Fine wine investment: don’t fear the dip
It was very gratifying last month to see Rhône lead the way in the Liv-ex 1000 after Amphora Portfolio Management had been trumpeting the wine investment attractions of the ‘La La’ sorority recently. The Champagne sector also outperformed Bordeaux, in fact over a 12 month period Champagne is the second best performing sector behind Burgundy, fully justifying exposure in a diversified portfolio.
Meanwhile we have oil prices rising, gold prices falling, the FTSE breaking into all time high ground, and talk of interest rates rising. Que pasa?
Well despite all the global political noise going on at present, economies are actually doing perfectly well thank you, and when economies do well and people feel quite flush, they don’t buy gold. What they do do is buy fine wine, among a variety of other luxury goods.
A lot of people see fine wine as a store of wealth, rather as they view gold. The difference is you don’t charge out and buy gold when you get your bonus, you buy jewellery, and you have to buy an unfeasible amount of jewellery for it to have any impact at all on the gold price.
Not so with wine. Wine is made to be drunk, obviously, but when times is ‘ard and your belt straps are tight, you think twice about buying a bottle of wine for £2,000 in a London restaurant. Perhaps this doesn’t hold true for residents of the Sunday Times Rich List who aren’t going to let a few bob get between them and their favourite first growth, but it does impact demand at the margin, and the margin is more important than most people realise. Ask Dave Brailsford.
So Amphora continues to be sanguine about prospects for the fine wine market, increasingly so when we see this month’s Liv-ex 50 price action. When markets get really nervous, price declines give rise to uncertainty and eventually to panic. When investors are more relaxed, they see declines as a buying opportunity.
The difficulty investors have is more psychological than anything, because we would all prefer markets to go up in a nice straight line, and the problem is they never do. Logically this is a great thing because declines give us the chance to buy more stock, but it’s as if we would all rather pay more for it, thereby constricting eventual returns, in exchange for a better night’s sleep. Ho hum. The pleasures of risk and reward.
Anyway, we are now into the famous en primeur pricing phase, and it is perennially astonishing just how hard the producers seem to find all this. They have a better acquaintance of the market for their own wines than anyone else, not least because they are in a much better position to gauge how much potential supply is left in the market. Why? Because only they know exactly how much was released in the first place.
They also have a much more intimate acquaintance with the inherent quality of their wines, for even more blindingly obvious reasons. AND they have a perfectly valid secondary market to let them know at exactly what prices the market place values all their back vintages. So how hard can all this be? Investment bankers come in for a lot of stick but if they had such information at their disposal every time they did an IPO they’d be tickled pink.
A recent Liv-ex market update contains the extraordinary but credible assertion that Château Montrose has such a hopeless handle on the market place that it has announced a price for their 2016 vintage, but sent out no stock! Talk about sticking a wet finger in the air!!!
While we monitor that situation we note that the Cos d’Estournel demand seems to have taken off on the release of Neal Martin’s score (98-100). That, at least, is the sales pitch being made by the various distributors, and of course only they really know. The price was listed on 24 April; the Neal Martin score emerged on the 28th. It is possible that the Parker protégé ignited demand for the Cos 2016, but it is equally possible that this traditionally slow-moving market simply took four days to get mobilised.
This touches on a matter of great importance though, actually. Is the fine wine market, and investors within it, ready to accord Neal Martin the position it used to reserve for Robert Parker?
It is very early days, but this is something we need to be right on top of. Almost under the radar Martin has been charging around re-scoring an awful lot of Bordeaux wines, Montrose in particular, funnily enough. Did you know that the glorious double top vintages of 2009 and 2010 now carry Wine Advocate scores of 98 and 99, subsequent to his tastings on 31 March this year?
That is nothing compared to the Montrose 2006. Parker thought it was worth 94+ but Neal Martin has just given it 87? (his question mark, not mine). At the end of February he also downgraded Pontet Canet 2009 to 98 points. Lock up your daughters!
Now it is fair to say that historically downgrades tend to have less impact than upgrades, for reasons we have not yet fathomed. I know this from bitter personal experience having sold a Mouton 2003 for £3,300 in August 2014 when Parker re-graded from 95+ to 91, only to see it merrily trading now above £4,500. But all this may change as the market matures.
We have speculated since Parker’s withdrawal form Bordeaux tasting that his extant 100 pointers may enjoy a certain additional scarcity value, there never being any more to come, and this is another reason the Martin situation is worth watching. If the market place is quite happy with Neal Martin filling the Parker shoes, not only will former 100-pointers not achieve further scarcity value, but they may suffer as a result of such downgrades as have already been visited upon Montrose and Pontet Canet.
Watch this space.
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.