Decanter's Wine Investment Guide Part 4 - Archive

(back to Part 1) (back to Part 2) (back to Part 3) Past editions of the Investment Guide - 2006-2007

Update: December 2007

After cruising along in fifth gear for the last eighteen months, the fine wine market appears to have temporarily stalled following two consecutive months in which the Liv-ex 100 Index actually went into reverse. In August it was down by 1.1%. Then again in September it dropped again by 1.4%.

You don’t need to be Mervyn King to work out why. The principle reason was of course the fall-out from the so-called credit crunch and some fairly worrying volatility in the financial markets. The net result was a number of nervous investors inevitably deciding to take their profits while the going was good. Suddenly, for the first time in over a year, there were more sellers than buyers which meant that prices suddenly softened.

By the end of September though, it looked like any fears of a major correction were unfounded with the resumption of strong demand kicking on from the Far East. According to Miles Davis at the Fine Wine Fund, ‘the equity markets and notably the emerging markets have marched on as if the summer crunch never happened. The Hang Seng Index in Hong appears to be on steroids.’

Even so, there still remains a question market over where the market goes from here? Will it get back into gear or has it run out of gas – at least for the time being?

Most traders including Geraint Carter at Bordeaux Index and Steven Browett at Farrs are putting a positive spin on the situation. They believe that the Liv-ex falls were inevitable given the way in which the market had performed over the last twelve months. In fact, many have actually welcomed this pause for breath arguing that a period of pricing consolidation was and is beneficial.

As a result, the majority of brokers, traders and wine fund managers that I have spoken to remain relatively bullish about the outlook for the next few months largely based on stronger demand in October and the beginning of November. To borrow a (horse) racing analogy, Miles Davis suggests ‘that the market has a bit of cut in the ground – a soft surface but firm underneath – and that is likely to improve.’ Some have even argued that the problems in the mortgage markets might even benefit the wine market – given wine’s value as a diversification tool.

Others though argue that on-going uncertainty in the financial markets could keep the fine wine sector stuck in the pits for longer than it would like. One of them is wine writer and former financial journalist Nick Faith. He argues that the market in fine wine cannot be considered separately from the world’s economic situation, as reflected by the fact that the buyers of fine wine are today above all in the financial community. Worryingly, Faith thinks ‘that we are at the beginning of a long bear market, to be measured in years not months.’

Of course, it’s worth remembering that the Liv-ex is still up by more than 40% since January. But the big $64,000 question is where does it go from here? Time will tell who is going to be proved right and wrong. It is going to be an interesting few months.

Market performance over the last 12 months.

Fifteen of the Best

In order to get Decanter.com’s very own snapshot of the wine investment market, I have selected a cross section of fifteen leading Bordeaux chateaux and looked at their investment performance in six of the best investment vintages of the last twenty five years – 2005, 2003, 2000, 1996, 1990, 1986 and 1982.

Using the latest price information data from Liv-ex, I have been able to crunch some numbers and been able to compare their performances by vintage and brand over the last twelve months from September 06 to September 07.

My basket of wines includes the five First Growths (Latour, Lafite, Haut Brion, Mouton, Margaux) as well as Cheval Blanc, Las-Cases, Leoville-Barton, Cos and Pichon Lalande. In addition, I have also included the cultish blue chip names of Le Pin, Petrus and Ausone and two Fifth Growth chateaux Lynch-Bages and Pontet-Canet.

So what are the results from my first Survey which runs from September 2006 to September 2007? Obviously, this period coincided with some of the best returns ever seen by the fine wine market in which the Liv-ex 100 was up by 41%.

Top of the Crops

Surprisingly, the most successful investment vintage since September 2006 was the 2005 vintage. However, these results were clearly skewed by a number of the more boutique, hard to acquire en primeur wines such as Le Pin and Ausone. Other wines from this vintage have not performed anything like as well or generated such massive price increases. (The 2005 Leoville-Las-Cases being a case in point, having fallen by 8%)

The next best vintage was clearly 1986 with an increase of 49.6%. Next up is 1990 (41.2%) followed by 2003 (139.3%). What is also surprising is that 1996 has not performed so well, coming in bottom of the pile. It is up 34.9% which perhaps suggests that the vintage as a whole remains undervalued.

