Fine wine investment: Bordeaux rising

Adherents of the diversification approach to wine investment will be heartened to learn that another fine wine index is about to break out into all-time high ground. The Liv-ex 50 (very narrow) and the Liv-ex 100 (quite narrow) are both still well off their highs of June 2011. Other indices expressing price performance of wines from other regions have been motoring into higher territory for some time, but now we have the Bordeaux 500 a mere whisker below its 2011 high.

For the purposes of clarity, the Bordeaux 500 differs from the ‘100’ not just in terms of its breadth of composition, by producer, but also, crucially in Amphora’s view, by vintage. The Liv-ex 100 is really a measurement of on-vintage performance. Most of the Left Bank wines, for example, come from 2000, 2005, 2009 or 2010, although there is an occasional nod to 2003 and, in the case of one or two first growths, 1998.

The Liv-ex 100 is more selective. It does contain wines from Champagne, Burgundy, the Rest of the World, and so on, but principally from better vintages, and Bordeaux predominates. The ‘500’ is composed differently. It comprises all the vintages from 2003 to 2013 across a broad swathe of chateaux, which by definition covers a lot of off-vintage ground.

It is quite wrong to overload a portfolio with on vintages, and smacks of the lazy tenet of aiming for top wines in top years with the best scores. That’s all very well, but these aren’t always the best investment performers. In stock market terms, the obvious attributes of better companies tend to be priced in, and better returns are achieved by identifying when the fortunes of companies are about to change, or when pricing anomalies exist.

Obviously the, “when a company’s fortunes are about to change” question in the case of fine wine investment is quite challenging. “When is Robert Parker about to upgrade something?” is as speculative as it is now anachronistic. But as we at Amphora never tire of pointing out, anomalous pricing lurks in a variety of hiding places, and it is there we have to look.

Last week we lamented the somewhat tortuous process that en primeur pricing can be for some producers, but without this circus the world of showbiz would be a poorer place. This week we’ve been entertained by the suggestion that Lafite will be offering a second tranche but only to people who are prepared to take a few Rieussec at the same time.

Fabulous as dessert wines may well be, it is very hard to make an investment case for them. Even Yquem struggles. This is how Yquem 2001, the best in recent history, has performed since launch:

If that performance looks okay, it comes nowhere near illustrating the difficulty of participating in the secondary market, meanwhile let’s have a look at an historic great, the 99-point 1990, and a recent top scorer, the 100-point 2009:

Not pretty. So, while we are philosophically of the diversification school, we wouldn’t necessarily be recommending investing in Yquem at the moment. Which brings us back to Lafite. Are the charms of Rieussec so limited as to require distribution in parcel form alongside the grand vin?

Typically the producers look down their patrician noses at those plebs of us who operate at the investment end of society, preferring their wines only to be discussed in consumption terms. This ignores the obvious fact that their wines have a maturation phase which can be well over a decade during which it seems they would prefer their wines to be simply ignored, while they gather dust quietly in a cellar [the wines that is, not the producers – necessarily. Ed.].

Is it possible, therefore, that they are trying to ensure that their grand vin only goes to consumers, because in order to get one you have to pick up something uninvestable (the Rieussec) as well? We shall see if this threat is carried out in due course.

Curiously, from the same stable, one of the better releases this year is the Carruades. What they did with this, the little devils, was to announce a release price of £1,650, dribble out a tiny amount, see the price shoved up to £1,780 or so where it currently resides, ahead of releasing the larger tranche no doubt around the £1,800 + mark in the course of the coming days.

Notwithstanding, even at £1,800 it looks a decent proposition. The critical reviews are generally very good, although Neal Martin is holding back somewhat on the basis that the maker has slightly increased the amount of new oak used in the barrels. James Suckling in his review opined that it is the most tannic Carruades ever, and this catches the eye.

Tannins are what make great wines age. Clearly there has to be a balance of acidity but without a lot of tannin the ageing potential of a wine will be limited. Various studies confirm that it is the age of a second wine that is the most important determinant of price, more important even than critical acclaim. We suggest that this augurs well for the Carruades 2016. The vintage was excellent; critical acclaim is generally high, with scope for an upgrade from Neal Martin, (speculative point, we admit); potential for greater longevity than normal, and in relative terms a good price.

Buy Carruades de Lafite 2016 up to £1,800 a case.

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 with Amphora.