Fine wine investment: Bordeaux 2020
The Bordeaux 2020 vintage looks promising, but will producers try to make up in price what they lose out in volume, asks Philip Staveley of Amphora Portfolio Management.
Under normal circumstances mid-March in the fine wine market is a very exciting time, awash with expectation about the forthcoming en primeur campaign, but unfortunately we can’t quite call these normal circumstances.
The recent attempt by the UGCB to raise the stakes by announcing that the campaign this year, for the 2020 vintage, would take place in 10 cities worldwide has just being reined in to now exclude the US and the UK, so the focus will be on mainland Europe and, more particularly, the Asian cites of Hong Kong and Shanghai.
Like most market participants we at Amphora have bemoaned the historic predisposition of Bordeaux producers to price their new issue based more on a wing and a prayer than anything so sophisticated as market relative pricing, but last year for obvious reasons the mould was, if not broken, at least fractured.
The unusual environment resulted in far more of the 2019 production being priced-to-go, and a buoyant reception in the secondary market was the result. Is it too much to expect a similar outturn for the 2020 vintage? Probably, is the answer.
Since last April the overall fine wine market has been on a very agreeable upturn, with the recent suspension of tariffs imposed in October 2019 by the Trump administration (as part of the tit for tat over the Boeing Airbus spat) further helping positive sentiment. It is a curiosity of those tariffs that they included Bordeaux but excluded Champagne, and this might partly explain why the Champagne sector has been a dominant feature of the last 12 months.
We believe that the 2020 vintage will have been extremely good, in parts. The climatic conditions, a wet spring, dry hot summer, and unusually early harvest in September, were considered quite propitious in terms of the likely resultant quality of the wines. In addition, production levels are down around 10% over the average for the last 5 years. In St Julien that figure is as high as 25%. This gives rise to at least 2 questions: will the producers try and make up in higher price for what they lose out in volume; and will scarcity become a material factor looking ahead from an investment perspective?
As ever we at Amphora will be very close to the action and will advise accordingly. In the meantime several other things have been notable over the last few months. There is no doubt that the breadth of the secondary market place continues to improve.
This is a really good indication of underlying health, but it doesn’t necessarily make for easier investment pickings. What we see is an ever-increasing number of names traded in the market place, but often of very illiquid wines. This makes it even more important to be as well acquainted with the overall market as possible, because that allows you to identify similarities between seemingly disparate features, which is the cornerstone of investment success in mainstream markets.
For instance, a very great deal in being made by critics about the overall improvement in quality from the 2018 vintage in regions as diverse as Napa Valley and Italy. It should be no surprise that as production techniques improve so does the ability of the winemaker to maximise the benefits of a good year’s weather and resulting harvest. The problem is that if a Napa producer, like Schrader with its “Old Sparky”, or TOR with its “Black Magic” earns for themselves a 100 point accolade from the Wine Advocate, it doesn’t really help because they produce a mere 200 and 250 cases respectively. We are in Burgundy territory here, with fabulous wines emerging in minute parcels.
The shrewd investor needs to be aware of all this though because of the implications elsewhere. What might it mean for better known names like Screaming Eagle, or should we be focussing on producers with higher production, like Spottswoode with its 4,000 cases per annum, or Cliff Lede which makes around 1400 cases of its “Poetry” every year? Similarly in Italy where there tends to be better volume in the Super Tuscans but much less so in the Barberas and Brunellos.
One of the interesting features of the “pandemic phase” was the large increase in sales of Second wines. Clearly consumers have been tightening their belts somewhat, but have remained keen on names they know, if prepared to take a step down. What will they do once things return to normal? Will they determine that the “Secondary experience” was sufficiently satisfying to cling to into the future, or revert to former drinking habits? Ultimately even wines purchased for investment purposes get drunk, so we need to monitor these developments very closely.
We also need to keep an eye on the Brexit-related increases in wine import administration, particularly in respect of the dreaded VI-1 forms. Liv-ex estimate that this burden has increased some 4 fold, and this has a habit of finding its way to the consumer in the way of higher prices. Negotiations are ongoing, but the feeling is that the hospitality industry has taken such a tremendous hit over the last 12 months that the last thing it needs is to be hiking prices to a public it is desperate to welcome back to the table.
Finally, it is encouraging to see the activity recently in the beleaguered 2009 and 2010 vintages in Bordeaux. These, you may recall, were released with very high En Primeur price tags at the height of the Asia-inspired market boom up to June 2011, and have quite frankly suffered ever since. It has been possible to make money in between times (Lafite 2009 is up around 15% over the last 12 months, for example) but when you remember in H1 2011 it traded over £14,000 and now sits at £7,800 the fall from grace has been extreme. At last the 2009s and 2010s are outperforming all the other “on vintages” since 2000 which is certainly a welcome development and one we shall be following closely.
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.