Australian newspapers and magazines have for many years published articles about wine investment. While these articles heighten interest in wine investment, they often describe only single wines from a single vintage and don’t provide any meaningful information to investors about overall market performance. A price trend over time across a spectrum of wines is the only useful guide to how the market is performing.
LCAWI, which was first published online in 2002, charts the performance of a balanced portfolio of Australian wine over time. It is a response to the demand for a reliable and accurate means of gauging the investment potential of fine Australian wine. While there are over 2000 companies listed on the Australian Stock Exchange, the main share indices the ASX200 and the All Ords include just 200 and 500 companies each respectively. Both indices succeed in providing investors with valuable performance benchmarks without covering every single share traded.
Overview of LCAWI
Langton’s Classification of Australian Wine was created in 1990 to bring interest and focus to the emerging Australian secondary market. This benchmark listing of the top-performing 101 Australian wines at auction has since become something of an institution, a cornerstone of the ultra-fine Australian wine scene and collectors market. The LCAWI draws from this list and sale price database.
Australian fine wine seems to have done extraordinarily well during the current global financial crisis not only outperforming the Australian All Ordinaries but almost every other financial index including the UK’s Liv-Ex 100 Fine Wine Index which monitors the performance of traditional European investment wines. Indeed Australia’s top wines have done better than Bordeaux First Growths!
The secondary market is overwhelmingly gauged to a 10 to 15 year window of vintages. Mature vintages generally perform with less volatility unless they are rarities. While dwindling supply can often create upward price pressure, concerns for past cellaring conditions can act as a counter balance. The overall secondary wine market is generally very stable.
The ‘basket’ of LCAWI Wines
Langton’s Classification of Australian Wine IV (2005) lists 101 Australian wines – comprising a range of varietal and regional styles – considered to be of investment/ cellaring grade. Langton’s Classification, which was first released in 1990, has been the internationally recognised ‘form guide’ to Australian wine for nearly two decades. Criteria for inclusion in the Classification are the number of vintages made and market demand. Wines selected for inclusion in the Classification must have been produced over a period of at least 10 years with a record of quality and reliability during that time. Market-driven criteria relate to value, consistency and volume of demand in the market over at least 10 years. The selected 28 wines from the Classification are all classic, house or regional wine styles with a strong track record of performance on the secondary wine market.
Exceptional (11/11 in the LCAWI)
PENFOLDS Bin 95 Grange Shiraz, South Australia
BASS Phillip Reserve Pinot Noir, Gippsland Victoria
CULLEN Diana Madeline Cabernet Merlot, Margaret River Western Australia
GIACONDA Chardonnay, Beechworth Victoria
HENSCHKE Hill of Grace Shiraz, Keyneton South Australia
LEEUWIN ESTATE Art Series Chardonnay, Margaret River Western Australia
MOSS WOOD Cabernet Sauvignon, Margaret River Western Australia
MOUNT MARY Quintet Cabernets, Yarra Valley Victoria
PENFOLDS Bin 707 Cabernet Sauvignon, South Australia
ROCKFORD Basket Press Shiraz, Barossa Valley South Australia
WENDOUREE Shiraz, Clare Valley South Australia
Outstanding (7/22 in the LCAWI)
BAROSSA VALLEY ESTATES E&E Black Pepper Shiraz, Barossa Valley South Australia
BROKENWOOD Graveyard Vineyard Shiraz, Hunter Valley New South Wales
CLONAKILLA Shiraz Viognier, Canberra District New South Wales
GRANT BURGE Meshach Shiraz, Barossa Valley South Australia
GROSSET Polish Hill Riesling, Clare Valley South Australia
HENSCHKE Mount Edelstone Shiraz, Keyneton South Australia
JASPER HILL Georgia’s Paddock Shiraz, Heathcote Victoria
Excellent (5/34 in the LCAWI)
CAPE MENTELLE Cabernet Sauvignon, Margaret River Western Australia
D’ARENBERG The Dead Arm Shiraz, McLaren Vale South Australia
MCWILLIAM’S Mount Pleasant Lovedale Semillon, Hunter Valley New South Wales
PENFOLDS Bin 389 Cabernet Shiraz, South Australia
WYNNS COONAWARRA ESTATE John Riddoch Cabernet Sauvignon, Coonawarra South Australia
Distinguished (5/34 in the LCAWI)
BOWEN ESTATE Cabernet Sauvignon, Coonawarra South Australia
HOUGHTON Jack Mann Frankland River Cabernet Blend, Western Australia
LINDEMANS Limestone Ridge Shiraz-Cabernet Sauvignon, Coonawarra South Australia
SEPPELT St Peters Great Western Vineyards Shiraz, Grampians Victoria
WYNNS COONAWARRA ESTATE Cabernet Sauvignon, Coonawarra South Australia
Calculation of Langton’s Classification of Australian Wine Index
When Standard and Poor’s created its various share indices, careful consideration was given to maintaining the balance between industrial, resource and technology stocks in the subset of shares that comprise the index. We took a similar approach to the selection of the 28 LCAWI wines. The four levels of the Classification are represented; All 11 ‘Exceptional’ wines, 7 ‘Outstanding’ wines, 5 ‘Excellent’ Wines and 5 ‘Distinguished’ wines.
Shiraz and Cabernet-based wines dominate the market. Regionally defined wines, including whites with cellaring potential also feature. However the secondary wine market is overwhelming geared to red wine. Penfolds, the most dominant producer, is represented by three wines; Grange, Bin 707 and Bin 389. Ultimately investment-type wines have longevity.
The actual varietal composition of the LCAWI is 46.5% Shiraz-based wines, 36% Cabernet-based wine (including Cabernet-Shiraz), 3.5% Pinot Noir 7% Chardonnay, 3.5% Riesling and 3.5% Semillon.
Vintage consideration is also important. Obviously the LCAWI cannot be based on just one vintage, as it would not provide the depth required for a broad market index; yet an axiom of wine investment is to only buy good vintages. LCAWI is therefore based on the five very high quality vintages of 1990, 1996, 1998, 2002 and 2004. These vintage parameters are ‘rolled-over’ with market time.
A bottle of Grange does not have a weight 10 times that of Wynns Coonawarra Estate Cabernet Sauvignon even though it may cost about 10 times the price. The weight for each wine is exactly the same. The index therefore represents the change in value of an investment portfolio that allocates an equal dollar amount to each wine in the index. This is slightly different to the All Ords where companies are weighted by size. Although 18 out of 28 wines are classified ‘Exceptional’ or ‘Outstanding’ (the top two tiers of the Classification), LCAWI does reflect movements in the fine wine market as a whole, not just movement s in the most expensive wines.
It is important to note that Langton’s does not weight wine according to production level. Production levels do not necessarily relate to quality. The reputation and track record of performance on the secondary wine market are much more reliable indicators.
With auctions taking place approximately once every two weeks, the secondary wine market is not in the same league as the share market when it comes to liquidity. Unlike the All Ords, which can be calculated at any point during the trading day, the LCAWI can only be updated after each auction. While the wines in the index represent some of the most liquid Australian fine wines, it is possible that not every wine included in the index will be traded at every auction.
The wines and vintages that comprise the LCAWI are not fixed permanently. Wines and vintages are added and deleted, just as companies are added and deleted from global share indices. Wine is after all a ‘consumption commodity’ and the stock of each wine is destined to fall over time. In time wines from the 1990 vintage will become so infrequently traded that the vintage will need to be removed from the index. Likewise, at some point a new vintage will need to be added.