Fine wine investment: Pomerol opportunities

Most people’s inboxes this week will be filling up with reminders about the unspeakable Black Friday frenzy, whose argy-bargy will be populating the news screens at the end of the week as one black eye follows another…

China has its own version of this, a rather more romantic ‘Singles’ Day’, which takes place on 11 November. ’11/11′ is a rather neat touch for a singles’ day, isn’t it?

Anyway, the reason I point this out is that on the most recent iteration of Chinese Singles’ Day earlier this month, a staggering US$17.8bn was turned over, a figure apparently in excess of the total full year e-sales forecast for no less a country than Brazil. Given that Brazil is the fifth most populous country in the world that’s quite a stat.

On the recent Amphora Portfolio Management visit to Asia we noted a dramatic increase in interest amongst Hong Kong merchants whose shelves have been emptying at a rate unseen since early 2011. The current uptick in sterling doesn’t seem to have affected this demand. It is as though the giant has emerged from its slumber.

One wine in particular has been in great demand in the wine investment space and availability has now all but disappeared. Petit Mouton 2010 has outperformed the other second wines from both 2010 and 2009, so fine wine investors should keep an eye out for availability of these vintages of all the second wines.

Price anomalies
We talked last week about anomalous pricing, and in the past have examined a lot of the Pomerols from 2008 and 1998. It is unusual to get two vintages which match each other, but these two on the Right Bank were as near as dammit, both earning a glowing 96 points from Robert Parker.

It is interesting to note that whilst Pomerol achieved identical scores, St-Emilion did not, which given their adjacent location is a good example of the variable results that can be created by the combination of climate and terroir. St-Emilion scored 96 in 1998, like Pomerol, but only 92 in 2008.

When comparing the prices of individual Pomerol producers we would take account of the usual array of algorithmic variables, and this would include the increasing scarcity of wines from older vintages. All things being equal, older wines are more expensive than younger ones for the simple reason that there is less of them about. The question is, how much more expensive should they be?

Three 2008 Pomerols have been underperforming of late, namely L’Eglise-Clinet, Lafleur, and Le Pin. Of itself this might create an opportunity, but let’s cross-check by pricing them against their sisters from 1998:

Le Pin may not have done much post-referendum, but as you can see it had a good start to the year. We first highlighted the 2008 and 1998 anomalies back in 2014, and the outperformance of the 2008 over two years really is significant.

By contrast, the Lafleur 2008 has underperformed. Both these wines scored 94 points, yet whilst the 1998 has appreciated 16% over two years, the 2008 is languishing at its post-correction lows.

Let us look at L’Eglise-Clinet. In this case the 2008 has caught up to some degree over the last 12 months, but it is still a pretty feeble performance. The really significant thing here, though, is the price differential.

As we suggested earlier, older wines should, and do trade at a premium to younger wines, but today we are not going to debate exactly how large we believe that premium should be, leaving that for a later date. What we can see from the performance of the three wines in this brief study, is that Le Pin 2008 now trades at a 22% discount to the 2008, having narrowed that discount quite a lot over the last 18 months. Lafleur 2008 hasn’t squeezed the discount at all, which now sits at 25%.

L’Eglise-Clinet 2008, though, despite having narrowed the discount a bit this year, trades at a whopping near 60% discount to the 1998. Both these wines score well, indeed until Neal Martin re-tasted the 1998 Parker had the 2008 ahead by 95 to 94, with Martin hiking the 1998 to 96 points in 2015.

Perhaps there is a tad more premium on that basis applicable to the 1998, but 60%? This is far too great a discount, and in the absence of being able to short the 1998, the only thing to do is to buy the 2008.

This is what Robert Parker says about it: “A remarkable wine in this vintage … Opulent, expansive and savoury, with a broad texture, a full-bodied mouthfeel, terrific purity and a layered finish, this is another big, massive wine that transcends the vintage character.”

Supporting the argument, L’Évangile and Vieux Château Certan 2008s have both hugely outperformed their 1998 counterparts over the last six months, whilst Trotanoy, in Amphora’s view, is another opportunity. The 2008 concedes a nudge to the 1998 (96+ vs 96) but at these levels it is 40% cheaper, and should also be looked at very seriously by the fine wine investor.

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.