2009 Bordeaux vintage may not be the best investment

Written by Ray Clancy

Tuesday, 18 May 2010 12:00

As excitement over the release of the 2009 Bordeaux vintage reaches fever pitch, new research suggests that buyers looking at these wines as investments could be missing out on the best returns available in the fine wine market.

While Robert Parker, the influential American wine critic, has awarded a potential 100 point maximum rating to a record 21 wines from the 2009 vintage, Chris Smith, an investment manager at The Wine Investment Fund (TWIF), is advising investors in fine wine to avoid these wines.

Using independent data obtained from the fine wine exchange Liv-ex, he argues that up to and including the 2000 vintage, there was a clear case for investing in en primeur wines (before they are bottled), even though such investments often had to tolerate enhanced volatility.

From the 2001 vintage onwards, however, these advantages have disappeared and the reverse is now true. ‘Investors have seen lower returns from en primeur than from existing, physical wines from an established vintage. With the unprecedented hype surrounding the 2009s, the châteaux are unlikely to be handing out gifts to speculators by releasing at prices which allow easy profits to be made,’ he explained.

On average, the en primeur premium, that is, the return from an en primeur vintage compared to that from an established vintage, fell from 21% between 1995 and 2000 to minus 16% between 2001 and 2006.

The Wine Investment Fund, which has produced annualised returns after all charges of more than 15% since its launch in 2003, took an investment decision from the outset not to invest at the en primeur stage. Smith says that all its investments are in wines that are at least four years old as this reduces risk in its portfolios as it avoids the higher volatility inherent in fine wine prices at their en primeur stage.

The prices of young wines are strongly affected by critical reviews as the wine is not physically available. During the first three years of a wine’s life Robert Parker usually rates it three times, around the initial release date, once a year later and then once again a year after that. Changes in the ratings can have a significant impact on prices.

‘En primeur pricing underwent a fundamental change following the 2000 vintage, which means that it no longer represents the most lucrative way to invest in the fine wine market,’ said Smith. But there was an exception in 2008 when wines were released at relatively low prices because of concern that they may not sell due to the then world economic climate, but the chateaux have subsequently seen the buyers of this vintage, which received high ratings from Parker, already making substantial profits as the global economy has recovered.

‘The châteaux will not make the same mistake again in relation to the potentially great 2009s, and prices will be as high as they think it is possible to charge. We strongly suspect, therefore, that the previous pattern of en primeur providing a lower return, with higher risk, compared to established vintages will re-emerge,’ said Smith.

‘Moreover, these high prices for wines which are not even available for physical delivery for another two years or so are likely to pull up prices of older vintages which will look cheap, bearing in mind their additional maturity and storage. Some of this effect is already being seen in the market,’ he added.