16.11.17 – Wine Investment –
It’s quite difficult to dispute the proposition that the fine wine market, as represented by the Liv-ex 100, awoke from its slumber almost exactly 2 years ago and has been moving ahead since then at varying degrees of acceleration. We thought it might be revealing, therefore, to look at wines which have underperformed over that time frame so see if any represent bargain purchases.
For reasons with which regular readers will be familiar, we have to cross-check seeming underperformers with the algorithm because it is always possible that a period of underperformance may just be levelling out a period of prior outperformance. We make no apology for constantly referencing the algorithm. In the land of the blind the one-eyed man is king!
Following this approach we find three golden opportunities from the Right Bank in Bordeaux, two from Pomerol and one from St Emilion. Given the St Emilion is 48% Merlot and the two Pomerols are 100% we have quite a lot of Merlot on offer this week, although we believe that to be a feature of their underperformance rather than a determinant.
Cheval Blanc has come in for its fair share of stick over the years, what with people believing the Chinese “didn’t get it” or wouldn’t buy a red wine called “White Horse”, and other such “explanations”, but as you can see from this chart showing the whole post peak period, only the overpriced 2010 is failing to outperform the liv-ex 100:
In effect this is telling us that had you bought a 2002 or 2003 Cheval Blanc at the peak of the market you would have outperformed the index by the best part of 30%. Obviously plenty of wines did even better than this, particularly from Tuscany and the Rest of the World, but it is quite difficult to sustain the argument that the market has a downer on Cheval Blanc.
At Amphora we do not believe that you should refrain from including Cheval Blanc in a balanced portfolio, and now bring the 2011 to your attention. Although Rupert Millar pointed out in a very thorough article in this publication some months ago that the 2011s were worth a look, we struggle to find attractive relative value in that vintage in general terms, so to that extent the Cheval Blanc 2011 is unusual.
Purely for relative value you might also consider the 2012 and the 2014, but they have risen 20% or so since the market recovery began, and are therefore keeping good time. The 2011 meanwhile has barely moved, so investors looking for a shorter term kicker might well consider it instead.
Either way please do not avoid Cheval Blanc for the wrong reasons!
The market has been carefully avoiding most vintages of L’Eglise Clinet for a while now and they regularly populate the underperformance tables. We are on record as saying we don’t particularly understand this, and won’t rehearse all those arguments again now. Suffice to say the 2008 should be near the top of anyone’s buy list.
2008 in Pomerol was a cracking year, scoring 96 on the Wine Advocate vintage guide. It was the best year in Pomerol since 1998, in fact, eclipsing 2000 and 2005, matching anything over the prior 50 years. Only the 2009 enjoys a higher score, with 98.
We have pointed out on several occasions that the prices of 2008 Pomerols should bear more relation to those of 1998 given the similarity of vintage and indeed the individual wine scores, and given the fact that the 1998s are as much as double the 2008s these vintages would make a great arbitrage if you could short the former. It is gratifying to note that since we first highlighted this a couple of years ago the 1998 is down 7% against an index rising 20%, whilst the 2008 is up 7%. The 2008 should remain firmly in our sights. It is great relative value on the algorithm; it has underperformed the index; at £1,240 it is less than half the price of the 1998.
L’Evangile 2008 is also a very good scorer on the algorithm, but is up 27% over 2 years and therefore currently outperforming the index. A better short term option might well be the 2012, which has been ignored by the market in recent months and over the term in focus is up a mere 1%. Again, we have discoursed recently on the subject of the 2012s many of which have their attractions, but from these levels few more so than L’Evangile.
At just under £1,000 it trades alongside the ill-starred 2011 and 2013 vintages, yet is a considerably superior wine from a considerably superior vintage. Clearly more recent vintages can take time to settle in the market and find their feet, but it is at such times that bargains are available. Imagine if you had bought Le Pin 2012 a couple of years ago: you would be sitting on a return of 80% at this point.
Buy L’Evangile 2012.