Fine wine investment: Looking into 2019

At the start of this year we thought we might put Amphora under the spotlight and ask its CEO and Heads of Sales, Trading, and Research for their thoughts on 2019:

David Jackson (CEO): Anticipates a significant contraction of the polarised Burgundy market

A decade or so ago, the HK/China market famously went nuts for Bordeaux but the rapacious appetite in this embryonic marketplace was limited to a few estates, most notably the five first growths, with Lafite quickly taking dominance. Consequently prices rocketed at a far greater pace than the second growths (or anything below).

Typically, an unnaturally polarised marketplace will signal two possibilities: an overheated top-tier (a ‘bubble’), or an undervalued tier-two. In other words, a threat or an opportunity. For Bordeaux, it’s fair to suggest that the former was a greater consideration, evidenced by the fact that in 2011 the Sino-party ended abruptly, and first growth prices fell to earth with a bump. That said, the longer term effect was positive in so much as the market broadened and became more complex. Post the first growth crash, many of the greatest investment wins have been in the super second sector, and to an even greater degree, the second labels.

Today, Burgundy is suffering a far greater price polarisation than even Bordeaux at that time. The top offerings from DRC, Leroy and Roumier have positively sky-rocketed in recent years and now command prices convincingly north of £10,000 per bottle (yes, bottle!). Yet estates held in much the same breath until relatively recently languish at a mere fraction. Ponsot’s Clos Roche can be yours for a tidy £3,500 for a case of 12 bottles even in the best vintages, and for a genuine bargain have a look at Lambray’s signature Clos de Lambrays for less that £1,500. That’s less than 1% of the cost of a case of DRC.

So is the top tier a bubble, or are these (relative) bargains the current hot tickets? It’s important to remember that the Burgundy market has very different characteristics to Bordeaux due to the tiny production levels. Liquidity is your greater enemy in tier-one. My view is that tier-two Burgundy simply must catch up at some point, and to some degree. This is the place to put your ‘punt’ money.

• PS adds: Lambrays has been owned by LVMH since 2014. You can rest assured that they will be doing their level best to enhance the name of Lambrays which ought to add lustre to its price appreciation.

James Fletcher (Head of Sales). It’s the first growth wines that will be the big performers this year.

At the end of 2017 we have seen alternative investments make the news again. Over the last 15 years fine wine has not only outperformed equities but provided investors with far more stability in comparison of the turbulence of the equity markets. As the fine wine market becomes more mainstream, I predict we will see the high-end wines start to move again quite rapidly this year.

Taking three sectors of the Bordeaux market as defined by the Liv-Ex 500, Liv-ex 100 and the Liv-ex 50 and tracking the performance from the China-driven peak in mid 2011 we see the following: the broadest index of Bordeaux wines, the Liv-ex 500, is now above the market peak (around 7% higher); the 100 (an index of the most sought-after wines comprising mainly Bordeaux) is still around 11% below the peak and the Liv-ex 50 (the 10 most recent physical vintages from the first growth wines) is still 21% lower.

What this shows is the prices of wines from the broader market have moved up in value since the peak. This has now closed the price point between the broader wines in the market and the top end wines from 2011. This can only happen up to a point as consumers and collectors will splash out just a little more to obtain the better names. If this spread becomes too narrow, then more people will start to buy the more prestigious wines and this will push their prices up. The market has accepted the price increases of the wines from the broader Bordeaux market and comparatively the top end wines are now too cheap.

Paul Regan (Head of Trading): Barolo will reclaim its crown

Until the Super-Tuscans came to the fore in recent decades, the best Italian wines were Barolos. In fact they still are, but they suffer from Italy’s hopeless marketing outside of Italy.

Italy produces just as much fine wine as France, but in investment terms it is only a small percentage of the marketplace. There is no logical reason for this, so I guess we can put it down to France’s centuries-old excellence at marketing its wines internationally.

Italian wine labels are very difficult for the novice to understand, and the DOCG tag is really only a sign that the production rules have been followed, not necessarily that the wine is of high quality. This is perhaps why the Super-Tuscans have done so well. Consistent quality and easy-to-understand branding.

But there’s no argument about the quality of Barolo. Historically prices compared even to top Burgundies, but today the best Barolos are roughly the same price as a second growth Bordeaux wine. I think Barolo will rally this year. Stick to big names like Giacomo Conterno and Bruno Giacosa and you should do rather well.

Philip Staveley (Head of Research). Bordeaux can recapture market attention this year

Two particular areas of interest this year will be the en primeur campaign for the excellent 2018 vintage and the pricing activity as the fabulous 2016s become physical. Last year’s campaign did the market no favours as the 2017 vintage was moderate but the prices it was offered at were far too high. As a result there will be relatively free availability (which will restrict price appreciation) of the 2017s for some time to come.

Attention and loose change will be better spent on the 2016s as they are bottled and 2018s at en primeur providing pricing is reasonably coherent. It is to be hoped that the failure of the 2017 campaign will restore a measure of sanity to the offers, although we have seen this all before and buyers will have to target ‘bargains’ rather than hoovering up options willy-nilly.

Elsewhere it is of interest that while the new Liv-ex California Index performed very well last year (+21%), the Rest of the World sector of which two key Napa producers are also a part (Dominus and opus One) had a miserable time, rising only 1.7%. The laggards in that sub-index have clearly been Penfolds Grange, Vega Sicilia and Taylors Port. While we would shy away from investing in Port, for the most part, we have liked the look of Grange and Vega in the past, so we will be watching those producers closely for any signs of recovery.

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.