Vinovest Quarterly Report - Q3 2023
Further reading
- Make an advance reading regarding Investing Outlook for Quarter 4
TL;DR
Quarterly reports are long, so let’s keep this short. Here’s the 30-second version.
- Client demand for whiskey casks soared
- Wine prices continue to cool amid a market correction
- Wine performance suggests a favorable market for buyers through Q4
- Champagne and Burgundy report excellent harvests; harvest dip in Italy and Spain
BY THE NUMBERS
-2.89% - The average return for wines on the Liv-ex 1000
$10.9 million - The value of whiskey held by Vinovestors, a total that has doubled since April
$49,462 - The cost of one Laphroaig Single Malt cask purchased by a Vinovestor in August
$7.5 billion - The value of scotch whisky purchased by the Asia-Pacific region, which overtook the European Union as the largest export destination for fine spirits in September
FINE WINE AND WHISKEY PERFORMANCE IN Q3
Fine wine prices rose precipitously during the Covid-19 pandemic. Anyone who invested then likely enjoyed healthy returns in addition to a hedge against inflation and economic unease. Since October 2022, the market has begun to correct, with prices declining across all regions. For Vinovestors, the average portfolio returned -5.19% in the third quarter, the worst performance since the second quarter of 2022.
No region has been spared from this downturn. The Liv-ex 1000, an indice featuring 1,000 of the most portfolio-worthy wines, saw declines for all the major regions. Italy saw the smallest dip of -0.9%, while Bordeaux fell -3.8% despite high interest in older vintages of rare Bordeaux.
A price correction - defined as a drop of between 10% and 20% - stands out as the leading cause of declining prices. Even a region like Champagne, which has recorded its highest level of trade by value and volume, is still trending downward. Macroeconomic conditions may also be to blame. Tentative buyers have been a theme throughout the year, a potential byproduct of higher costs of living and macroeconomic uncertainty.
When prices reach unsustainable levels, it can take weeks or months to correct. Often these corrections result in a bounce back to normalcy or a bull market. Fine wine has maintained a long-term bullish trajectory and short downturns are a normal and healthy part of the cycle.
VINOVEST COMPLETES SECOND WHISKEY EXIT
Vinovest completed its second whiskey exit in the third quarter. High-rye bourbon casks were purchased for $1,413.75 apiece and sold seven months later for $1,850 apiece. That translates to a 30.31% return for Vinovest clients.
The exit marks the second one as part of our contract with a private buyer. Both casks delivered the same returns over identical hold times. The lone difference was the recipe with one cask containing 75% corn, 21% rye, and 4% barley and the other featuring 70% white corn, 20% rye, and 10% barley.
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.
INVESTING OUTLOOK FOR Q4
A soft market. A buyer’s market. Whatever you call it, many trends that shaped the wine market in the third quarter are poised to stick around in the fourth.
The most significant trend is the deceleration of the market. The Liv-ex 1000 only dropped -0.8% in August, as opposed to -8.7% in the first seven months of the year. Is this a sign that the dip is ending? Perhaps. But it will take time to figure out whether the stabilization is a sign of a rebound or not.
So, what’s the cause of this stabilization? There are a couple of possible answers. First, sellers may be adjusting their prices to more closely align with the bids of buyers. Second, more buyers are entering the market. The wine marketplace Liv-ex has reported increased trading activity in value and volume in recent months.
If market conditions remain the same, it should reward active buyers, especially as the pound and euro slump to six-month lows against the US dollar. (The favorable forex movement gives increased buying power to those with US dollars.) That’s because there are plenty of top labels trading with attractive discounts.
As of publication, here are notable wines trading below their release price:
Sellers are not expected to see the same favorable conditions as buyers with supply outpacing demand. As out Head of Wine, Liz Dowty Mitchell, noted, “In general, I’d recommend continuing to hold your assets if possible since the end of the year is not the best time to sell. There are always exceptions to this but it will be at the producer level rather than the regional level.”
Looking Ahead…Keep an eye on Burgundy. Industry experts predict prices for top Burgundies to rise over the long term. The region is coming off a string of small vintages, reducing its already fickle output. The tightening supply combined with increasing global demand from high-net-worth collectors, especially in Asia, should put strong upward pressure on prices.
THE 7 BIGGEST STORIES OF Q3
1. WINNERS AND LOSERS OF THE 2023 HARVEST
Fall means many things. Sweater weather. Football. Jack-o-lanterns. And, of course, harvest season.
The 2023 harvest was far from uniform. Each region experienced its own set of challenges and victories. Here are the notable winners and losers.
