There is little doubt that California is considered an investible wine region – arguably the only one outside Europe. However, beyond a few established cult wines – Screaming Eagle, Sine Qua Non, Harlan, Dominus, Ridge Monte Bello, Opus One – the picture is far less clear than in Bordeaux or Burgundy, and as with Italy, one really needs to distinguish specific groups of wines to understand even those headline names more clearly.
Any consideration of Californian wines must start by recognising the clear difference in distribution compared to their European counterparts. It has always been the case that the vast majority of the fine and rare Napa wines have been sold to mailing lists (‘direct-to-consumer’, in formal terms).
Bordeaux, by comparison, is sold via intermediary distributors – négociants and merchants – before reaching the final customer. This model has been changing in recent years, but has a much more significant impact on the investability of the wines than is often recognised.
For this reason, the easiest wines to understand in an investment context are the larger production names – mainly Dominus, Ridge Monte Bello and Opus One (the first two having production of around 30%-50% of the Bordeaux First Growths; the latter roughly double of the First Growths).
Not only are these inherently more available and “liquid” on the market as a result, but their distribution has always been more global, even though it has been further enhanced recently. The performance of these has therefore tended to be more akin in behaviour to Bordeaux or Italian wines.
The lower production level of Monte Bello, meanwhile (around 3,000 cases), is likely one of the reasons for its recent spike in price: the market realises the wine is underpriced for the quality and is then squeezed when stock availability is low.
Screaming Eagle – or “Screagle”, as it’s known – is broadly in a category of its own, in particular because it enjoys a global brand following unrivalled in the region. Production is in the hundreds, not thousands, of cases and has been mailing-list based, which means that supply actually coming onto the market is lower.
Even though mailing list prices are not what they were, this cult wine tends to be held by many wealthy US collectors for consumption. Beyond the initial price uptick for the first seller however, the low volumes tend to lead to price volatility in Screagle and overall a pretty thin market, one which could perhaps be equated to Burgundy but more esoteric. Prices in the UK tend to be the most susceptible of all the US wines to changes in FX – as can be seen across 2020 where the wine’s performance was rather laboured in Sterling terms.
In some ways, Screagle’s market dynamics are a more pronounced version of those for lesser-known, small-production Napa wines. The mailing-list distribution is changing (partly due to a generational shift in buyers; partly as a conscious movement from wineries) but still leads to broadly low availability of the wines. This may sound investment-positive, but from a demand perspective it doesn’t necessarily create an understanding and a following for what are very expensive wines.
As such, the wines – Harlan, Colgin and Hundred Acre being some of the most prominent examples – undoubtedly tick the rarity and quality box so as to be very investible. But where performance has been unexciting in the past couple of years, this may be driven by a lack of sustained global following or an understanding of exactly how well these wines age (despite how attractive they are when young).
We believe this segment has the most long-term potential through a combination of education and distribution changes, and we’re also rather surprised that this has not come through more to date. But when it does, there are many high-quality but lesser-known cult wines from California that will likely also benefit.
Sine Qua Non is an interesting side story, with a particularly loyal following for wines that are idiosyncratic and (many would argue) misunderstood in their profile and ageworthiness. The appearance of back-vintage parcels on the market is sporadic but they often sell quickly. We like the investment dynamics, even if it is hard to move the wine out of the niche category.
Cutting through the foreign exchange impact on sterling prices over the past 12 months or so, we believe the outlook for US wines is broadly positive, and that the broader “Rare Napa” category is a sleeping giant. The question with such segments is always when the catalyst will come for a market step change – in this case, the combination of education and distribution changes driving significantly greater demand.
For this reason, we currently prefer to invest in Ridge Monte Bello (despite the price gains), a few of the rare names such as Harlan and Colgin, and Sine Qua Non, with a more cautious approach to Screaming Eagle and the rarer names in Napa. The region definitely merits close observation over the next two to three years and more ambitious investors could start to take positions in the lesser-known Napa wines, assuming even the current price per case is not a deterrent.
Matthew O’Connell is head of investment at Bordeaux Index
