Fine wine investment: Keeping it simple

In its continual quest to spread the fine wine investment message worldwide, Amphora visited Bangalore, Mumbai and Delhi two weeks ago to conduct presentations and blind-tastings as guests of one of its new Indian wealth management partners, Altamount Capital.

Trips to the Indian sub-continent are always fascinating, as we have reported in several past notes. What is clear on each occasion is the need to not only explain, but also demystify aspects of both fine wine consumption and fine wine investment.

Why should fine wine consumption need demystifying? Principally, in our view, because of the language insiders use to try and explain themselves. Fine wine jargon has long been a subject of great mirth in comic circles, and it is hardly surprising. For example:

“Tribouley’s 2009 Orchis displays a gorgeous, distillate-like herbal and floral profusion atop a rich, deep pool of ripe but fresh black raspberry and dark cherry; with resinous evocations of rosemary, fennel, black tea, and marjoram; berry seeds and cherry pits; as well as a tactile sense of seemingly schistic*, crushed stone impingement and pungent smokiness, all leading to a finish of terrific tenacity not to mention a brightness, verve, and sense of levity uncommon for its vintage.”

I have always thought that smarter people make themselves very easy to understand, although I confess I am still struggling with ‘A Brief History Of Time’. When we conduct a blind-tasting we make it abundantly clear, for example, that it is not about us telling the tasters everything we know about wine, nor is it about them telling everyone what they know either.

The blind-tastings are all about the wines expressing themselves through the mixed reactions to them of the assembled company, as articulated in relatively simple terms. This all becomes quite educational actually, particularly for those whose earlier experiences of wines have tended to be pretty binary. Most people are better at finding things if they know what they are looking for, and a lot of people’s reactions to wines are simply along the lines of whether they like them or not, as opposed to why they might do so.

These tastings act as a guide as to acidity and tannin, groups of aromas and tastes, and finish, and by and large everyone leaves the table a lot better prepared for their next glass of wine than when they sat down.

Twenty years ago fine wine was very much an insider’s paradise but this is increasingly not the case and Amphora sees part of its mission as peeling away the layers to make it as accessible as possible to most investors.

Meanwhile, in headline Liv-ex 100 terms the fine wine market has had a quiet summer, treading water more or less for the last few months. Earlier in the year we mentioned that Bordeaux was leading the way but that interest would revolve at some point and since the timing of this revolution can never be exactly predicted it is important to stay diversified to capture the swings.

So it is interesting to note that over the last four months the main risers have come from Italy, the Rest of the World, and Burgundy, whose sub-indices have risen since July 1^st by 4%, 3% and 4% respectively, and those sub-index figures mask some particularly healthy rises.

All well and good, but where does the value reside now? Two relatively recent vintages of Masseto look very good value at this juncture. Masseto 2010 and 2008 both score highly on the algorithm and have underperformed the recent rally. Here is the chart going back 12 months:

There is actually very little to choose between these wines in terms of Parker score, the 2008 receiving 97+ points. and the 2010 receiving 98. 2010 was a considerably superior overall vintage, but by now you would think that that would have been discounted in the price. The 2008 is quite hard to come by but if you can get hold of any around the £5,300 mark you would benefit from the current volatility as well as the algorithmic value and the fact that it has consolidated for most of the last year. Consolidation is often the precursor to a sizeable move.

With the current level of interest in Super Tuscan wines we would be buyers of both these vintages at current levels.

Finally, the newsreels are awash with the latest inflation number for the UK. Amazing how savers have been forgotten about over the last 10 years of low interest rates, (the focus almost entirely now on the ramifications for mortgage holders) but the likelihood seems to be that we are entering an era of rising rates, albeit gently enough not to derail the economic recovery, such as it is.

Rising inflation tends to benefit asset values, and fine wine undeniably is a physical asset. Rising rates tend to benefit the underlying currency. The new Indian investors we met recently are all of the view that structurally the Rupee has to decline against Sterling, because of the balance of Indian trade. To that extent they see investments in fine wine as an excellent hedge against this currency movement, another reason why Altamount, and Amphora, have high hopes for the success of their partnership.

*“Schistic”, for those non-geologists amongst us, is an adjective stemming from schist, defined as: “a medium-grade metamorphic rock with medium to large, flat, sheet-like grains in a preferred orientation. It is defined by having more than 50% platy and elongated minerals, often finely interleaved with quartz and feldspar.”

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.