Shut up, Jerry

22.08.17

We have fielded a lot of queries recently about the 2005 vintage. As we all know there was the much-heralded Parker retrospective 2 years ago subsequent to which it has been quite difficult for wines of that vintage to make much headway. It was, understandably enough, as though all the latent interest had been concertinaed into a few short months.

This happens all the time in financial markets; interest cannot be maintained on a singular front forever, unless you are talking about gold, where the investment decision is more or less binary. You are out, or you are in, although once you are in there is the additional question of degree.

Most equity fund managers hold relatively little cash in their portfolios. They are not paid to hold cash, they are paid to make equity investment decisions, as a result of which they are pretty much fully invested. If you are in it for the long haul, which most investors are through their pension funds and so on, you are quite relaxed about this “fully-invested” position, because you know that you are not smart enough to second guess the markets and because over time the volatility is moderated to a great extent.

Fine wine investment, much as it seems offend a reactionary but voluble minority, offers a similar opportunity to remain fully-invested and take advantage of the ebbs and flows of activity between sectors and vintages, thereby trying to outperform the benchmarks, and this is precisely why we at Amphora try to highlight relative value when it is offered up in the market place, and it is this that brings us back to the 2005 vintage.

By general critical consensus 2005 is right up there with all the great vintages, scoring well from Bordeaux to Burgundy, spectacularly so in St Emilion and Margaux. The vintage was priced en primeur in the first half of 2006, well before the China-inspired ramp in prices. This is an important consideration because as we saw from the 2009 and 2010 vintages in particular, initial pricing can significantly condition performance in the after-market.

So we have a fabulous vintage, appropriately priced, which has no reason to underperform the broad market over time. In fact we would expect the better vintages to outperform to a greater extent as they age and decline in availability. We are not at this point quite yet with the 2005s, but we will be over the next few years, given how near we are now to the drinking window.

In light of this it is interesting to look at the First Growths’ performance against the Liv-ex 100 since launch.

Let me stress that interesting as the journey may have been in each case, what we are focussing on is where we are right now, and where we are right now sees Lafite and the index pretty much neck and neck. To a really significant degree, Lafite has outperformed the rest of the sector. Lafite has doubled in price whilst the others are “only” up 50% with the exception of Margaux which has appreciated a mere 32%.

This strikes us as slightly odd, particularly when in 2005 Margaux outscored Pauillac and Pessac Leognan in terms of overall vintage score by 98 to 95 and 96 respectively. The individual wine scores are Lafite (96), Latour (98), Margaux (98+), Mouton Rothschild (98), and Haut Brion a magnificent 100 having been upgraded from 98 during the retrospective.

You can see the impact of the retrospective, in all cases bar Haut Brion the result of expectation rather than outcome:

When we look across the broader market and include Super Second wines, we find that these have also underperformed over an 18 month view, often being the worst performer from each producer. If we shorten the time frame, however, and look at year to date performance we see a distinct improvement in each case. The 2005s are on the move.

It may well be that after a significant period in the shade this vintage is at last coming back into favour. Looking back to the first chart above we note that the Margaux has a lot of catching up to do. Margaux 2005 is a great wine from an outperforming appellation even in a great vintage. It was not egregiously overpriced at en primeur time. It is the best-scoring Margaux on the Amphora proprietary algorithm bar only the 2014, whose chart looks like this:

Margaux 2014 (and others from that vintage) benefitted from the market realising that the crash was over, that the mispricing of the 2009-2013 vintages had been addressed to some degree, and that the vintage was actually quite respectable after a trio of iffy ones, hence the outperformance. Over the longer term it looks good value at these levels, but a racier option right now could well be the 2005.

We recommend buying Margaux 2005 up to £6,000.