Angelus and Pavie, don’t bet on luck
We have mentioned in the recent past the concept of market leadership, and have had many enquiries wondering how exactly to play this. The fact is that if you take a high risk or polarised view of the market, where you are either all in or all out, or EITHER in Bordeaux OR the Rest of the World, for example, you are trusting almost 100% to luck. In mainstream markets more money is lost betting on the turn than at any other time in the cycle, and just as in mainstream markets the fine wine market offers the opportunity to avoid this high-risk strategy.
The answer of course lies in diversification. As fine wines tend to be blends of different grapes, so fine wine portfolios ought to be blends of different regions, producers, and vintages. And just as in certain years the wine maker will tinker with his/her weightings, so should the investor with his/her portfolio. This means that although we never know in advance exactly when leadership will change, the fine wine investor can alter weightings gradually to take account of all the available evidence of price movements from the market place.
There is a tendency to think that interest in fine wine ebbs and flows FROM First Growths (Grands Cru Classe A and equivalents) TO SuperSeconds (and equivalents) in such a way that prices starting after a lull will expand at the blue chip end first, before moving on to cheaper wines after the blue chips (First Growths) have become overstretched. A kind of concertina effect.
At Amphora Portfolio Management we believe this to be an over-simplification. Market places tend not to be quite as binary as that. There are always price movements across the spectrum of cost and quality. What happens is that within these waves of interest, there can always be found undervalued wines in both, say, on and off vintages at the same time. What is interesting about this is that you need a tool to examine relative value to identify them.
Let’s take Angelus, for example. The Liv-ex market prices for the last 10 vintages are:
Patently the 2013 is the cheapest, and the 2009 the most expensive, but do we buy the former and sell the latter? That, traditionally, might be what people did, but it would bear no relation to what in fact they should do armed with knowledge of these wines’ relative value.
It may come as a surprise to learn that the best relative value Angelus is exhibited by the fabulous on vintages from 2009 and 2010, and the rather more undistinguished off vintage from 2011, even though the 2009 is most expensive in absolute terms. How so?
Well, remember that a wine price is an amalgam of various influences, of which elements like price and Robert Parker score are very important, but by no means everything. Other critics have a say, as well as regional vintage score (2007 in St Emilion was a mere 86 so that affects the value of that wine), and such measures of popularity as are measured by Wine-searcher and Google searches, which amongst other things torpedo the otherwise perfectly decent 2012. In fact, to be the same relative value as the 2011 at £2,200, the 2012 would need to come in at £2,350 as opposed to the current price of £3,200.
It is also interesting to note that the same does not apply across the way in Chateau Pavie. Whilst as with Angelus the 2011 vintage features well, Pavie’s 2009 and 2010 are certainly not bargains at these levels. They “suffer” from having achieved perfect 100 point scores and so along with the perfect 2005 the price relative to the other vintages is off the scale. I should highlight that the Angelus 2009 and 2010 which do stand out as relative bargains achieve scores of 99+, so I defy most people to draw any distinction between them and a 100 pointer!
The next best relative value Pavie actually comes from the much-discussed 2008 vintage, much-discussed because of its bipolarity, low 90s on the Left Bank against high 90s in 2009 and 2010, but almost as good in St Emilion (92 against 93 and 94 in the following two years), and even better in Pomerol in 2008 at 96 points against 95 in 2010.
We have written extensively about the fantastic value available in Pomerol wines of the 2008 vintage, but this Pavie deserves a closer look too. It is pretty much in line with the 2006 and 2007 vintages for score (94+ against 95 and 94 respectively), and enjoys a much better vintage score (92 against 88 and 86), yet it trades at a discount of over 10% particularly against the 2006. We would buy the Pavie 2008 at this point.
So, regardless of whether leadership in the market is on the point of changing, a change you can insure against easily enough in the fine wine market, there are always bargains to be found across the board if you have the luxury of a means of discerning relative value.