Fine wine investment: Vintage performance

There has been a lot of talk recently in fine wine investment circles about the performance of some of the classic Bordeaux vintages, wines which Liv-ex captures to a great extent in the Bordeaux Legends sub-index. At a time when all roads have seemed to lead to Burgundy, there has been some meaningful outperformance from this sector, as can be seen from this comparison chart:

In essence the ‘Bordeaux Legends’ are wines from top producers, although not exclusively first growth or equivalent, who have made a very high-scoring wines in the best vintages from 1982 to 2000 inclusive. Take 1990 for example. Although it registers an overall vintage score of only 90 in Margaux and Graves, it reaches 96 in Pomerol and a fabulous 98 in St Emilion, Pauillac, St Julien and St Estèphe. This makes it an ‘on vintage’ in Bordeaux, even though it is clearly not ‘on’ across the board.

A wine drinker can like whichever vintages they prefer, even though there tends to be a lot of snobbery about superior vintages, but it is a very important consideration from an investment perspective. Other things being equal, a wine from an ‘on vintage’ will cost more than a wine from an ‘off vintage’, just as a first growth will cost more than a Super Second and a 100 point-scorer will cost more than a wine with a lower score.

We capture these elements and much more in the Amphora proprietary algorithm, and indeed we differentiate within vintages, because it is important to acknowledge that, to take 1990 as an example, you are more likely to get a great wine from St Emilion in that year than from Margaux. A great vintage can’t bail out a poor wine though. The 90 point-scoring Ausone 1990 costs just over £4,600, whereas its 1999 vintage costs £5,600, despite the fact that the overall vintage scores are a world apart (98 against 88), because the 1999 earns a better individual wine score of 95.

It is a curiosity of the market that winemakers are given very little credit in wine price terms for producing a great wine in a lesser vintage. Sticking with Ausone, the 2003 and the 2005 both score a perfect 100, but because the St Emilion vintage score is 98 in 2005 against 90 in 2003, the wines are priced £12,400 against £8,900.

The aggregate overall vintage scores for the five key areas within Bordeaux represent a good measure as to quality within on and off vintages, and indeed account for considerations such as ‘in-between vintages’ like 2003 and 2008, which critics often argue about as to quality. For the purpose of this discussion those five areas are Pauillac (where the scores are identifiable with St Estèphe and St Julien), Margaux, Graves (Pessac Léognan), St Emilion, and Pomerol.

It may come as a surprise to learn that by this measure 2015 is superior to 1990, largely because of the relatively indifferent scores for Margaux and Graves in 1990. 2015 aggregates 478 against 472 for 1990. It transpires that 2015 scores 95 or 96 in each area, so while it lacks the peaks of the 98s (Pauillac and St Emilion) in 1990, it also avoids the troughs of Margaux and Graves.

The next best vintage after 2015 by this cumulative yardstick is 2000, with a score of 480, followed jointly by 2005 and 2010 with 483, but the laurel crown goes to 2009 with a grand total of 485. In that vintage St Emilion rather let the side down with 93 points, because Pauillac merited 99, Pomerol and Graves 98, and Margaux 97. Critics often cite 2010 alongside 2009 as a contender for “best vintage of all time, so investors will be interested to note such differences between them as there are by region:

2009:                  2010:

Pauillac:          99                       98

Margaux:         97                       95

Graves:           98                       99

Pomerol:         98                       95

St Emilion:      93                       94

Small margins…

And the reason we call vintages like 2011 and 2013 “off” is because in neither year did any region manage a 90.

As analysts of the market place it behoves us to follow price movements very closely and identify variations from which it should be possible to make money, and several are thrown up when we look at the performance of the Bordeaux legends. One of the less illustrious constituents of the index is Léoville Las Cases 1996. We think this wine is interesting at this point for two reasons: firstly, relative to the sub-index of which it is a part; second, relative to a similar older vintage, the 1986.

Here it is, in chart terms over the last five years, against both:

Clearly it has underperformed, so we ask ourselves why this might be. Let’s compare it with the 1986. 1986 was a good year in Pauillac, St Julien, home of the Léovilles, and St Estèphe, with an overall vintage score of 94. The wine itself has an individual score of 98, so it is a really good effort. So it must be, at a cost of £3,650. The fact is though that 1986 was a really indifferent year in the other regions.

Actually, so was 1996. To our way of thinking, 1996 was bailed out by Lafite and Latour, and even then Parker’s 100 and 99 respectively have since been diluted by Neal Martin to 98 and 95. To pursue the aggregate score method, 1986 totals 448 against 442 in 1996, so neither year is an on vintage in a broad critical sense.

What doesn’t seem quite right, however, is the price differential between Léoville Las Cases 1986 and 1996, especially when you consider that both wines score 98. A closer look reveals that the 1986 used to be a 100 pointer from Robert Parker, before being downgraded by Martin to 98 at the end of 2016. In the chart above you can see this performance taper off from this point, suggesting that Martin does indeed have the investor’s ear.

As things stand, therefore, you have two comparable wines from comparable vintages, one costing 55% more than the other. If that is what extra ageing does to the price of a fine wine, then we should all should be taking more notice of these older vintages. We will continue this analysis of Bordeaux Legends next week, because there are several other anomalies to which we would like to draw investors’ attention.

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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