Fine wine investment: bargains among the 2012s

It has taken a while for 2012 to recover from its en primeur inspired hangover but a lot of wines from that vintage have shown a decent leg lately, sufficient for Amphora Portfolio Management to be fielding plenty of queries as to whether or not there are still bargains around from that year.

To briefly recap, after the egregiously priced campaigns of 2009 and 2010 most observers expected pricing sanity to prevail in the altogether poorer 2011 vintage, but were disappointed, and it took a long time for the stock to be shifted. In stock market parlance, it was “left with the underwriters”.

Under these circumstances the market place knows that the stock will dribble constantly out thus reducing the likelihood of price appreciation. This is known as a ‘tap’, and it happens even if the product is desirable, but the effect is compounded when there is not much to write home about, as was the case in 2011. Every Bordeaux appellation scored in the 80s that year in terms of individual vintage score. That is not good scoring.

Unfortunately the hangover lasted into 2012, a considerably better vintage, but again clumsily priced, and therefore not the stimulus the market was hoping for at that time. In the first quarter of 2013 (remember the EP campaign for the 2012 vintage was in the spring of 2013), the Liv-ex 100 had its sharpest recovery since the mid 2011 correction, in the hope that the producers would price attractively.

Sadly those expectations were again dashed, and the index ebbed away as can be seen from the chart below, before finding a substantial long term bottom initially in the summer of 2014:

The 2013 vintage came and went in the spring campaign of 2014 with barely a whimper, largely because in terms of vintage quality it was an absolute shocker, the worst in terms of Bordeaux appellation vintage scores since 1993. To offer some perspective, a reasonable off-vintage will score in the high 80s and occasionally low 90s, but 2013 is very much a low 80s year.

2014 was a much better year, scoring in the low 90s, and it did merit a flicker in terms of market engagement, and by the 2015 campaign a year ago the market had already begun its recovery, so it is not easy to establish how vital its mid 90s scores were to the promulgation of the rally. We believe it reasonable to suggest that it did no harm, as now we think that an extremely good year such as 2016 is not likely to be the harbinger of a downturn.

This campaign has been scrutinised no less than any other, and it is fair to say that many issuers have been sensible as to pricing. Margaux, for example, has just released at a price just shy of £5,200 which, while a hefty premium to last year, represents a 20% discount to fair algorithmic value, given the other on-vintages trading well above £6,500.

Except for the 2005, that is. At Amphora we tend to shy away from 2005s given their relatively recent retrospective. Like stocks and shares, fine wine prices move on expectations and surprises, and we wonder what the 2005s will do for an encore. Margaux 2005 looks decent enough though. It scores 98+ against the 99s of 2009 and 2010, and currently trades at £6,000, so in the context of that we would recommend either the 2016 or the 2005, the older bottled wine now being much more scarce and therefore meriting a premium to the en primeur offer, in our view.

But back to 2012. As we see it the vintage has been beset by three problems:

1). The ‘2011 hangover’. Again the EP campaign was too highly-priced. Perfectly true, but eventually all the stock finds a home and supply to the market assumes rational levels. We suspect we have now reached that point.

2). Indifferent vintage. By the standards of other off-vintages 2012 actually scores much better, over 90 points in each appellation and 93 in Pomerol. We propose that history will regard it as one of the better off-vintages somewhat like the 2008 and alongside the 2014.

3). In absolute terms many of the wines are too cheap. When investing in fine wine you have to take account of all costs, of which storage can be significant. If you buy a case of wine for £200 and pay £12 a year for storage you find too great a part of the investment return is eroded by charges. As it happens storage charges are the same whether the wine is £200 or £20,000. At Amphora we believe that a wine’s price appreciation prospects have to be extremely good for us to recommend purchasing a wine under £750 a case.

Unfortunately this is where the 2012 problem lies. Let’s take Montrose for example. Arguably the wine was a bargain this time last year at under £500 per case, but at that price it sits in the ‘too cheap’ space from a storage perspective. Since then it has risen 30% to over £650, which is a great return even allowing for the storage.

If this happened all the time, you could be forgiven for having a reasonable weighting in favour of these cheaper wines, but it doesn’t, unfortunately! Let’s examine a similarly-rated wine from an older vintage. The 2001 scores 93+, and here is the long term chart:

Let’s say you bought at £255 back in 2002 at en primeur time. Obviously you’ve got no storage until around May 2004, but from then to May 2017 you have paid around £150 storage, so your total cost is £410. Up it goes to £830 by May 2017 so your profit is a handsome £420, or just over 100%. The problem is it has taken you 15 years to get there so your return is only 5% per annum, and the reason for that is that your storage charges have nibbled away to the tune of a short 5% per year too.

The more the cost of your wine, the less the return is compromised by storage charges, so please bear this in mind when looking at wines under £750 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.