Fine wine investment: the importance of time frames

Most investment inducements will make claims of one sort or another about outstanding performance over time, and unfortunately a lot of these fall into that statistical miasma whereby you can make anything seem attractive or otherwise depending on your starting point or term of perspective. Many of the claims made in favour of fine wine investment, for example, laud the asset’s performance over, wait for it, 100 years.

Now we don’t know about you but we at Amphora are after a slightly different time frame than that. We all know that the fine wine market is not the place to make a fast buck, particularly, but then neither is your pension plan. Steady returns, if you please, over something more like five to 10 years than 50.

In any market for physical assets there is a time lag. Inspection and delivery, not to mention storage, insurance and so on, all have to be arranged. Unlike stocks and shares this is not a scripless world. Nor is it a world free of the iniquitous bid/offer spread, but at least it makes no pretence at anything else. Or shouldn’t. If you see any fine wine broker offering a “commission free” trade, imagine you are trying to buy your foreign exchange in the post office, and “mind the gap”.

I stood at the counter this weekend while an elderly couple collected their euros for a forthcoming trip, and the rate quoted was 1.12/1.34. That is a pretty amazing return to the post office for what is essentially a risk free transaction.

Let’s say you buy a case of wine for £1,340, and the vendor will buy it back from you immediately for £1,120. That means, obviously, that you have to make 20% before you break even (i.e.£220 over the £1,120 it is worth as an immediate trade-in.) That’s a bad enough spread in the (relatively illiquid) world of fine wine investment. In the humungous world of foreign exchange it is an absolute scandal. And before you write in to the GPO, it’s no better at Marks & Spencer or Travelex.

Anyway, we know that there are transactional costs involved when you invest in fine wine, so please bear that in mind when performance comparisons are made, and if you do choose to go it alone do make sure you know what the spread is before you buy or sell. Having waved that flag, let’s now look at some performance comparisons, going back over a more reasonable time frame of 17 years.

As referred to above, we already hit a snag. What if the starting point is good for one asset class but bad for another? That means you have to review the performance comparisons over several time frames. So as not to unduly bias in favour of fine wine, we will include a five year view first.

It is a truth universally acknowledged that if there is a bandwagon on the charge, investors will leap onto it. That’s what happened in the Dot Com boom, and that’s what happened to Bordeaux prices in the run up to mid 2011. Since that happens to be five years ago, performance comparisons with equity markets which had just had their own shake out between 2007 and 2009 but by 2012 were well on the road to recovery are odious.

By contrast, please look at the 12 month and two year performance columns listed above. Much more attractive for fine wine over both time frames.

I think we all know what the longer term looks like:

The 16 year view is self explanatory, while the 10 year view has the Liv-ex 100 up 277% against gold at 167% and the S&P up 52%, and its purpose is to highlight the fact that it all depends on your starting point. Even so, fine wine investment can hold its head up reasonably well against the competition.

2017 has started firmly, in the run up to Chinese New Year, and while activity tailed off somewhat last week, the current week has started on a buoyant note. There has been a bit of a shake out for more recent vintages which performed well in Q4 2016, and the firmer end of the market features the on-vintages of higher grade wines.

That said, there has been some softening of wines we are quite keen on. The 100-point Haut-Brion 2009 now trades with reputable merchants at £6,600, a healthy discount to the equally rated 2010 (£6,950), while you can pick up a case of the 2005 (also 100-points) for £6,300, and this is the bargain of the trio. The 99+ millennium vintage at £6,500 is also eminently collectible, bearing none of the premium often associated with the 2000 vintage.

Forts Latour 2009 ended last year as the top pick from that producer on the Amphora algorithm, and has drifted off to £1,550, so is also well worth picking up, as is Carruades de Lafite from the same vintage, if you can find it below £2,000.

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.