Fine wine investment: Barolo

We had a lot of queries subsequent to the Piedmont article and note that Liv-ex has continued its promotion with a chart last week highlighting the outperformance of that region over Tuscany these last couple of years. The question is, does it remain fragmented and esoteric, or is it going to be worthy of study for mainstream investors looking over a five-year period?

In Amphora’s judgement there are always going to be difficulties with liquidity. For example, a Super Second like Lynch Bages produces 35,000 cases of its grand vin every year. Gaja produces 30,000 in Piedmont, but that figure is spread out over 18 different wines. That is an average of under 2,000 cases of each wine, so quite a bit more than DRC obviously but still quite a bit less than Petrus.

In fairness 2,000 is a decent figure to work with and would rank it alongside a few of the Pomerols, with Amphora favourite (and perennial underperformer) L’Eglise Clinet producing only 1,000 – 1,500. This means that some like Gaja Barbaresco may produce 4,000 cases while others like Costa Russi will release nearer 1,000. These figures are important. If Costa Russi were to suddenly hit a run of form such that its 98-point 2007 were to be in demand the fact that there will be so little of it left by now would make anyone who still owned it very happy indeed.

At this point someone might helpfully observe that only the Gaja Barbaresco is DOCG, so wouldn’t that affect suitability from an investment perspective? In our considered opinion the DOCG accreditation is now relatively meaningless. Originally, if you saw DOCG on a bottle of wine you were assured that it had been produced to the highest possible specifications of region, grape and production techniques. It was a guarantee of authenticity, if you like.

The difficulty you encounter are that none of the Super Tuscans are DOCG! They elected not to conform to the established rules, so in effect your pricey bottle of Masseto is actually just table wine. IGT to be precise. This is probably not the time to explore this fascinating phenomenon so let’s just accept that there are qualities over and above those conferred by DOCG or even DOC status which have become more material determinants of a fine wine’s investability.

As in Bordeaux and Burgundy, indeed any wine-growing region of the world, there are ‘on’ and ‘off’ vintages, for the same well understood climatic reasons. In essence, it is all about how the weather interacts with the terroir and the grape. Thus even though Barolo is a mere 15 miles from Barbaresco it is quite possible for one to have a very good year while the other enjoys it slightly less. Or even more.

Everyone is well acquainted with the Bordeaux ‘on-vintage’ years, but in Piedmont the better years are 2016, 2010, 2006 and 2001, with Barolo additionally outshining Barbaresco in 2007 and 2004. At least they all use the Nebbiolo grape. Peculiarly though, Barolo tastes different to Barbaresco, and behaves differently too. The former is more highly tannic, which makes it last longer but requires more time to evolve. That’s terroir and geography for you. Another interesting footnote is that the climate is changing, in case you didn’t know. Harvests in Barolo are starting on average 10 days earlier than they did 40 or 50 years ago.

So what might investors start looking out for, while accepting that it would at this point in time be very high risk to populate a portfolio solely with Barolo and Barbaresco? The best starting point might be some areas of differentiation. By this we mean signs emerging from one or two of the wines that are not yet visible in others. Typically this might be reflected in critical appraisal. Remember as investors we are always looking out for anomalies: prices which, no matter how we square it, just don’t look right.

Among the top five Piedmont Gajas, three have similar levels of production: Sori Tildin, Sori San Lorenzo and Costa Russi all make around 1,000 cases each vintage; Sperss makes 2,000 and Barbaresco just over 4,000. On the basis of simple availability therefore you would expect the first three to cost more, and indeed they do. The price range over the last 10 physical vintages spans respectively from £2,600, £2,800 and £2,300 all the way to the £4,390 release price of the 2016, identical in each case. Logically on that basis Barbaresco would be the cheapest with Sperss somewhere in between, and such is indeed the case.

When we look at the Parker scores, and we are mindful that some people in the market think The Wine Advocate carries less weight in Italy than in Bordeaux and the USA, we find that while Barbaresco scores less well over the last 10 vintages, Sperss is holding its own perfectly well. The average ratings are: Sori San Lorenzo 96.2, Sperss 95.7, Sori Tildin 95.4, Costa Russi 94.5, and Barbaresco 93.5.

At first blush therefore we might suggest Sperss as a likely candidate; very competitive scores, and hopefully better marketability than some of the others. Next week we will be looking at that vital aspect in more detail, as we expand the review into another of the premium Piedmont producers, Giacomo Conterno. Meanwhile there is an offer of 6 bottles of Sperss 2004, a good year for Barolo, in the open market at £1,100. We might just pick these up to get the ball rolling.

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.