WINNERS:
Champagne. Champagne is buzzing with news of the heaviest bunches ever recorded. The bountiful harvest has already been heralded as an “incomparable vintage” by The Drinks Business.
Burgundy. Burgundy’stemperamentalclimate can mean feast or famine for winegrowers. This year, it’s the former. Grape production should exceed the five-year average despite some mildew and hail. Burgundy’s neighbor, Beaujolais, also faired well despite a drought last year.
Napa Valley. Low temperature defined the growing season in Napa Valley, which should delay the harvest for up to three weeks. The late harvest is a welcome change, with producers enthusiastic about quality and quantity.
LOSERS:
Spain. Successive heatwaves and droughts plagued the Spanish growing season. According to the Associated Press, “Spain registered its hottest spring on record this year, and its second driest ever.” Output is expected to fall 12% from last year.
Italy. Extreme weather has cut Italian harvests by 14%. Producers, especially those in southern and central Italy, paid a heavy price for heatwaves and storms during the summer.
Bordeaux. Mildew impacted roughly 90% of vineyards in Bordeaux, dramatically reducing yields in the process. Despite erratic weather conditions - frost, rain, heat, and humidity - producers remain upbeat about the vintage quality.
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2. VINOVESTORS INVEST $11 MILLION INTO FINE WHISKEY
When Anthony Zhang and Brent Akamine co-founded Vinovest in 2019, they made it possible for anyone to easily invest in fine wine. In March 2023, the two expanded to offer whiskey investing. The idea caught on instantly.
Interest has been so high since the launch that a waitlist has been used to meet demand. To date, Vinovestors own $10.9 million of Scotch and American whiskey. That includes casks from distilleries such as:
- Ardmore
- Ben Nevis
- Bunnahabhain
- Bowmore
- Glen Keith
- Glenrothes
- Highland Park
- Inchgower
- Jura
- Knockdhu
- Laphroaig
- Royal Brackla
While wine and whiskey share more similarities than differences, whiskey does have two unique benefits. First, whiskey often has a shorter hold time. Our American whiskey casks age for two to four years as opposed to five or more for wine. This compressed window can appeal to individuals seeking short-term financial flexibility.
Second, whiskey involves contracts that establish the purchase and sale price before investing. That way, clients know what to expect when entering and exiting their casks. The contracts can provide additional peace of mind for anyone diversifying with this alternative asset.
3. WINE MARKETS REACT TO DEATH OF WINEMAKER JEAN-MICHEL CAZES
In June, legendary winemaker Jean-Michel Cazes died at 88. His passing was a blow to the fine wine community. Cazes elevated Château Lynch Bages and Bordeaux as a whole by combining modern winemaking methods with savvy international marketing.
Demand for Château Lynch Bages back vintages has risen since Cazes’ death. Since there’s a finite supply of his wine in circulation, that number will only go down as bottles mature or (accidentally) break. No new bottles can ever be produced with Cazes’ touch.
According to Liv-ex, the Château Lynch Bages’ flagship label is the 8th most traded wine of 2023. Moreover, a majority of back vintages have had positive performance since June, outperforming the Bordeaux 500 index in that span.
4. DEMAND FOR PREMIUM WHISKY SURGES IN ASIA
India loves its whisky. Last year, it leapfrogged France as the largest export destination for scotch. This year, that gap has only grown.
According to the Times of India, demand for Indian single malt has ballooned its market share from 15% to 32% in the last five years, with sales rising 340% this year alone. (By comparison, scotch sales rose 35% in that time.)
The surging popularity of whisky isn’t just an Indian phenomenon. Asia-Pacific overtook the European Union as the largest buyer of scotch whisky ($7.5 billion imported) in 2022. Today, six of the 10 largest export destinations for scotch are in Asia, including:
- China
- India
- Japan
- Singapore
- South Korea
- Taiwan
The popularity of scotch is part of a multi-year effort by major whisky producers to sell Asian drinkers on premium spirits. Earning reports suggest success. Pernod announced that its whisky sales were at a 10-year high. Meanwhile, Chivas’ Royal Salute saw revenue climb 32% for the year, and Johnnie Walker had net sales jump 12%.
Looking Ahead… “Asia is where the longer-term growth will be, especially as you convert people from whatever the local whiskies are or the cheaper blends to more expensive whiskies over time” - Bloomberg Intelligence consumer goods analyst Duncan Fox.
