People who have placed their money in fine wine investment over the past 18 months will have little to cheer about. The market has seen a general downturn in value, but when measured against other asset classes, it still holds its own. Those who have been in the fine wine market for a number of years are relaxed, having more of a feel for the natural dynamics of the correction we have endured since mid 2011.
Of all of the first growths (the very best of investment quality wines) the Chateau Latour has long been an investor favourite. By mid May this year, the Latour was the best performing first growth wine, particularly with sales of the exceptional 2009 and 2010 vintages. Furthermore, Liv-ex, the fine wine exchange, reported that Latour 2010 sales represented over 53% of all Bordeaux 2010 sold in May. This is likely to be in part due to the fact the Chateau announced that it would be departing from the En Primeur system (where you can buy a future allocation in wine prior to bottling generally at the cheapest market price) after 2012.
In contrast to Latour, Lafite, probably Bordeaux's most iconic brand, was the biggest loser of the first growth wines, falling 12% since the start of 2012. I recently visited Bordeaux, and whilst there I heard on the grapevine that the fall was in part due to the severe counterfeit issues the brand has been suffering in the Far East. In China in particular, empty bottles of Lafite can be sold on the black market for up to £300 (particularly the 1982 vintage - top vintage for the Chateau). Counterfeiters then refill the bottles with cheap "plonk" and sell them on for significant profit. Whether this underhand subterfuge has had any real effect on value is certainly debatable; the brand may have seen a slight slowdown in Asian demand, but it is indubitable that it still continues to be a Far East favourite. With almost all Lafite vintages down by 30% year on year, and some, such as the 2008 currently down 50% in price, at Vin-X we believe that certain Lafite vintages now qualify as a BUY!
In early July, Liv-ex reported that the cumulative performance of its Investables Index (which tracks 200 wines from the top 24 Bordeaux chateaux) since 1988 stands at a long-term five year compound average growth rate (CAGR) of 14.9%. The CAGR on July 4th 2012 was at 4%, the lowest it has been in six years.
Historically, when investing at a time when the previous five years have returned a CAGR of less than 5%, the average compound return achieved in the following five years was a staggering 17.6%. Now might be the best opportunity to invest at such value prices and, for those wines our analysts believe are undervalued, take the opportunity to "average down" your investment price - so take stock, select wisely and enjoy the ride.
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