Fine wine investment: too good to be true?

15th June, 2017 by Philip Staveley

It is widely accepted that Rauzan-Ségla is not a wine to be drunk in its youth. “Allowing the wine time to develop the complexity, aromas and silky textures that comes with cellaring is the best way to enjoy the wines of Rauzan Ségla.” (The Wine Cellar Insider). It is interesting to note, therefore, that the highest Robert Parker score is accorded to the 1865, although, while attesting to its authenticity, Parker acknowledges that this wine was tasted at an event hosted by the subsequently discredited Hardy Rodenstock.

What has this got to do with anything?

At Amphora Portfolio Management we regularly emphasise that investment markets are conditioned by expectations and surprises. Lest anyone forget that the fine wine market place is investable, check out the plethora of news linking critical appreciation with release prices from this year’s en primeur campaign.

Check out too what happened to Angélus and Pavie prices when they were elevated to Grand Cru Classé A status. Angelus produced three reasonable, but not special, vintages in 2006, 2007 and 2008 (94, 92 and 93 points respectively), and this is how they performed relative to the Liv-ex 100 since elevation:

So how do we approach this conundrum in the absence of either a crystal ball or a seat at the re-classification commission?

If you are managing funds in the stock market you don’t outperform by buying all the best companies, because the quality is already priced in. You outperform by finding companies whose fortunes, for whatever reasons you can identify, are about to either improve (then you buy) or deteriorate (then you sell, or short). Similarly in fine wine investment to engineer optimal returns you don’t buy all the best wines, and if you dispute that you have been sleeping throughout the EP campaign.

In the world of fine wine the easiest way to outperform is to identify relative value, which is what the Amphora proprietary algorithm uniquely does. But another way is to keep a very close eye on activity at the châteaux, in the hope of finding enhancements (or otherwise) which may condition future quality.

When the Tesseron family embarked on the first high profile bio-dynamic processes at Pontet Canet the jury was out as to likely effect, until their fabulous double in 2009 and 2010. Here was a fifth growth whose wines 30 years earlier were served on the SNCF, suddenly challenging the established order for quality.

It took a while after the Tesseron purchase before this perennial 80-odd scorer produced something noteworthy, but by 2003 they were in the mid 90s, 97 by 2005, before surprising all and sundry with 100s in 2009 and 2010, notwithstanding Neal Martin’s February 2017 downgrade to 98. (He has yet to taste the 2010 which currently retains its Parker score of 100 – watch this space!)

Now, what Pontet Canet might preferably have done, apart from avoiding the above Martin downgrade, is continue to impress with decent wines in recent vintages, particularly 2015 and 2016, but since 2010 the scores read as follows: 93, 93, (90-92), 94, (94-96), and (95-97). In short, other producers have done better. This is one very good reason why the back vintages of Pontet Canet have not enjoyed the upgrade we saw earlier with Angélus. Here is the equivalent chart:

In line, at best. But at least Pontet Canet is doing something different so we need to keep an eye on it.

And this brings us back to Rauzan-Ségla. This estate was acquired in the ‘90s by the Wertheimer family who own Chanel. Unfortunately their early efforts to upgrade production capacity and processes were stymied by a combination of floods and misfortune, and so it took some time before they were able to plant and produce as they wanted to.

Replanted vines take some years before they reach the maturity required to produce grapes of sufficient quality, and with Rauzan-Ségla needing further years of cellaring before becoming desirable we are in for a long wait. Not so, maybe, with Canon.

At much the same time as picking up Rauzan-Ségla, the Wertheimers bought Canon in St Emilion, and although there were early issues there too they have recently produced wines of significant quality. Not only that, but they have issued their last two at very reasonable prices. The 2015 offering has doubled over the last year, and the 2016 has proven very hard to come by, not so much because they have done a Lafite (issued hardly any), but because it has all been snapped up.

Buyers of the 2016 can sleep easily because they have secured a very good wine (97-99 points) in a particularly good year, while holders of the 2015 own a very good vintage at a score of (98-100). The 2015 also has the dubious privilege of receiving the following, er, high praise from The Wine Cellar Insider: “The best way to sum up this wine: it’s an intellectual sex bomb! Angelina Jolie meets Madame Curie”

You couldn’t make it up.

It is very early days for Canon, but the château is very well funded, has improved its offering dramatically, and has thus far priced ‘to go’. The new winemaker Nicolas Audebert has kicked off with two brilliant wines. These are encouraging signs, but it would be a mistake to wager all on Canon at this point.

The risk-adjusted approach would be to incorporate a few Canon into a Right Bank weighting in the portfolio. Then if it soars the benefit adds to your overall return, but if it doesn’t you are insulated by the rest of your portfolio. Go buy Canon 2016 with our blessing, but keep Rauzan-Ségla on the back burner for another year or two.

 

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.

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