Fine wine investment: bright horizons

“Steel Rally’s So Powerful It’s Now Back To Lehman-Crisis Levels” was the Bloomberg headline that caught our eye recently, making us ponder that the global economy must be in decent shape after all.

It seems no time since we were reading doom-laden scenarios for commodities like iron ore because the Chinese had colossally overbought, or their economy was going to spontaneously combust, or whatever. Australia might as well just shut up shop.

Yet here we are, and prices are happily rising again, so I wondered about when exactly they must have bottomed. Sure enough, look at pretty much any base metal commodity price chart and you will find something that rings eerily familiar: they nearly all bottomed out at the end of 2015 and have been climbing, sometimes quite dramatically, over the last two years. People out there must be making things. Big things, and many of them.

The same is true of the crude oil price, down 35% on a five year view but up 46% over two years, and gold, down 26% and up 18% over the same time frames. It is almost as it everyone came to the conclusion at the same time that the world wasn’t going to hell in a hand-basket after all. We can argue the efficacies or otherwise of QE till the cows come home but the evidence is that there is a lot of positive energy in the commodity markets.

This simply cannot be anything other than good news for fine wine prices, for two reasons: some people buy it in reflection of its properties as a physical asset, while others do so because they can afford it, and more people can afford it when global economies do well than during downturns. As we have suggested before, there is an element of perfect hedge about all this; it’s a winner either way.

Plenty of people will moan about their losses in Bordeaux post 2011, without acknowledging the fact either that they jumped on a bandwagon without really thinking about it (caveat emptor), or that they have still made money over the longer term notwithstanding. When prices escalate such as they did up to June 2011 you either have to know what is going on (in this case ramping by Asian-based syndicates predicated on the expectation that China’s appetite might be inexhaustible), or else take money off the table.

We see no such activity this time round, however. We see simply a nice gradual rise in prices, which encourages us to put more money to work in the market, and there are still a few bargains around, on both sides of the river. There follows, therefore, what amounts to a small selection of Bordeaux wines which we think you should put into a favoured loved-one’s Christmas stocking.

Angélus 2009. After the 2002 this is the worst performing Angélus this year, rising 3.77%. It is very similar to the 2010 in that both score 99+, both are priced around £3,300, and both score highly on the algorithm. The 2010 is up 7.74% this year, so there is little to choose between them. Buy one or the other.

Ausone 2008. Up only 2.22% this year this is a 98 pointer from an underrated vintage. It sits on the algorithm alongside the 2012 which has risen 9.72% year-to-date so again, one or the other but a marginal preference for the 2008.

The Cheval Blanc 2008 has also underperformed, up only 2.78% this year, but an even better bet might be the 2011, which has declined by 0.54%. As we illustrated a couple of weeks ago there is no reason to avoid Cheval Blanc so any diversified St Emilion exposure ought certainly to include a case or two.

Over on the Left Bank we persevere with the diversification theme by including wines from both on and off vintages, two first and two second growths. Pichon Baron is not a wine to regularly grace our portfolios, but we have pleasure in introducing the delights of the 2009 at this juncture. Scoring 98 points it is the estate’s best wine since 1990, although for now the 2015 and 2016 are both in the 96-98 range.

It is unusual for a Left Bank in that it went from £1,000 to £1,300 in the June 2011 to June 2013 period, indeed from January 2012 to March 2013 it outperformed the Liv-ex 100 by over 35%. It has been sitting in breakout territory around the £1,300 mark for the last year and if we feel positive towards the market (and we do) Pichon Baron 2009 merits a purchase.

The other second growth is Cos d’Estournel 2006. Rising 2.54% it is the second worst performer this year, and scores very highly on the algorithm. This wine had a decent rebound from its lows of 2015 but again having consolidated those gains it looks poised for a breakout.

Over in first growth territory it’s a toss up between the 2009s of Lafite and Mouton. With algorithm scores of 7.5 and 7.7 respectively they are both considerably better relative value than any other on-vintage first growth, but having declined by 1.72% against the Lafite’s rise of 8.1% we currently plump for the Mouton.

Finally in this little parcel we recommend Haut-Brion 2006. 2006 was a highly indifferent vintage in Pessac-Leognan but everything has its price. In fact Haut-Brion produced a very respectable 96 pointer that year and the combination of best algorithmic score and a price rise ytd of only 1.41% lead us to the conclusion that it should be picked up at these levels.

It is important to note our acknowledgement of the departure of Neal Martin from the Robert Parker stable. As Amphora clients know the wine scores are an important part of our algorithm so we will monitor developments on that front with great interest.

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.