozen châteaux are entitled to the words “Grand Cru” on their label. The best vineyard sites of the Graves are clustered in the North of the region. That is where almost all the Grands Crus are situated. In 1987, this area was given a brand new AC of its very own: Pessac-Léognan. Wines bearing these words on their label should be of higher quality than most Graves. The undoubted super-star of the area is Château Haut-Brion. As noted earlier, this property was actually declared a Premier Cru in the 1855 classification of the Médoc due to its exceptional quality. Uniquely, it is allowed to have both classifications on its label: Médoc Premier Cru and Graves Grand Cru. Its sister property, La Mission Haut-Brion, is also capable of the highest quality.

St-Emilion 

Although the area is quite large, the properties here tend to be much smaller and less grand, and the wines (exclusively red) are very different. The soil is clay and limestone rather than gravel, and the dominant grape variety is not Cabernet Sauvignon, but the softer Merlot and Cabernet Franc. The wines tend to be approachable at a younger age and to have a warm-blooded fruitiness. It is an area that requires a little bit of caution because of its classification system. St-Emilion wines are divided into 5 classifications. In ascending order, these are:

  • St-Emilion
  • St-Emilion Grand Cru
  • St-Emilion Grand Cru Classé
  • St-Emilion Premier Grand Cru Classé “B”
  • St-Emilion Premier Grand Cru Classé “A”.

Pomerol

Pomerol is by far the smallest of the great regions. It has 2 basic constituents that determine the character of its wines: the soil is thick, heavy clay and one grape variety dominates: Merlot. Pomerol wines are extremely soft, seductive and full of spice and vivid fruit. The production tends to be tiny in the area, so the wines are generally expensive. Indeed, Pomerol is home to some of the world’s most expensive wines such as Châteaux Pétrus and Le Pin, the latter producing little more than 500 cases each year. You will rarely see these wines in shops as they are snapped up years in advance of production. Look for more reasonably priced wines such as Petit-Village, Le Bon Pasteur and Clos René. The wines of Pomerol have never been classified.

Sauternes and Barsac

The Bordeaux area also produces world class white wines, though invariably in tiny quantities. The most famous of these are the sweet wines of Sauternes and Barsac, including the almost legendary Château d’Yquem. These luscious wines (also classified in 1855) are created by a particular and unpredictable fungus, called botrytis. Botrytis rots the grapes, leaving them high in sugar and glycerine which leads to their eventual silky, honeyed sweetness. The best dry white wines come from the Graves area. Though often of tremendous quality, these tend to be scarce and the famous names are very expensive.

The minor regions

From the inexpensive, soft, fruity and delicious wines of the Premières Côtes de Blaye in the north of the Bordeaux region, to the moderately-priced structured, tannic and impressive clarets of Fronsac or Lalande de Pomerol, the “lesser” red wines of Bordeaux are not to be despised. Whilst the finesse and breeding of the top classed growths might be missing, the red wines of the region are generally very reliable and well made.

The dry whites of the region, from areas like Entre-Deux-Mers or simple AC Bordeaux can produce refreshing, zippy, occasionally slightly tart wines for drinking young. Areas around Sauternes, like Sainte-Croix-du-Mont or Loupiac which lie just across the Gironde, also produce sweet, sometimes botrytis affected wines that can be very good and are moderately priced. Rosé is also produced in the Bordeaux region, often from the Cabernet Sauvignon. It can be delicious stuff with bright, supple fruit and refreshing acidity.

Indeed, the Bordeaux Region and its Appellations are the epicenter of Fine Wine investment.  A basic understanding of the region and the wines that are produced there, which we hope you have gained by reading the above information, is absolutely crucial for anyone who wishes to dabble in fine wine for investment purposes.

If you or any of your clients would like more information on fine wine investments, simply email us at: davidminteconomics@gmail.com with the word “WINE” in the subject line.

More to come on the Fine Wine Market.

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Investing in Fine Wines has Never been Easier

Fine wines have always commanded a premium on restaurant menus, but have you ever stopped to consider the other side of the trade on a romantic dining experience?

Tempranillo Photo credit: Mick Stephenson
Tempranillo Photo credit: Mick Stephenson

Fine Wine Investing

Today we begin a short series on investing in Fine Wine.  Fine Wines as an investment opportunity may sound like something that well heeled folks with large estates and walk in wine cellars are equipped to dabble in.  However, as with many things the rich do, they tend to do it because there is money in it.

