Champagne as an investment

With the launch of Krug 2002, the secondary Champagne market had a four-fold jump on Liv-ex last week. But what about the potential of it and other Champagnes as a long-term investment? asks Philip Staveley of Amphora Portfolio Management.

At Amphora Portfolio Management we see a lot of fine wine portfolios which are conspicuously absent of exposure to Champagne, a situation thrown into some relief in recent weeks by the action in that sector. The week ending 5th February saw a four-fold jump in turnover in Champagne on Liv-ex , stimulated in no small part by the release of the 2002 vintage from Krug.

It is fair to say that there is no shortage of hyperbole when a highly-anticipated offering comes to the market, and Krug 2002 was no exception. Krug’s own cellar master, Eric Lebel, lit the blue touch paper when he eulogized about the growing conditions for the year, and described the Champagne as a “purebred stallion”. When a winemaker recommends a pairing with a specific music, in this case jazz vocalist Gregory Porter, you start to prepare for an avalanche of critical exaltation.

But how does it rate as an investment, and are there bargains elsewhere in the Champagne sector?

Typically, Champagne will be produced in far greater quantities than, say, a first growth, and it has to be an unusually fine effort for it to last beyond about 30 years.

The scarcity and longevity offered elsewhere in the market is not so obviously available, indeed one of the smaller production levels in this premiere league, Taittinger’s Comtes de Champagne, has price points well below most of the others. Brand power is clearly very important in this space.

One consistency across all producers is the tendency for older Champagnes to cost more than their younger counterparts, and while this is a natural reflection of increasing scarcity as consumption casts its inexorable spell, it also results from the fact that vintages like 1990 and 1996 were universally considered to be exceptional.

Robert Parker’s rating for those years was 98 and 97 points respectively, in both cases superior to anything else since 1970. (2002 is a 95.)

Krug 2002 was offered to the market at £950 for six bottles, and according to the merchants was over-subscribed, as demand exceeded supply. It is now offered in the market place at £1,250, but before anyone thinks they’ve missed the chance of a quick turn, it is bid on Liv-ex at £1,000, so that quick turn would only have been £50. Investors would have to wait some time to realise a decent profit, so even now have they missed the boat?

The critics are yet to really weigh in with their views at this point, so to that extent a purchase at £1,250 is something of a shot in the dark, so let us look at prices for back vintages.

Remember Parker’s overall vintage score for the Champagne region in 2002 is 95, higher than 1998 (93 points) and 2000 (92 pts). Currently those are going through at £880 and £760 respectively, so given the only slight disparity in vintage score it’s actually asking quite a lot of the 2002 to justify £1,250.

It is possibly more instructive to look elsewhere when the hype is on in respect of Krug 2002. Dom Pérignon is one of the more “invested” Champagnes, so what anomalies can we find in the pricing of, for example, Dom Pérignon?

In recent vintages the outstanding year was 1996, according to Robert Parker, scoring a very robust 97 points. 12 bottles of Dom Perignon 1996, rated at 96 points, will cost you £1,850. In 1999 the vintage score was a mere 92, and the wine a 93, and it costs £1,000 whilst the 95 point 2002 costs £1,100. That makes the 2002 a decent call against the 1996.

Meanwhile the 2004 is rated by Parker at 93 points, equal to the 93-point 1998. We would expect the 1998 to cost more on account of its additional ageing. It does, but at £1,500 is it really worth that much more than the £950 it costs for the 2004?

Elsewhere the 2002 tends to cost more than inferior vintages, as in the case of Taittinger, where the individual wine score was a cracking 98 points. At £1,300 for 12 bottles it is more expensive than most other Taittingers, like the 95 point 1999 at £1,060, and the 95 point 1998 at £1,200, both from “inferior” vintages.

There is a reasonable debate to be had as regards the relative importance of vintage score and individual wine score in assessing the financial value of a case of wine. Certainly at the time of release the individual wine score might grab most attention, but over time the quality of the overall vintage also assumes great significance.

For the purposes of simplicity we have multiplied the wine score by the vintage score to create a “numerator”, and we have applied the current price as “denominator”. This establishes in the simplest possible terms a sense of relative value.*

Against these metrics the best value currently in the market is Dom Pérignon 2004 and Taittinger Comtes de Champagne 2004. By the same, albeit rudimentary metric, for the Krug 2002 to be decent value against Krug 2000 or Krug 1998 Robert Parker would have to give it a princely 145/100!

*The Amphora Portfolio Management proprietary algorithm actually assesses 6 variables in a more exhaustive search for relative value.

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 at APM. www.apmwineinvestment.co.uk

This piece was provided by Amphora Portfolio Management