How Cult Wine Investment Finds The Next High Value Wine And Region

Tom Gearing grew up in the world of fine wine with a father who was an avid collector, so it may not seem that strange the he founded one of the first wine investment firms in the world. After growing up in England with many buying trips with his father to Burgundy, Bordeaux and other fine wine regions of Europe, Gearing decided to establish his company while still in college. With help from his investment banker father, they set up an office in their house and launched Cult Wine Investment in 2007. Today that business has $320 million worth of assets under management, 1.25 million bottles of wine in their temperature controlled warehouses, and employs over 100 professionals with clients located in 83 countries.

“Many people don’t realize that fine wine has a solid investment track record. For example, since 2009, the Cult Wines Index returned +194% (8.89 CAGR),” reports Gearing. “Even in the challenging 2022 market, our second quarter return was +4.73%.” During that same quarter the S&P was down -16.1% and the Nasdaq was -22.47%.

“In general,” Gearing continues, “fine wine has an overall return of around 9 to 10% per year.” However, there have been some very healthy returns on individual wine brands. For example, according to Cult Wine’s database, Emidio Pepe Montepulciano d’Abruzzo from Italy achieved a 78% return over 3 years; whereas Chateau Rayas from Chateauneuf de Pape in the Rhone region of France climbed 198% over the same time period.

“Fine wine investing is a good way to diversify a portfolio,” states Gearing. “Plus there is always the option to drink the wine at a later time if you decide not to sell it.”

Creating a Fine Wine Investment Portfolio

Just as investors make the decision of what percentage of blue chip stocks, small caps, emerging market, and other categories they want in their portfolio, so do wine investors. “We work with each investor to develop a fine wine investment strategy,” explains Gearing. “For example, if they prefer lower risk but with more modest returns, we generally invest in ‘blue chip’ wines such as Bordeaux and Burgundy, which have a solid track record. But if they want exposure to the most exciting and upcoming wines from new producers or regions, we may create a combined portfolio of emerging producers combined with ‘blue chip’ wine producers.”

Gearing explains that the minimum investment time for fine wine is 3 to 5 years, so in creating a personalized portfolio for each investor they not only consider risk appetite, but also time horizon and investment level. For example, one portfolio may consist primarily of wines from Bordeaux, Burgundy, Champagne and California; while another includes all of these, plus wines from Rhone, Italy, and other parts of the world. In tracking wine and region performance, Cult Wines also works closely with Liv.ex and the Liv.ex 1000 index, the broadest measure of the fine wine market.

There are four major plans, with the entry level called Cru Classe for a minimum investment of $10,000. The next levels are: Premier Cru, starting at $35,000; Grand Cru from $150,000; and Cult Cru from $700,000. Each level provides an increasing level of service and experiences, which may include invitations to wine tastings and/or visits with top producers around the world. Annual fees start at 2.95%, but this includes fees for storing the wine in temperature and humidity controlled warehouses in Europe, authentication of each bottle before purchase, insurance, and wine bottle condition checking. There are no performance or trading cost fees.

Investors can make changes to their portfolio at any time, including decisions to sell, trade, buy or drink the wine. “We currently have thousands of investors around the world,” reports Gearing with around 30% in Asia, 50% in the UK and Europe, and the other 20% from North America.”

In terms of competition, some of the other wine trading platforms include: Alti Wine Exchange, Vint, Vindome, and Vinovest. Cult Wine invests in actual physical bottles of wines, but other wine investment firms may do fractional or percentage ownership of wines.

How Cult Wine Investment Finds The Next Cool Investment Grade Wine or Region

So how does Cult Wine Investment decide which wines to include in their portfolios, and how do they identify the next cool wine producer or region? In answer to the first question, Gearing responds, “We have an investment committee that analyzes value and growth prospects for individual wines and regions.” This data is stored in a proprietary AI system, which analyzes such variables as production levels, vintage quality, critic scores, pricing levels, brand awareness, market trends, drinking windows, availability and many other criteria.

To identify up and coming investment grade wines or wine regions, Gearing explains, “We look for five major ingredients: high quality reputation, aging capability, high critic scores, resell potential and international visibility.” In the New World, many Napa Valley wines have managed to attain all five factors, but Gearing and his team are closely tracking other regions.

“We are fairly bullish about the state of the U.S. wine market,” he says. “We are expanding outside of Napa to look deeper into Oregon, the Santa Cruz Mountains and Santa Barbara. The new West Sonoma Coast AVA is exciting, and we see more potential there. Sonoma has struggled to have a reference point, because they never developed an equivalent of Screaming Eagle or Opus One, but now that Burgundy has gotten so expensive, there is a gap in the market for a special occasion pinot noir that really delivers. We wonder if Faiveley purchasing Williams Selyem in Sonoma will propel it into the spotlight, but only time will tell.”

Outside the U.S., Cult Wines is also currently tracking the Central Otago region of New Zealand, and other parts of Italy. Strangely, and perhaps sadly, the loss of grape crops to extreme frosts and wildfires in Europe, NZ, Australia and California, has caused the price of many fine wines to increase due to shortage issues.

Cult X: Expanding the Business Model of Cult Wine Investing

After nearly 15 years in business, Cult Wine Investment is expanding its business model to launch a new wine trading platform later this year called Cult X. Gearing describes it as the next generation fine wine trading platform using blockchain technology and their extensive database analytics.

“We want to make fine wine prices more transparent,” states Gearing. “In the past it was difficult for collectors and wine enthusiasts to make clear decisions on wine purchases because price data was contradictory and incomplete. This new platform will make it easier for consumers to make informed decisions and get fair prices within the market.” There is no minimum investment and lower transactional costs for CultX, but Cult Wine Investment portfolio investors will benefit from direct market access as part of their current level of service.

In order to build the platform Cult Wines has developed a new partnership with Winesearcher.com to provide ten years of historical data and current pricing information. The new CultX platform will not only be a place to buy, sell, and trade individual wines, but have access to rare, limited edition and exclusive wines as well. For example, the company recently auctioned a 1-of-1 jeroboam of Romanée-St-Vivant 2017 produced by Olivier Bernstein through an exclusive partnership with Bernstein.

This type of special relationship with a fine wine producer, such as Bernstein, is the type of relationship that Cult Wines wants to continue to cultivate. “In the end, the world of wine is all about relationships,” explains Gearing. “And wine investing is additive to the eco-system of wine: it is good for the winery, the investor, and the consumer. It is a win-win-win.”