Seconds on the move

This week we continue our analysis of the effect on fine wine prices post referendum, and while it is tempting to expect things to settle down a bit over time, it is hard to conclude that that time is yet to hand.

The fine wine market doesn’t enjoy sufficient volume to spread with any liberality across the multitude of wines available to invest in, so it tends to move in a more spasmodic fashion. This is great if you have the time to watch the market closely, because bargains sit waiting to be gobbled up for a bit longer a time than otherwise might be the case.

Currently there is far more action across the piece in French wines than those from elsewhere. There has been barely a ripple in the prices of any Dominus or Penfolds Grange vintages from the last 20 years, whilst such movement as there has been in the Super Tuscans has been on a very narrow front. Only four Massetos have moved at all, the 2004 leading the way with a 10% rise.

This in itself interesting though, because it scores 97 points and this move takes it up to a discount of 10% against the 99-point 2006. All good and well, but why is the 97-point 2008 now trading at a further 10% discount to the 2004? The answer may well lie in the fact that the 2008 vintage is inferior to the 2004 and 2006, but if it continues a laggard it may represent an opportunity.

The Liv-ex blog reports that the share of Bordeaux slipped back from 73.5% of the market the previous week to 67.3% last week, but is Bordeaux where we find most of the movers, with healthy rises across the board. Most vintages from the first growth and super second sectors have firmed up nicely, with rises ranging up to double digit levels in many cases. We are going to concentrate this week, however, on the second wines, some of which have been really motoring. For those uninitiated, ‘second wines’ are a cheaper offering each year produced by the major châteaux from those grapes that don’t make the grade for their grand vin.

Firstly, let’s look at Carruades de Lafite, the second wine of Lafite Rothschild. Three out of the top five Carruades performers are 2012, 2013, and 2014*. This is interesting because these are vintages which, in investment banking terms, were “left with the underwriters”. When you do an IPO (initial public offer) you get it underwritten, in exchange for a fee, by investors who may not really want to own the shares but who are happy to stand as guarantors for the issue getting placed.

Anecdotally the châteaux priced these moderate vintages so clumsily that much of the production is still sitting in negociant warehouses in Bordeaux. At Amphora we believe this is on balance more likely to have been true of the first growths than the second wines, because there is more face attached to maintaining the price level of the first growth (leading to more unrealistic release prices of the first growths), and because there is generally a lower production of the second wines.

This suggests that there may be less ready supply to the market of these second wines, in turn allowing them to perform in the face of decent demand. Carruades 2013 is up 30% over the last two weeks, and 2014* the best part of 20% (according to the Liv-ex market price system). As of 22/06/16 these two wines were the cheapest, in absolute price terms, of every Carruades on the market, and this may tell a tale. We wondered in our note last week if we were returning to the days whereby brand is more important than quality. Wine Advocate scores the 2013 at 77-79 points. It is now trading alongside the 93-point 2009. Go figure.

Pavillon Rouge (the second wine of Château Margaux) has some wonderful recent performers from this century’s off vintages. The 2007 and 2008 are both up over 30%, while the 2004 and 2006 are hovering around the 25% mark. The 2004 and 2008 were both under £1,000 two weeks ago, which we believe to be significant. The only Pavillon Rouge currently offered at under £1,000 is the 2014*. Hurry while stocks last.

The best Robert Parker score ever for a Pavillon Rouge is the 93-point 2009, of which the great man said: “This seamless second wine is one of the finest Château Margaux has made to date. Enjoy it over the next two decades.” You can buy this little gem for under £1,200. We highly recommend you do precisely that, especially as it costs around £1,600 to buy the 87-point 2001.

The only second wines costing over £2,000 are from Carruades de Lafite, but Petit Mouton runs it close in a couple of instances. The 2008 is not the best on the market, scoring 89 against the 90 and 91+ of 2009 and 2010 respectively, but it is the most expensive and is up over 20% in the last two weeks, in terms of Liv-ex market price. (Liv-ex market price is taken from what liv-ex considers to be the most authoritative offer prices in the market.) Two other Petit Mouton’s are on a roll too: the 1997 and 2007 are up around 30% and 25% respectively.

Forts de Latour has enjoyed the least extravagant rises, but is firm almost across the board. Forts scores more highly with Robert Parker than any of the other second wines, and it is interesting to note that one of the few fallers over the period straddling the referendum is Forts de Latour 2010, which is down 6%. This wine scores a princely 97-points, the highest of any second wine yet costs around £1,600. Parker waxes extraordinarily lyrical over it. It is worth checking out his remarks in full, but for the moment we will restrict ourselves to: “If they gave out Academy Awards for great performances in wine, (Latour) would certainly fetch a few in 2010.”

What we are seeing in the fine wine market at present is somewhat unusual. Barring events like critical upgrades, sharp price movements are quite rare. At times like the present, when we are seeing huge rises, it is inevitable that there are opportunities, because this market is not yet as efficient as other more mainstream investment arena. There is a lot of money to be made at times like this, and at Amphora we will continue to try and highlight the most worthwhile openings.

*Please remember that the 2014 vintage is still en primeur. This means that it is not physically available until next spring. Caution should therefore be exercised in respect of counterparty risk.

Philip Staveley (pictured) 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