The record-priced Bordeaux 2009 vintage currently trades at -2% off its London release price and so far has failed to produce growth in accordance to expectations. We look into alternative fine wine investment strategies that – albeit with hindsight – would have netted a better return.
Bordeaux 2010 would seem set to bring another high-quality and highly priced vintage. But will this make for a good wine investment? If 2009 is anything to go by, possibly not. But if – and it's a big if – that’s the case, 2010 will likely open the door to other, more lucrative strategies to pursue.
So what and how to buy?
On current trends, exceptionally high prices for top-performing vintages (2005, 2008, 2009) become the new price ceiling by which prior vintages are measured.
In this context, the emphasis on brand over vintage, and increasingly brand over score together with the apparent search for value would look set to continue. If that’s the case, lesser scoring vintages and chateaux outperform their higher-rated equivalents as they move towards the new price ceiling. Moreover, some studies suggest that buying into recent top performing chateaux can outperform the market over the short-term, a so-called momentum approach. We have commented on these phenomena here in the blog before.
We have compiled a list of 10 wines from 2006, 2007 and 2008 that fit into the categories “brand over vintage and score” and/or have been on the move and thereby would be candidates for the “momentum-based approach”. We have compared prices from June 2010 with the current market prices and calculated the % increase in price:
|La Mission Haut-Brion||
Source: www.wine-searcher.com and Liv-ex.
Some remarks in general – a new investment order?
Where will prices go and what may be the implications for the wider market?
As luxury goods reach new audiences with different values, familiar dynamics begin to change. A buy and hold strategy may well produce strong returns over the long-term, but how much more effective could your investment be if you were to combine this strategy with trying to catch shorter-term trends, with profits re-invested in similar opportunities.
Furthermore, a new investment order of sorts is emerging within the blue chip (First Growths) segment of the market in the apparent catch-up of the other First Growths with Lafite. All have seen steady price rises as Lafite appears to be treading water at the moment. This is most evident with Haut-Brion, which appears to represent a secular mini-trend as it looks increasing undervalued in comparison to its First Growth peers.
Scores (Parker) will continue to account for major price differentials between vintages and chateaux on aggregate. However, we will likely see the continued emergence of exceptions to this rule, evident among those wines where (Chinese) demand is strongest; representing a differentiation within the classed growths market as some chateaux become less sensitive to (Parker) scores and brand-led demand becomes their chief driver of price.
Risk is higher too; price formation would appear to have a higher correlation with emerging market GDP and industrial production indicators than traditional fine wine supply-side economics, raising the risk of a price shock in the event of a sudden drop in demand in these countries. Major merchants, moreover, may depend on China for as much as 50% of their turnover. En primeur too, increasingly presents irregular prices and diminishing returns for considerably higher risk.
Finally, after a year where almost everything went up, the near future looks set to be more discriminating. It will be more important to pick the right stock at the right time. Seeking advice on your wine investment strategies, always a good idea – will be more important going forward. Make sure you ask your favorite fine wine merchant.