Fine wine investment: Under the Tuscan sun

Over the last few weeks we have been looking at the Piedmontese fine wine opportunity from an investment perspective. Markets are full of risk-takers, it is all just a question of degree, and for many the Barolos and Barbarescos may be a step too far at this point. If so, there are still bargains ‘under the Tuscan sun’, as it were.

As we mentioned in an earlier note the recent round of Global Trade sabre-rattling had the potential to interrupt US take-up of wines from Bordeaux, or at least those with an ABV of under 14%. Absent the possibility of the French ramping up their wine strength to comply, an eventuality as undesirable as it is unlikely, pro tem we can expect interest from across the pond to withdraw, however temporarily.

This is what we are seeing currently, as it happens, with bids evaporating to some extent and liquidity increasing substantially for the major Tuscan names. Masseto despite its low production of 2,500 cases a year is seeing more bids than ever across vintages on the Liv-ex platform, and anecdotally the rest of the sector is also enjoying increased action.

Bordeaux has suffered something of a perfect storm over the last couple of months. Not only has the trade issue impacted, but the strengthening pound sterling has also made it easier for Euro denominated traders in particular to accept lower bids.

To briefly clarify that last point, on 10 October sterling fell to 1.11, a five-week low against the euro, since which time it has appreciated about 5.4%. That date marks the recent high on the Liv-ex 50, because in a flat market (the three month range on that index was a mere two points: 248 to 250) vendors from Europe saw the value of their stock appreciate and were thus able to take the same Euro value out of the market effectively prompting wine prices to decline.

It is, then, a good time to consider increasing weightings in Italian wines, even if you are content to bide your time in Piedmont. We mention Masseto above, and it is worth noting that their last two releases, 2015 and 2016 have received rave reviews, Robert Parker’s Wine Advocate giving both 100 points.

Both years were excellent for Bolgheri, indeed the regional vintage scores of 95 and 96 respectively are the best (or equal) since the splendid 97 of 2009. What a casual investor might ordinarily do at this point is check out the prices across these three vintages, in expectation of a small discount for the recent two, to account for aging and scarcity. In fact you find a significant premium.

As it transpires, great as 2009 was in general terms, it hugely benefitted those producers who tend to blend their grapes. One of the Masseto idiosyncrasies is the it uses only Merlot grapes, and these did not especially enjoy the unremitting heat that characterised Maremma in 2009. As a result the WA score was a paltry 94+, with Jancis Robinson giving it a miserly 16/20. Hence the discount.

A better comparable for the 2015 and 2016s may be the 2006, where another great vintage score of 97 combines with another 100 pointer. You have to pay just over £8,000 for that, which is the premium for age and scarcity over the last two vintages that we were expecting earlier. So is a premium of that magnitude justified?

At Amphora we would argue that this is precisely where our proprietary algorithm comes into its own. Its all very well saying there should be some premium, but how useful would it be to know exactly how much? Extremely valuable, in our view. When we set the 2006 against the 2015 in algorithmic terms, the more recent vintage wins hands down. For the earlier vintage you get 4.64 units of value for your £, while for the latter you get 6.28.

Far and away the most points per £ in this sector is offered by Sassicaia 2013. This was an excellent vintage for Bolgheri with a regional score of 95 points (same as 2015), and Sassicaia didn’t disappoint with an individual wine score of 97. As a point of regional vintage comparison, in Bordeaux in 2010 Margaux and Pomerol both scored 95, so it is more than respectable. People who rave about Bordeaux 2010 do so because Pauillac and Graves scored 98 and 99 respectively.

Here’s a quiz for which no algorithm is required. The Bolgheri regional vintage scores for 2013 and 2015 are identical at 95. Sassicaia’s individual wines scores for 2013 and 2015 are identical at 97. The algorithm actually assesses a lot of other variables but in a comparison of wines from the same producer many are understandably identical. (Some, like Google trends, which are clearly not fixed, are not identical, obvs.)

So, the price is the same, right?

‘Fraid not.

In the open market you can find a case of the 2015 for £2,000 and of the 2013 for £1,560.

We have actually been recommending Sassicaia 2013 for over a year from a price of £1,350. Delighted as buyers at that point might be it is STILL a very strong buy.

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.