Left, right, or both? Long-run returns from Bordeaux

Abstract

As the market for fine-wine investing matures, basic questions of portfolio strategy remain unexplored. I evaluate how adding fine wine from the superstar châteaux of Bordeaux's Right Bank might complement the traditional focus on the five first-growths of Bordeaux's Left Bank. Fundamentals for the Right Bank's superstars are attractive: they produce roughly an order of magnitude less, face different production conditions, and receive equally impressive critical reviews. However, they receive far less attention than their Left Bank counterparts. To examine returns over the long run, I hand-collected 10,885 prices for eight wines from an archive of 391 Sherry-Lehmann catalogs, a New York City retailer, which began at the end of Prohibition. Using these historical price records, I compare the real returns from investing in the five Premier Cru to a portfolio that adds three superstar châteaux from the Right Bank: Ausone, Cheval Blanc, and Petrus. I find the geometric-average annual return was 6.78% in real terms from 1938 to 2017 for the joint portfolio, less than 0.01% different, but with better risk-reward as measured by the Sharpe ratio. Additionally, I find the life cycle of aging is substantially different across the two Banks, which could provide further diversification benefits for the strategic investor.

Wine prices in economics: A bibliometric analysis

“…These exceptional wines have average annual returns of 4.25% over the period 1995–1999 (Ali & Nauges, 2003), 8.7% over the period 1988–2000 (Bentzen et al, 2002), and 4.1% over a very long period 1900–2012 (Dimson et al, 2015). Tolhurst (2022) is the first to analyze the Bordeaux right bank and finds returns of 6.78% in real terms for 1938–2017. In addition, some studies compare the Bordeaux wine returns with those of other regions such as Australia, California, Italy, Rhône, and Spain, and also with specialized funds in wine (Byron & Ashenfelter, 1995; Fogarty, 2006; Lucey & Devine, 2015; Wood & Anderson, 2006).…”