Sure Wine Fund Investors Annual investment Report 2019
Published January 2020
by James Pala
The case price of each wine in the GBP and EUR fund is shown in these charts. The original invested price and the price as of Dec 2019 valuations.
Individual prices of wines appreciated better in the EUR fund than the GBP fund. But the GBP fund showed more consistent growth across more of its wines. The EUR fund did perform better than the GBP fund in 2019. This was not really attributed to anything in particular other than the selection of the wines in each fund performed slightly better than others. Proving diversity is key with any investments in fine wine.
Costs in the GBP fund were maintained very low at only 1.2% of the total funds value. Our storage costs remain competitive and an advantage over other competitors and wine investors because we obtain bulk discounts from each of the warehouses we use to store our wines.
The Euro fund also maintained the same storage and costs at 1.2% of the total value of the fund.
The EUR fund comprised mainly of first growth wines with a ratio of 98.4% first growth versus 1.6% in second growth wines, this ratio allowed the fund to grow with stability. Higher risk wines such as second growths are key to allowing some diversity and offer a higher level of risk ratio. The goal is to re invest in more second growths in 2020 as we see potential buys of second growths at very low prices.
The GBP fund maintained a ratio of 97.3% in first growth wines and 2.7% in second growth wines in 2019. Upside potential for the fund in 2020 is very big as we seek out newer and younger vintages to give a more aggressive growth pattern in the second year of performance.
The unit fund percentage in the EUR fund was more aggressive than the GBP fund. With a low of -4.69% and a high of + 4.61% month to month. Despite the slow down in the fine wine market, the EUR fund still managed to produce excellent returns with an annual gross return of 8.62%, this was well above the expected target of 7% per annum.
The GBP fund had a more modest gain, with a high of 4.14% and a low of 1.95%. Gross annual return closed on Dec 31st 2019 at 3.54%. Both funds performed well with good stable returns despite, difficult market conditions.
The GBP fund finished with a gross return of 3.54% and a net return 3.02%
The EUR fund finished with a gross return of 8.62% and a net return of 6.37%
Wines listed in the fund as of Dec 31st 2019 are shown in this chart. The pie chart shows the weighted percentage of each parcel of wine in the fund. Angelus and Latour being the largest single parcels of investment on the whole. The goal is to invest in younger vintages to replace older vintages that may have a slower growth in 2020. However the shift to younger wines should be in line with not allowing the fund to become overbearing in too many young and aggressive wines to ensure stability within the fund. Older vintages do lend stability to the overall performance of the fund.
The GBP fund wines can be compared similarly with the EUR fund and plans to liquidate more of the older vintages to reinvest in younger wines is part of our investment strategy for 2020.
The value of the fund remained stable and the investors did not request to liquidate early in the fund in 2019. Some price concerns were present towards the end of the year which delayed some requests to liquidate. Wines have been put into the market for sale with the goal of obtaining market price rather than lowering the sales below market price, which would affect the overall return of the fund.
The GBP fund value also remained stable throughout 2019.
Individual wines listed here show some incredible gains from the younger vintage wines invested. Three wines achieved in excess of 20% yield in 12 months which was extraordinary considering the London Vintners Exchange posted a -3.6% loss for the Livex 50 (Top 50 first growth wines) for the whole year of 2019. Which just goes to show even in a bear market, you can make a good return providing you are invested in the right assets.
Four wines in the GBP fund achieved 10% returns in 12 months. With over 70% of the wines invested producing a positive gain for the year and 30% producing a negative return for the year. Negative returns did not surpass -5% for any given wine.
There was fluctuation of the fund in encountered in some months due to the nature of the valuation method used for the wines in each fund. Since a large portion of the fine wine market is traded in GBP, often valuations can be heavily reliant on GBP prices of wines in the market. Our valuations do take into account Euro dollar price lists from negociants and merchants but there is always a larger portion in GBP since there are more price reliable merchants who sell fine wine in GBP. These GBP merchants tend to hold more stock, which adds credibility when valuing a wines price.
In addition, cash flow and costs such as storage fees and licensing fees were applied in different months. Even though these costs remained very low, they still impacted the return of the fund in some months. At the end of the year’s close in Dec 2019, all storage and fees were paid out to balance the final numbers.
The growth percentage was more consistent earlier in the year, and some costs such as storage billing were deferred to the latter part of the year which created what appeared to be volatility in the growth of the fund. The costs were apportioned throughout the year, but the outgoing cash flows happened at different times as and when costs needed to be paid and when the fund was in a liquid position to make such payments. We were able to defer payments because Sure Holdings was able to cover these costs earlier to allow payments to be deferred and Sure Holdings was paid back at a later date. It was helpful, because it allowed less pressure to be applied to the fund’s cash flows.
The cash flow goal is to maintain a higher portion of cash in the fund for 2020 to accommodate for these anomalies which can sometimes skew the returns.
As the fund grows in size and value, the unit price may fluctuate less, as cost ratio versus value of fund becomes lesser and lesser. There will always be a relatively fixed cost for storage charges around 1% but we still need to account for the warehouses increasing charges over time. Unit price is not affected when any new investment comes into the fund, but the costs ratio reduces and this is better for all investors in the fund.
Unit value showed consistency all year round, until the last few months of 2019 where the wine market slowed down. Factors that affected the wine market in 2019 were, political discussions about the USA implementing tariffs on French wines. This has been deferred until end of 2020 and may not happen if there are changes to the political landscape in the USA. Or if France remove the taxes on large corporations of America. The latter having the better chance of being applied given President Trump’s firm approach when negotiating. In addition, the stock market rallied to new highs and money flow left safer assets like fine wine. Particularly when the stock market is doing exceptionally well, the wine market can go in two different directions, depending on different scenarios. If investors have a lot of confidence in the stock market then money flow is more likely to leave safer investments like the wine market. If the stock market is performing yet investors have doubt or concern for the stock market peaking or potentially going down, then money flow will be more balanced as investors will seek to hedge their higher risk bets on the stock market with investments like fine wine.
The new year has great prospects for the wine market. 2018 and 2019 was a fairly subdued time for the fine wine market. The London Vintners exchange reported losses for their Index 50 which is very unusual and the general consensus from merchants and negociants is that it is a particularly difficult market. Yet we are still able to produce good returns in our wine fund. This is due in part to our negotiating power and patience. It is also important to remain patient in this kind of market and wait for the opportunities to appear. For example when we see the market prices drop, there is opportunity to enter the market. But an assessment must be done to determine if the market will drop further. If the market does go lower then it has not been a poor decision to enter, but another opportunity arises to buy in again at a lower price. The aim of the investment fund, should be to enter as the market is falling and sell as the market is rising. This means we must maintain a good solid handle on the market throughout all periods. We can assess the market condition using InvestIntowine.com as a guide to the level of activity and also monitoring prices closely with our periodic valuations.