Philip Staveley
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Closely watched wines

One of the features in the fine wine market that we at Amphora Portfolio Management review on a regular basis is the popularity of a producer as measured by the number of times it is looked up on wine-searcher. This is important because it can be an early indicator of the emergence of a new fashion or an increase in the perceived status of a particular château. In and of itself we wouldn’t consider it a necessary indicator of value but it is important enough to be a weighted variable in our proprietary algorithm.

buy_wine_onlineBy and large there is a comforting consistency in the results, with Lafite, for example, rarely straying over the last five years from first or second position, usually alternating with Mouton. Since this coincided with a period when, for the most part, Left Bank wines have been unloved we must guard against the hopeful expectation that regularity of enquiry through wine-searcher equals higher price of most popular wines. It is not that simple.

Interesting features over the last few years include the occupant of the No.1 spot in the December of 2013, 2014, and 2015. You guessed it: Dom Pérignon. Or perhaps you didn’t? Krug and Cristal are no-where to be found! More recently Cheval Blanc which has languished unloved in an investment sense for some time now leapt from its customary 10th – 20th position up to 4th in August, and a move of that magnitude is sufficient to encourage us to keep an eye on it.

We wrote last week about Opus One, and the accompanying chart illustrates what we refer to above:

chart1

Back in the “obsession with Bordeaux” era, pre-correction in June 2011, Opus One was languishing outside the top 20. As the broadening of interest to include wines from the Rest of the World and Tuscany took root, look what happened to the level of interest in Opus One as expressed by wine-searcher hits. Same for Sassicaia, bouncing from outside the top 20 to a regular spot between 10 and 15.

chart2

If we then look at the price implication against a Bordeaux classic, for the same vintages, we note some interesting outperformance in those with increasing popularity:

chart3

That is quite meaningful. Now obviously this does not constitute forensic analysis, but the availability of data and nature of the fine wine investment market preclude anything particularly clinical, and we have to build up a picture from the information available. The increasing or decreasing popularity of wines as expressed by searches both on general search engines and on wine-searcher certainly have a part to play in building up the picture.

The market, meanwhile, is pausing for breath. There will be several explanations offered for this, most likely including something to do with sterling. At Amphora we believe we need to look no further than the performance over the last few months. Markets that move in a straight line without pausing for breath are seldom to be trusted. The reason is that rising prices logically attract sellers, and when the numbers of buyers and sellers roughly match then the market simply bides its time.

Even then the fine wine market is not as simple as that, given the degree by which wine purchased for consumption dwarfs wine purchased for investment. Events such as occurred in 2011 are unusual. At that point the speculative element took control. In essence, (largely Asian-based) intermediaries tried to corner the market in expectation that the China frenzy would last somewhat longer than it did. Their buying and subsequent selling caused the spike.

We suggest that the fine wine market does not need further sterling weakness to move ahead from here. The sterling weakness was a catalyst for the market moving into this new bull phase, but it is not the reason we are in it. A much more plausible reason is the level of interest rates and the perceived lack of investment options, and we do not see either of these changing any time soon. In addition, global consumption of fine wine will continue to rise as economies continue to grow and places like China and India continue to create new swathes of wealthy consumers.

One thing we have observed continually over the last six months is the rotation of interest, and we have been at pains to stress obvious bargains. As Liv-ex has been trumpeting recently, the Liv-ex 1000 index, its broadest, is now in all time high ground:

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Firing on all fronts now then?

Not quite. There are still wines which have been slow to join in the fun. Back in May we highlighted Penfolds Grange and because post referendum the focus has been largely Bordeaux-oriented these are still out in the cold. They may not be flavour of the moment but deserve a weighting in any diversified portfolio and current levels we believe represent a very attractive entry point, as the 2004 chart below might suggest.

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Philip Staveley is head of research at Amphora Portfolio Management. After a career in the City running emerging markets businesses for such investment banks as Merrill Lynch and Deutsche Bank he now heads up the fine wine investment research proposition at Amphora Portfolio Management

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