Battle of the Brands

There’s no doubt whatsoever about which well-known name heads this illustrious group of chateaux in terms of its investment performance. Brand Lafite is head and shoulders above the rest with a massive return of 76% across all the vintages. Many ascribe Lafite’s success to the volumes which are currently available in the global market and to its popularity in Far Eastern markets which have driven up prices above and beyond those of its competitors. The pick of the bunch would have to be the 2003 Lafite which was up 80% from £3,500 a case to £6,500 earlier this year.

Yet has Lafite peaked? A number of investors decided to indulge in a bit of profit taking over September and October which has seen some vintages falling in value including the 82, 86 and 2003. It will be interesting to see how these vintages continue to perform in the months ahead.

After Lafite came the increasingly fashionable Ausone run by Alain Vauthier with an across the board increase of 58%. Few would doubt that Ausone has joined the ‘G8’ (Great Eight) in Bordeaux, but its tiny output means it offers little in the way of liquidity or availability. As a result, its sheer rarity, allied to quality invariably drives up prices in leaps and bounds – particularly in sought after vintages.

More surprising are the contrasting performances of Haut Brion and Le Pin. For example, one would expect Le Pin to outperform Haut-Brion given its Ausone-like volumes and astonishing reputation. But in fact, the great Graves First Growth has delivered much better returns than the parvenu Pomerol. Impressively, Haut-Brion is up by 53% compared to Le Pin’s return of 35%. Similarly, who would have expected Pichon Lalande and Petrus to have put in exactly the same ROI?

Top of the Pops

The top performing wines over the period September 06 to September 07 include the 86 Mouton, which is widely regarded as the wine of the vintage. It was up from £4,200 to a cool £7,900 (+71%). The 1990 Le Pin also posted an impressive increase in value up by 68% from £12,000 to a shade over £20,000 over the same twelve month period. Clearly, anyone who had bought into both these wines has seen some very handsome returns. However, the biggest mover of all was the 2005 Ausone which rocketed up in value from £8,850 to £17,148, registering a remarkable 93% increase.

Top of the Flops

Bottom of this premier league of Chateaux are the two Pauillac properties of Pontet-Canet (14%) and Lynch-Bages (+17%) with Cos d’Estournel posting a return of +15%.

In terms of individual runners and riders, the least successful wines included the 1982 Lynch-Bages which actually fell 1.8% down to £1900 a case. However, the biggest faller was the 1982 Leoville-Barton which dropped from £1,200 a case to £1081 -11%). So even in a rising market, there are some wines which will slip back in value.

Top Performing brands are for the last twelve months Sept 07 to Sept 06 are:

(taken from the following vintages: 2005, 2003, 2000, 1996, 1990, 1986, 1982)

1. Lafite at 176

2. Ausone at 158

3. Haut Brion at 153

4. Margaux at 147

5. Latour at 146

6. Mouton at 140

7. Cheval Blanc at 136

8. Le Pin at 135

9. Petrus and Pichon Lalande at 130

10. Leoville-Las-Cases at 120

11. Leoville-Barton at 119

12. Lynch-Bages at 117

13. Cos d’Estournel 115

14. Pontet-Canet at 114

Most successful vintages Sept 06-Sept 07

2005 +104.7%

1986 +49.6%

1990 +41.2%

2003 +39.3%

2000 +37.1%

1982 +36.7%

1996 +34.9%

NB The 2005 vintage performance is skewed by some heavy price increases from the likes of Le Pin, Petrus and Ausone. Whilst these tightly allocated wines have performed extremely well, other more available on release have been much more of a mixed bag.

Top performing wines (Sept to Sept) include:

2005 Ausone up from £8,850 to £17,148 @ 93%

2003 Lafite up from £3,600 to £6,500 @ 80%

86 Mouton up from £4,200 to £7,900 @ 71%

1990 Le Pin up from £12,000 to £20,100 @ 68%

2005 Le Pin up from £12,000 £20,400 @ 65%

1986 Le Pin up from £4,800 to £7,800 @ 62.5%

2000 Margaux up from £4,800 to £7,800 @ 57%

1986 Leoville-Las Cases up from £2100 to £3,100 @ 47%

82 Petrus up from £22,400 to £32,000 @ 42%

Least performing wines September 2006 to September 2007 include:

1982 Lynch-Bages down from £1935 to £1900 @ -1.8%