The market for Fine Wines is remarkably stable and refreshingly uncorrelated with other asset classes, which is why the rich, apart from bragging rights, have no qualms about storing a portion of their nest egg in corked glass bottles.

Today, the stability and out sized price gains in the Fine Wine market are available to almost anyone willing to invest.  The best part is, you don’t even need to build a wine cellar or worry about your retirement account spilling in an unfortunate accident or being accidentally enjoyed at a candlelight dinner at home.  You can now invest in Fine Wines as you would any other asset class, via the internet.

You still own the wine, naturally, you just don’t need to deal with the hassle of transport and storage.  All you need is a minimum investment of 5,000 British pounds and a bit of information.

If you would like more information on this investment opportunity, which is available through one of our partners, simply email us at: davidminteconomics@gmail.com with the word “WINE” in the subject line.

For the moment, we present the following information as a brief overview of the market of Fine Wines.  While it should go without saying, we present the following information as a general overview and cannot and will not comment upon whether or not Fine Wines are appropriate for each individual’s investment situation, this is a decision that must be made by the individual.  However, if you or someone you know determines that Fine Wine investing is agreeable to their taste, we will gladly facilitate the transaction.

Enjoy!

WINE MARKET ORIGINS

From its origins as an exotic drink, wine has become a long standing commodity, with a lineage that dates back to the Greek empire and beginning of trade in 1600 BC. The ancient Greeks carried wine throughout the Mediterranean coast, with Europe leading the way in consumption, production and movement. A major transformation occurred when Napoleon III requested a classification of best Bordeaux wines in France in the year 1855. Following this, wines were classified on a recognised price-based ranking, leading to the grading of the world’s finest wines.

PRESENT DAY INVESTMENT AND MARKET PERFORMANCE

The traditional notion that wine investment is about buying two cases of young wine so that, after a period of maturation, you drink one case and sell the other to finance both may have a certain romantic appeal.

As an investment philosophy, though, it is heavily discounted by today’s serious investor. Investment is all about risk and good investment choices are made when the exposure to risk is clearly understood.

Fine wines has been one of the strongest areas for investment in recent years What may surprise many is that an investment in fine wine has consistently been a low risk investment opportunity compared to oil, the FTSE 100 and even gold. Combined with strong absolute performance and low correlation to other assets, that has led wine to find a home in many serious investment portfolios.

Those interested in accessing the fine wine market have more options available to them than ever before with a range of tax-efficient structures available. The timing looks opportune too: prices came off significantly in 2011, leaving the possibility of a substantial upturn in the medium term, and inflationary fears are enhancing the attractiveness of physical assets.

There is very little correlation between financial markets and fine wine prices. For example, whilst many stocks, shares and markets crashed during the financial crisis of 2008, most wines continued to significantly appreciate in value. Whilst wine prices are not always free of volatility, the market tends to be far more resilient than many traditional investments that investors go for. The reasoning behind this is actually very simple. Fine wine is a completely tangible asset, a luxury product in which supply is always exceeded by demand. As a particular vintage wine is consumed, more of that wine cannot be produced, so the wine appreciates in value.

Fine wines frequently outperform share indices, for example between May 2010 and May 2011, whilst the FTSE 100 appreciated by 15.6%, the fine wine index increased by a considerably higher 21.1%. The Live-Ex 100 Fine Wine Index is the industry’s main performance benchmark, and represents the price movement of the 100 most sought-after fine wines. The price index is calculated on a monthly basis, with the vast majority being Bordeaux wines. Over the last 25 years the very best wines have appreciated by 15-25% per annum, a staggering return on investment very difficult to find anywhere else without very high risks.

THE FINE WINE MARKET AND SUPPLY AND DEMAND

It is the underlying supply and demand characteristics of wine which make it attractive as an investment proposition. On the supply side, Bordeaux (considered by many to produce the only investment grade wine) is a finite geographical area in France with an essentially fixed number of wine producers (châteaux). The initial supply of wine is therefore finite, and over time can only fall as bottles of the wine are consumed.

Meanwhile demand tends to rise, for two reasons. First, the quality of the wine improves over time as it matures, making it more attractive to drink. Second, global demand continues to rise as new markets for the wine open up. In the last 25 years alone we have seen Japan, Russia, Korea and China ‘discover’ fine wine and consume it in large quantities, with countries such as India and South America yet to come ‘on stream.’

Intrigued?  More to come on this interesting and exciting opportunity.

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