At the start of the year we offered up a model portfolio for general consumption and promised to keep readers in touch with its progress. We have arrived at the half way stage for the year and there are several things to point out.
Overall the portfolio is up 8.24%. This compares creditably with the Liv-ex 50 (+2%), the Liv-ex 100 (+3%), the Liv-ex 1000 (+5%), and even that darling of lazy commentators, Burgundy (+7%). Why lazy? Well simply because as we have explained on several occasions, Burgundy may be a fabulous drink but it makes a very challenging investment, principally due to availability, cost, liquidity and the questionable secondary market.
At Amphora Portfolio Management we espouse the view that wine investment is as much about risk control as value appreciation, and the best way to mitigate risk is to diversify, hence the spread of sectoral weighting in the portfolio.
In the early part of the year we took the view that Bordeaux was still favoured, particularly at the first growth end of the market, so we applied a weighting of 30%. This group of wines has appreciated 3%, better than its benchmark (Liv-ex 50), but not as good as the portfolio overall.
This is possibly a reflection that interest in the market is now revolving away from Bordeaux in general, or maybe from first growths in particular. Either way, it gives us something to look out for in respect of future exposure. What is reassuring is that such performance as there was came from the Lafite 2009 and 2010, as well as the Margaux 2012, vintages we have been keen to highlight in recent months.
The Super Second tranche of wines rose 5%, while the ‘Second’ wines and the Right Bank wines both rose a creditable 7%. Interestingly the major laggard from this group is Montrose 2012 which has risen a mere 2%. It is comfortably the most attractive Montrose in respect of Amphora’s proprietary algorithm, and investors could do worse than pick up a case or two at this level.
Things start to get very exciting when we reach the Rest of the World and the Italian, or Super Tuscan section of the portfolio. These subindices in the Liv-ex 1000 each rose 6% over the period under review, but some happy stock selection at Amphora resulted in respective rises of 17% and 28% in our model portfolio.
The only laggard sector is Champagne, which ironically outperformed the Liv-ex 1000 rising 6% over the period under review. There are 50 constituent wines in the Champagne sub-index of which we selected two for our portfolio, so our position was by definition polarised. This is an occupational hazard, of course, particularly in a relatively low-weighted position. It means two things: we need to explore those other constituent wines in more detail; we are right to diversify to address risk in general terms.
We should reinforce the fact at this point that in portfolio management terms risk comes in a secondary form: risk of incorrect stock selection. There is no point getting your strategic weightings spot on if the selection of wines within those weightings underperform. At Amphora we believe that this is where our algorithm comes in, although we totally acknowledge that over a shorter time frame like six months the relative over or undervaluations may not have sufficient time to unwind.
So, are there any alterations to make to the portfolio at this point? We do not believe in over-trading the fine wine market. One of the obvious issues is that any model portfolio excludes trading costs, which as everyone should be aware can be onerous in the fine wine market, from the perspective of spreads, transportation and inspection, not to mention storage charges (not a reflection of trading but a charge nonetheless).
Nevertheless a substantial turn over six months should not be ignored, especially if it takes a wine out of bargain-buying territory. We are therefore selling the Sassicaia 2006 and the Masseto 2010 but there is no reason to reduce the Super Tuscan weighting and we will therefore switch the proceeds into, Ornellaia 2009 (£1,400), Solaia 2009 x 2 @ £1,390 each, Solaia 2013 (£1,430), and Sassicaia 2013 x 2 @ £1,265 each.
It is interesting to note that yesterday the Liv-ex in one of its “Insights” registered the outperformance of Solaia against its peers over the last year. Solaia is somewhat a little sister of Tignanello but its grape composition is Bordelais in so far as it 75% Cabernet Sauvignon whereas Tignanello is 85% Sangiovese, and this puts it more akin to Sassicaia and Ornellaia which are also Cab Sav based.
What is really interesting about Solaia though is its lower production level. There isn’t a great deal to choose between a better-scoring Solaia and an Ornellaia or Sassicaia in terms of price, and they tend to do as well as each other in terms of critical appreciation, but Sassicaia produces about 15,000 cases per year, Ornellaia around 12,000, and Solaia a mere 7,500. That isn’t immediate scarcity on a Masseto scale (2,500 cases), but it will evaporate from the market much sooner than Ornellaia and Sassicaia, and as such deserves a close look.
The final sale at this point will be the Penfold’s Grange 2005. Regular readers know we need to be nimble in respect of a Penfold’s Grange holding. The 2005 has done well, and now sits almost £1,000 higher than the 2006. Considering the 2006 scores 98+ against 97 for the 2005 we feel the switch is appropriate. We are in addition buying six bottles of Dominus 2012 at £950 to take up the slack.
We will obviously monitor the portfolio in the coming months and will sound the alert if we conduct any further switches, and return with a full review once the year is up.
19th July, 2017 by Philip Staveley