Fine wine investment: A second wind

It has been the Amphora modus operandi to select for portfolios wines which date principally from around 1996, due to the crucial requirement for a ready secondary market.

Recent events have made us re-examine this because the spate of activity in older wines referred to in recent notes has revealed a flush of liquidity which definitely adds to the comfort level.

We should remember that this isn’t true of lower production wines like Petrus and Le Pin, but if a château releases 10,000 cases or more, and the majority of Bordeaux producers do, there is a reasonable chance of decent liquidity going back to the 1980s.

We shouldn’t therefore automatically avoid this era, although obviously caution is the watchword because the further back you go in time the more the ‘rules’ flex. The secondary market may well be more fickle, so that has to be balanced by the potential for a superior return. The archetypal risk/reward trade off.

The best value among these older wines at present is Lafite 1990. It isn’t the best value Lafite in the market in absolute terms, but to find those you have to come much more up-to-date. The vintages from 2009, 2010, both of which we have highlighted in the past as being exceptionally cheap, and the 2014, are better relative value, but they lack the age that the 1990 brings to the party.

In simple terms, there will be ample liquidity in those younger wines for years to come. Their investment performance will be in line with the market, plus the additional kicker as their extreme good value unwinds. For the 1990 there may be less of that specific attraction, but there could be a lot more investment return as scarcity value lends its weight.

If you are in any doubt about the impact this can have you need look no further than the 1989. In Pauillac 1990 was considerably superior to 1989, (the scores being 98 and 90 respectively). To put 1990 in context, there has only been one year to receive a higher score, (the 99 in 2009), while the 2010 also scored 98. The term ‘legendary’ is rightly applied to 1990.

The Lafite 1990 scores 96 points and has a drinking window open until 2045. The Lafite 1989 scores 90 and has as window closing in 2025. Everything from an investment perspective points to the 1990 being a higher value wine, except age, even if in this case the additional age is just a single year. Yet this is precisely the point. These wines are at that stage where liquidity can taper off pretty quickly, and when it does, and scarcity kicks in, there is an impact on price.

There is reasonable availability for the 1990 at £8,000 a case and you could even pick up one or two at £7,800. The 1989 is much harder to come by, and when you can find a case it knocks you back rather more than that. Moving back through the 1980s the better vintages in Pauillac are 1986 (94 points) and 1982 (another 98, like the 1990 and 2010). Curiously there is good availability for the 100 point Lafite 1986 between £12,500 and £14,000. The 97 pointer from 1982 costs nearer £30,000. Scarcity value!

As you can see from this blizzard of numbers, it becomes an altogether different market the further back in time you go, but the more you know about it the greater the opportunity to make a good return. The risk is higher too, but that can be offset if you can minimise the requirement to sell immediately. When liquidity is low, you often need to wait a bit longer before getting the price you want. As with anything, the market place can smell a desperate seller a mile away.

This obsession with older wines is borne out by the statistics revealed by the Liv-ex platform for last week, with Haut-Brion 1989 leading the value charts followed not too far behind by the George Roumier Bonnes Mares 1990. It was a great end to the week for the Liv-ex 50 which bolted up to a six-year high, even in the face of an increasing number of 2017 price releases.

We are still very much in Super Second territory as far as releases are concerned, and one or two producers continue to baffle by offering at a significant premium to equivalent quality physically available vintages from recent years. You can read this as a vote of confidence in the market whereby they expect prices to rise to meet their availability, of course, but you can equally accuse them of being numb to current market reality.

Léoville Las Cases is a good example. How many 94 point 2017s will they be able to sell at £1,776 to a market that can buy the 96 point 2015 for £1,600? The only basis on which that might be justifiable would be if the 2017 vintage overall becomes more appreciated than the 2015, and not many critics would argue that at this point. Check out too the hallucinatory price offered by Pontet Canet. Coming in at over £1,000 it shares a Wine Advocate point score with the 2011 and 2012, both of which are available for under £600. Incredible.

Or is it? It must be said that we are not exactly comparing like with like here. When Liv-ex, for example, displays the prices and very helpful accompanying charts, it is tending to use The Wine Advocate scores for 2005-2016, but Neal Martin’s Vinous score for 2017. We will not be going back in detail to the ‘Parker true heir’ debate right now, but Martin’s scores are so far quite different from those of Lisa Perrotti-Brown MW, flying under the aegis of The Wine Advocate.

LPB scores Pontet Canet 2017 at 96-98, from which perspective £1,000 seems much more reasonable. Similarly at Léoville Las Cases we have NM on 94 and LPB on 96-98, against which the release price is again more rational. Meanwhile, Mouton Rothschild is the ‘first’ first growth to show its hand. As above, why pay £4,320 for a 95 point 2017 when you can get a 97 point 2014 for £4,250? Perhaps because LPB has it at 97-99? It is a good test of which critic you prefer.

Petit Mouton is a slightly different matter. On the face of it the offer price is expensive against its critical reviews, but as we have noted in the past, critical appraisal bears less weight in the pricing of second wines than elsewhere in the market. It may well fly at under £1,800 because every other Petit Mouton in the market costs over £2,000.

A lot of investors quite rightly look for wines whose profile might be improving enough to make their current prices look like bargains in years to come, rather as has happened with Canon in recent years. Canon has even crystallised this upturn in perception by releasing at a premium to equivalent or better quality wines from 2011, 2102 and 2014, so it will be interesting to see how that is received.

Perhaps the most intriguing opportunity along these lines so far has been given by Léoville Barton whose consistency over the last four years with consecutive 94s (from NM) has not gone unnoticed. Both Neal Martin and Antonio Galloni heaped praise on Barton’s 2017 as being potentially the Left Bank wine of the vintage. LPB of course is only on 91-93, (having upgraded Martin’s 94 to 95 for the 2015!) You couldn’t make it up. For the moment Amphora is keeping its powder dry…

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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