Many En Primeur Returns
One of the great principles for investment of any kind is to constantly question what you think you know. Fine wine investments are no different and many investors become blind-sighted by erroneous beliefs.
The way that people come by these views tends to vary, but time moves on and circumstances change. It pays to constantly update your convictions, or else you risk the market-place leaving you behind.
One of the widely held tenets in the world of fine wine investments concerns en primeur activity. As it was eloquently voiced in response to our article last week, we thought we should try and meet it head on:
“Great wine as an investment changed dramatically when futures for first growths went from $330 case (1982) to a $1000, to several thousands a case now. Other growths had similar cost increases. The higher initial investments per case has not allowed any room for appreciation, for the consumer or retailer.”
En primeur: Historic vs. modern
What is certainly true is that, by comparison with the present day, historic en primeur prices, or ‘futures’ represented an absolute bargain. The producers quite reasonably acknowledged that the buyers at this juncture were in effect funding the Château for a couple of years. And since it was de rigeur, (rather than as a result of some philanthropic disposition), it discounted its offerings accordingly.
This was great for those in the know, who had lines in to the merchants, either as retailers or private clients. They would load up the truck, safe in the knowledge that inflation and availability to the wider market would result in higher price points when the wines became physical. They would then sell and pocket the profit immediately, or await further price appreciation, resulting in them being able to fund their own consumption, effectively for nothing.
As we all know, this cosy arrangement collapsed around the time of the 2009 and 2010 vintages, by which time it had become apparent to the producers that the upsurge in interest particularly from Asia meant that they could charge ‘top dollar’ at en primeur. This removed the opportunity of easy money for investors. And my goodness, how they howled!
En primeur: A volatile history
For the next few years, such was the clumsy pricing strategy pursued by the chateaux that en primeur activity ground to a standstill. It’s still unclear who carried the financial can for this. We know that quite a few have changed hands, but not so many of the top names whose resilience to this shock would have been greater.
As a house, Amphora dealt hardly any en primeur between the 2009 and 2014 vintages. In the latter, we identified the occasional bargain, slightly more so in the 2015, and fully participated again this year in respect of the 2016 vintage. What is not in dispute is the impact of all this on the broader market, which as we know, did not start to recover until the summer of 2015.
But is it fair to say that there is no longer room for price appreciation?
We have analysed the First Growths wine investment market, a good few Super Seconds, and the right bank Grand Cru Classe A wines, to see how en primeur buyers currently fare. We assume that a putative investor has invested the same amount each year since the 2007 vintage, and up to press has held on, as some might believe, for grim death.
The First Growths fine wine investments all follow the same pattern: fabulous returns for the 2007 and 2008 vintages, as you might expect, since they came prior to the ramp. This was followed by declines for 2009, 2010 and 2011, though frankly not as extreme as you might think, and then excellent returns for 2012, 2013 and 2014. 2015 remains not physical.
If you think that returns of around 50% in 2 years is derisory, against the backdrop of zero interest rates and the FTSE, the S&P500 and gold are up 12%, 17% and 16% respectively – then we’d like you to share with us the identity of your financial adviser.
What about Super Seconds?
As you can see from the table below, Super Seconds don’t fare quite so well, but are still highly respectable. The St Emilion wines are very revealing for a different reason.
The numbers are the percentage move since release, with the red numbers representing declines.
The worst Super Second performer is Mission Haut Brion, which is a Château we believe offers quite a few bargains. Logically the underperformance is reflective of that. What’s more interesting perhaps is the profile of performance of Pontet Canet and Montrose, and how that profile differs from the other Super Seconds. They both benefitted from the ‘shock’ of earning 100 point scores in 2009 and 2010, but used their new found status to increase subsequent prices disproportionately to others in the sector – hence the underperformance of the resulting 2011, 2012 and 2013 vintages.
Turning to St Emilion, we see the huge outperformance of Angelus and Pavia, as a result of their elevation to Grand Cru Classe A status, and the massive underperformance of Cheval Blanc and Ausone. The former point is entirely understandable. As for the latter, such underperformance might have been more easily explained had Ausone and Cheval Blanc become darlings of the Asian fine wine investments market, because their declines would have come from inflated levels. Their levels were hardly inflated though, so something else is at work. This may mean they are in bargain territory, and we shall investigate further in coming weeks.
Invest in fine wine: is en primeur the way?
The conclusion we draw is that en primeur fine wine investments aren’t not the mug’s game that many people think it has become. Clearly, had you timed your incursions to coincide with the top of the market, it would have hurt somewhat. But had you done so over a longer period, you would have made significant returns.
You have to evaluate the prices on offer, and you need the tools to be able to do this satisfactorily. What is encouraging from the above table is the degree of logic at work behind so many of the prices. This augurs well for future investors, and should give comfort to those already in the market.
If you’re looking to go ahead and invest in fine wine, then you’re going to want help and advice from the people that know what they’re talking about. Check out our wine investment options right here to find out more.
Originally published in August 2017.