Fine wine investment: The value in Lafite

Earlier this month Liv-ex released a note about the popularity of producers in the fine wine market as indicated by the frequency with which their individual pages are visited by merchants interested in trading. Only members have access to the platform, so we can say with reasonable certainty that this is a reflection of interest as expressed by ‘the trade’.

Then last week it released further indications of popularity through notes clarifying how often wines had been looked up as divided by merchant location, to see how differently Asia might behave, for example, against the UK, the US, and Europe. In addition, it then narrowed the results down to define not just producer, but specific vintage.

At Amphora we have long acknowledged the importance of this information, because our analysis suggests that it is to a degree predictive of fine wine price performance. The logic is quite simple: wines out of favour and therefore not investigated are less likely to be subject to demand than their more popular counterparts, and are as a result less likely see upward pressure on price.

As regular readers will know, Amphora operates a proprietary algorithm (see workings above) in order to create a representation of relative value across a range of some 6,000 traded fine wines, and one of the determinants against which wines are priced is the current popularity of the wine, as judged by traffic on Google and Wine Searcher, the fine wine price comparison website. The difference between this and the Liv-ex information is that anyone with a remote interest can visit these pages, so you end up with a much broader picture.

The algorithm contains nine variables each of different weightings in accordance with their impact on pricing, and although issues such as cru classé status and critical appreciation are more impactful, popularity still has a place. Anyone interested in a short video explanation can view it on our analysis page.

What interests us at present, however, is the detail revealed by the published results. From visits to the Liv-ex pages, Lafite Rothschild maintained its place at the head of the rankings. This differed dependent on merchant location, Lafite coming first in the UK and Europe, second in Asia, and third in the US.

It was the drill down to wine by vintage, however, that really caught our eye. It has been tempting to think that Lafite has somewhat fallen out of favour subsequent to the heady days of 2011, when the château became the darling of Asia. It has even been tempting to think that the first growths have become similarly unloved, as judged by the decline in Bordeaux market share on the Liv-ex platform and the narrowing of price differential with their second wines.

This is most certainly not the message that either the Liv-ex data nor the Google and Wine-Searcher information suggests. In the Liv-ex report first growths occupy the top five spots in both Asia and the UK, five out of the top six in Europe, where Petrus places fourth, and four out of the top five in the US, where poor Latour doesn’t make the top 10.

Amphora has been banging on at some length about the relative value offered by Lafite 2009 and 2010 at current levels, and we will continue to do so because they are far and away the leading bargains from that producer as judged by the algorithm, followed at some distance by the 2014 in third place. How interesting therefore that Lafite 2010 should occupy the top spot in Asia, the very place it is supposed to have fallen out of favour, with the 2009 coming in fourth.

In the UK Lafite 2009 is in second place, 2010 in ninth, while in the US the 2009 comes in eighth. In Europe eight out of the top 10 places fell to wines from 2015, one from 2014, (Lafite), and another from 2008 (Cristal). Their focus year to date has clearly been the 2015 turning physical.

The inference is clear: buy Lafite 2009 and 2010 at these levels.

Meanwhile there are some suggestions that the gloss is fading somewhat from the Super Tuscans, their sub-sector in the Liv-ex 1000 index declining against the market year-to-date. We would caution against any such thinking. What seems more likely from our perspective is that the market may be starting to explore other Italian wines at a short term cost to those that so supported the market after the Bordeaux correction in 2011.

The difficulty with some of these alternatives is, as usual, liquidity. The Barolo Cascina Francia of Giacomo Conterno is only produced in better years and even then only to the tune of some 1,800 cases. Another sub-index constituent, Tua Rita Redigaffi is in even shorter supply at 800 cases. This is rather more than Domaine de la Romanée-Conti maybe, but that is hardly the yardstick.

To the Amphora way of thinking the Super Tuscans occupy an important place in a meaningfully diversified portfolio, and we would use any weakness as an opportunity to buy, rather than divest.

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.