5. VINOVESTORS GET INSIDER TOUR OF ICONIC CHIANTI WINERY
When you think of Chianti, what comes to mind? After one famous line from The Silence of the Lambs, there’s a good chance that it’s Castello di Ama. The Italian winery has made its name with dynamic single-vineyard gran selzione, such as La Casuccia and Bellavista.
In September, co-owner and CEO Lorenza Sebasti took Vinovestors on a tour inside this iconic estate. Viewers got to see first-hand the vineyard, cellar, and tasting room that made Castello di Ama a beloved institution. If you missed out, don’t worry. We recorded the event so that you can take the tour yourself.
6. TWO NEW COLLECTIONS LAUNCHED ON VINOVEST MARKETPLACE
Vinovest released not one, but two new collections on the Vinovest Marketplace in the third quarter.
The first was a collaboration with Heitz Cellars. The Napa Valley winery made three vintages of its Martha’s Vineyard Cabernet Sauvignon available, a wine best known for its role in the 1976 Judgment of Paris. But that wasn’t all. Vinovestors were treated to a webinar with Heitz Cellar's Estate Director and master sommelier, Erik Elliott, to learn about the past, present, and future of its wine.
The second was our Champagne Collection. Despite a red-hot 2021 and 2022, Champagne prices have cooled noticeably in 2023. At the time of the launch, the region had seen average prices fall -10.2% year to date. This dip allowed Vinovestors with a “golden” opportunity to invest to premium brands such as Salon, Cristal, and Dom Pérignon below their usual asking price. After all, every portfolio looks better with sparkling gold.
7. 3 WAYS CLIMATE CHANGE IS TRANSFORMING THE WINE INDUSTRY
“Consistently higher temperatures threaten up to 85% of the world’s current winegrowing areas…unless growers diversify and expand what and where they grow.”
The lede of Kathleen Willcox’s article about the impact of climate change is jarring even if the impact of climate change is all around us. Italian winemakers have suffered early summer floods, hail, and droughts this year. Meanwhile, Spanish producers are grappling with its warmest growing season ever.
But there’s hope. Here are three ways the global wine industry is adapting to the adversity:
- Improve grape resilience. Extreme weather means unpredictability. It could be hot and dry one year and cold and wet the next. Some estates are replanting and re-orienting their vines to account for harsher weather.
- Utilize new yeast strains. A warming climate has alcoholic content on the rise. Winemakers are exploring new yeast strains to keep the appealing flavors while lowering ethanol levels.
- Increasebiodiversity. Biodiversity impacts everything from grape quality to soil fertility. Its importance has inspired a global movement toward sustainable, organic, and biodynamic viticulture.
PHOTO OF THE QUARTER
NBA star James Harden released his first signature wine collection on August 15. Within seconds, it was gone.
According to the Global Times, 5,000 orders were placed at $60 for two bottles, netting Harden a quick $300,000 in sales. When told about the near-instant sellout on a live stream, Harden said, "No way!” Harden then checked the sales on his computer monitor, resulting in this priceless expression.
IN CASE YOU MISSED IT
The Vinovest team was busy hosting webinars, talking with journalists, and even jumping on podcasts in the third quarter. Here are a couple of highlights.
Hedgeye Webinar, July 20
When investors want hedge fund quality research, they trust Hedgeye. The investment research firm also has a financial media arm with an audience of over 300,000 people. In July, people tuned in as host Keith McCullough spoke with the founders of Vinovest and two other companies thriving in alternative assets.
Wealthion’s Investing In Fine Wine & Rare Spirits | Vinovest Founder Anthony Zhang, August 1
Wealthion gives investors the in-depth interviews and explainer videos they need to invest with confidence. To date, its videos have been viewed more than 50 million times on YouTube alone. In August, our co-founder and CEO Anthony Zhang joined host Adam Taggart to talk about the fine wine and spirit markets, their benefits, and their futures.
Episode #492 of The Meb Faber Show: Anthony Zhang, Vinovest – From Barrel to Bank: How to Invest in Whiskey, August 2
As the CIO of Cambria Investment Management, Meb Faber knows a thing or two about protecting and growing wealth. That’s why we were more than glad to hop on his podcast when asked for an interview. Over an hour, Meb and Anthony explored the hottest trends in wine investing, the rising popularity of American whiskey, and the fundamentals of each asset.
How to Invest in Whiskey Webinar, September 12
Vinovest got its start democratizing the lucrative world of wine investing. Now, we’re taking on fine whiskey. In September, our whiskey experts unveiled the secrets of the whiskey industry and the opportunities offered by cask investing.
