There’s Something About Margaux
25.01.18 – Wine Investment –
Every so often, in the staid old world of fine wine production, someone wakes up with a start. ‘I know,’ they say, ‘let’s put it in a different bottle this year.’
Of course, the unusual thing about Mouton is that they have a different label every year, and it is always quite exciting seeing what they are going to come up with next. Prince Charles has designed one, Picasso another, all manner of famous people in fact – but until very recently they had the monopoly on the egregiously priced ‘different bottle’.
What’s in a bottle?
I refer, you will not be surprised to learn, to the Mouton 2000. The millennium fine wine investments vintage was spectacular in Bordeaux, there are a fair few 100 pointers, and the combination has engineered a tidy premium for many of these wines.
But by a considerable margin Mouton Rothschild tops the lot. It isn’t even a perfect wine. Scoring 96, it lags behind several of its own stable. The 100 pointers from 1982 and 1986, for example, cost a fraction of the price. But then, it has ‘the bottle’.
In light of this, it is surprising that other producers haven’t pulled the same move more often. Angelus celebrated its elevation to Grand Cru Classe A status by revealing a different bottle in 2012. Unfortunately, it was such a disappointing vintage after 2009 and 2010 that it failed to attract much attention.
That said, it is the third least attractive buy on the Amphora wine investment proprietary algorithm, behind the 2005 and the 2001, so it does actually trade slightly ahead of itself.
But now we have Margaux 2015. Widely considered ‘wine of the vintage’, it was released in June 2016 at just over £4,000 per case, and it participated in the warming sentiment towards the market rising to the £7,000 mark by November last year.
Château Margaux then announced that it would create a different bottle when the wine becomes physical in early 2018 – to celebrate the passing distinguished winemaker and estate MD Paul Pontallier. Since then, it has skyrocketed to £13,800, leaving the 100 pointers from 1990 and 1996 in its wake.
The trouble with en primeur
It’s important to point out that fine wine investments trading en primeur is not as straightforward as trading physical cases. When people buy en primeur, they effectively take out a contract with the vendor, usually a negociant or merchant, obliging the latter to deliver once the wine gets bottled. This is all perfectly straightforward unless the vendor goes bust and fails to meet its obligations, or if the buyer wants to trade on their own ‘rights’.
The owner of these en primeur rights can theoretically sell on to another party, but the audit trail must be kept reasonably short, since it must lead back as clearly as possible to the original vendor, who won’t want several ‘claimants’ pitching up for the same case. Most people who invest in fine wine with en primeur trades eventually sell back to the original merchant they bought from.
If a negociant has sold en primeur fine wine investments to Bordeaux Index, let’s say, then it has a responsibility to Bordeaux Index to deliver the eventually bottled wine. Whatever happens after this initial ‘futures’ transaction, it is in Bordeaux Index’s best interests to be able to control matters until they’ve taken physical delivery. If they sell to client A whilst the wine is still en primeur, for example, then buy back from client A and sell in turn to client B – they retain control. If, however, client A sells to some random party with whom Bordeaux Index has no relationship, then things become messy.
All of which makes what is happening to Margaux 2015 right now very interesting indeed.
Clearly someone in the market is very keen to lay their hands on the stuff before it goes physical. From a market analyst’s perspective, it is helpful to have a sense of the volumes being transacted, and if it’s difficult to achieve this in the physical market, then it’s nigh on impossible during the en primeur phase.
To return to Mouton 2000 for a moment, we can rant and rave as much as we like about how wrong we think the price might be, but it doesn’t matter a jot – because there is an active market at the price. It has stood the test of time.
We can even suggest that we think DRC is a tad toppy, but there’s usually someone happy to pay the upset price, provided you know where to look. In these cases there’s a perfectly good argument that the market is always right, whether you happen to agree with it or not.
Fine wine investments to watch: Margaux 2015
What is yet unclear about Margaux 2015 is whether its current price is a fair reflection of market forces at work, or something akin to 2011, when predominantly Asian-based speculators drove many prices up to unsustainable levels in the mistaken belief that buyers would always be there. Also uncertain, is what the critics will opine when it goes into bottle in the next couple of months.
At present, Neal Martin is sitting on a 98-100 point range. As we see from the chart above, Margaux 2015 at £12,800 is already way above even the 100 pointers of 1996 and 1990. In fact, it is difficult to find a Margaux quite as expensive. It’s hard to escape the conclusion that 100 points is the minimum that is priced in – so what might befall if it comes in at 98? Perhaps, as with Mouton 2000, the critics’ score is irrelevant in this instance.
We await developments with baited breath, mindful of the cautionary tale of Lafite 2008. Lafite added an embossed Chinese figure of 8 to its bottle that year, in deference to the consumer on the block. It certainly acted as an inducement to buyers. Unfortunately it did not act as a deterrent to sellers:
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We don’t yet know how all this turns out, obviously, but one of the options is that Margaux 2015 retains its premium, due to the market’s perception of the importance of Paul Pontallier. Another is that it ‘does a Lafite 2008’. Either way, it will have the usual crowd moaning about the failings of the fine wine investments market, when in fact this is a perfect expression of market forces at work.
We simply don’t know the exact nature of those forces at this juncture. If you can’t understand this, we recommend you stay away, and leave the wine investment to those of us who find it endlessly fascinating. If you’re as interested in it as us – then head on over to our wine investment blog to find out more.