It’s quite difficult to dispute the suggestion that the fine wine investment market, as represented by the Liv-ex 100, awoke from its slumber almost exactly 2 years ago and has moved ahead at varying degrees of acceleration.
Therefore, we thought it might be revealing to look at wines which have underperformed over that period, to see if any represent bargain purchases for those looking to invest in fine wine.
The wine investment algorithm
For reasons regular readers will be familiar with, we check apparent underperformers against the algorithm – since it’s always possible that a period of underperformance may just be levelling out a previous period of overperformance. 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 – though we largely think that’s because of their underperformance rather than being a determinant.
Wine investment: Cheval and China
Cheval Blanc has come in for its fair share of stick over the years. People believed the Chinese ‘didn’t get it’ or wouldn’t buy a red wine called ‘White Horse’, and other such predictions. 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 tells us that if you’d bought a 2002 or 2003 Cheval Blanc at the peak of the market, you’d have outperformed the index by the best part of 30%. Though plenty of wines did even better than this, particularly from Tuscany, it’s quite difficult to sustain the argument that the market has a downer on Cheval Blanc.
At Amphora, we think a balanced portfolio could well benefit from Cheval Blanc, 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’ve 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 avoided most vintages of L’Eglise Clinet for some time now, and they regularly populate the underperformance tables. We’ve said 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 fine wine investments buy list.
2008 in Pomerol was a cracking year, scoring 96 on the Wine Advocate vintage guide. It was the region’s best vintage for a decade, in fact, eclipsing 2000 and 2005, and matching anything over the prior 50 years. Only the 2009 enjoys a higher score at 98.
We’ve 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. The 1998s are currently about double the price of the 2008s, so we think these vintages would make good 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 that rose 20%, whilst the 2008 is up 7%. The 2008 should remain firmly in our sights. It is great relative value on the algorithm and has underperformed the index. At £1,240 it’s less than half the price of the 1998.
L’Evangile: The fine wine investments dark horse
L’Evangile 2008 is also a very good scorer on the algorithm, but is up 27% over 2 years and therefore currently outperforms 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’ve spoken recently on the subject of the 2012s, many of which have their attractions, but few more so than L’Evangile judging by these levels.
At just under £1,000, it trades alongside the ill-starred 2011 and 2013 vintages, yet is a considerably superior wine investment from a considerably superior vintage. Clearly, more recent vintages can take time to settle in the market and find their feet, but it’s at such times that bargains are available. Imagine if you’d bought Le Pin 2012 a couple of years ago: you’d be sitting on a return of 80% right now.
Buy L’Evangile 2012.
London wine investments
As with any investment opportunity – the world of wine investment involves a fair amount of, albeit very educated, guesswork. And while nobody can truly know what tomorrow’s returns will bring – a few experts and a fairly handy algorithm can certainly make a fair prediction.
So make sure you’ve got the help of both when you invest in fine wine.
Originally published in November 2017.