Fine wine investment: back in La La land

Exactly six months ago we wrote about the investment potential offered by the fine Côte Rôtie wines of Guigal, the famous ‘La Las’, and I am jolly pleased we did. So are the handful of Amphora Portfolio Management clients who took our advice to load up a few while they were still in purdah, because the performance over the last six months has been little short of spectacular. Please remember when reviewing this performance that while it has come in relatively benign market conditions, it should be measured against the Liv-ex 50, 100 and 1000 index rises of 7%, 9%, and 8% respectively.

La Landonne, whose chart we look at first, has been an unmitigated joy, with the 2003 and 2005 rising 53% and 42%, in a short six months! Our earlier article highlighted the premium accorded to older vintages, and this is still very much in place, with the 2009 and 2010 trading at a discount to the 1999 of around 40%. Put another way, the 1999 is trading at a premium over the other two of just under 70%.

Note that, unless specified, these charts all rebase to six months ago, and reflect the performance against each other. So in the case of Landonne while the yellow line representing the 1999 is actually the most expensive, it is not out on top in this visualisation due to the rebasing effect.

The market thins out considerably beyond the 2005, as the scarcity kicks in, and we would argue that the better medium term value lies in the 2009 and 2010 which are currently relatively liquid, nevertheless if you could find a 2005 it might be worth picking up too, given the significant discount to the 2003.

La Mouline has also afforded a joyous ride, unless you happened to buy the 2005. This might lead to the conclusion that the 2005 is a ‘must buy’, however that might be a mistake.

Why? Look at the next chart which illustrates the price movements in absolute terms. All that is ‘wrong’ with the 2005, represented by the red line, is that it was at the wrong price in the first place. What we need to remember is that all other things being equal, the older vintages should cost more. Six months ago this was not the case: the 2005 was ‘illegitimately’ the most expensive Mouline on the block, hence the subsequent underperformance.

Now it is a different story, and the charge of the 2003 has opened up a price disparity which is very much now in favour of a buyer of the 2005, not because of the recent underperformance, but because of this excessive discount.

This begs the question, what should the discount be? There is no hard and fast answer to this, unfortunately. What counts against the 2005 is its overall vintage score, a rather sad 89 points. As we mentioned in the earlier note, this trails the other vintages by some distance, and Guigal did well to fashion a 100 pointer in such an imperfect year. All that said, a discount of around the 20% mark would appear to take account of this.

What this chart also highlights is the relative cheapness of the 2009, sitting at a discount to the 2010 yet obviously being a year older. That would also be an obvious Mouline pick at this juncture.

Finally what of La Turque? Here the wine to have avoided six months ago would have been the oldest, but if current market conditions are anything to go by you couldn’t have bought very much anyway. There are only five bottles available throughout the UK at this moment in time, and this hardly constitutes a market. This demonstrates one of the pitfalls associated with dealing in scarce wines, and while the better ones are unlikely to fall much in value, if at all, the market can never get too excited about them either.

This really does mean that while a collector can merrily acquire as and when, the pure investor has to tread somewhat more carefully. As we always remind clients at Amphora: “if you can’t sell it, it isn’t an investment”. In this instance you might equally substitute ‘buy’ for ‘sell’.

However we square it though, the 2003 is now a touch on the expensive side, and holders might be wise to cash in. There is an echo of the Mouline 2005 in what Turque 2003 has been doing over the last year or so, and it may be due a period of underperformance.

Once again the more recent vintages trade at fat discounts, and as with La Mouline the 2009 is cheaper than the 2010. This is definitely not accounted for by a higher vintage score in 2010, because 2009 edges it by 98 to 97.

In conclusion, the outstanding buys for Amphora money presently are the 2009s, followed by the 2010s. The wines of the Côte Rôtie don’t often set the market alight, because they are such small participants in the overall game. Recent evidence suggests that it is worth having some exposure though, because when they move it tends to have been worth the wait.

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.