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Hello fine wine lovers,

For the last year, I’ve been playing with the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform (you can read the background of this project here). If among my readers there are people on the fence about fine wine investing, I certainly did little to convince them that it’s a worthwhile effort. You lost money! I hear some saying… regardless, fine wine investing is a long-term effort. 2023 has notably been a challenging year for wine investors, marking it as the least profitable in the last decade.

The debate over the legitimacy of fine wine as an investment has intrigued many. Certainly, the whole point of this newsletter is to encourage fine wine as a legitimate investment asset class.

Some see problems:

Selling wine takes longer than selling stocks.

Wine needs the right storage, which costs money.

Wine merchants take 10-15% each way.

Some wines in the market are fake, which is a risk.

While you can easily value stocks, valuing wine depends on many things like its age and where it's from.

Investing all in one type of wine is risky.

…

However, fine wine offers a unique advantage — it's tangible. Because of this, it offers a different kind of value from stocks and bonds, in a sense, it holds a more subjective value than stocks and bonds because it also needs to account for one’s personal taste. Did you hear that, Australian stockbroker Danny Younis, for example, made the comments during an auction of his collection of 5,000 bottles of fine wine, calling his DRCs “effectively just glorified fermented grape juice.”

In the spirit of transparency, I'll assess the portfolio's performance, noting two things: that the record is relatively limited and many conclusions might not be meaningful; the second is that fine wine has a long way to go to catch up with other asset classes in terms of transparency and data availability.

Returns

Cumulative Returns (1 year, end of August 2023)

• Portfolio: −4.40%

• Benchmark (Liv-ex 100): −11.20%

The fulcrum of investing is creating value, starting with £100 and ending up with £110. Everything else is secondary. Even in challenging years. That’s why it’s important to assess the portfolio performance in absolute terms, first and foremost.

There is no denying that 2023 has been a down market for fine wine in general. In absolute terms, the underperformance of this portfolio was driven by Ausone, while Figeac pared back some of the losses with its incredible rise to 1er Grand Cru Classe (1erGCC) A. A more in-depth analysis is in the Holdings section.

Secondly, by comparing a portfolio's returns to a benchmark, investors can determine how well the portfolio performs relative to the market or a specific market segment. It helps distinguish between general market trends and the portfolio manager's skills. In relative terms, the portfolio surpassed the Liv-ex 100 by 6.8%. This can be attributed to the selection of safer fine wines.

Key Risk Metrics

In the spirit of the Barcolana sailing regatta that just past, this metaphor can help distinguish between the risk metrics used to distinguish between absolute and relative performance.

Imagine you're watching a boat race where all the boats are racing against the current of a river. The current represents the overall market or economic conditions.

Now, think of beta as how sensitive each boat is to the current. If a boat moves with the current just like most other boats, it has a beta of 1. If it's more sensitive to the current, speeding up more when the current gets faster and slowing down more when the current is weaker, it has a beta greater than 1. On the other hand, if a boat is less affected by the current and remains more stable, it has a beta less than 1.

On the side of alpha, it's like evaluating the skill of the boat's captain. If a boat's captain can navigate the boat better than expected given the strength of the current, finding shortcuts or using efficient techniques, then they have a positive alpha. If they perform just as expected based on the current, the alpha is zero. But if they don't do as well as they should be given the current, then they have a negative alpha.

So, in this analogy, beta helps you understand how a boat (or an investment) might react to the river's current (or market movements). In contrast, alpha gives you a sense of how skilled the boat's captain (or the investment manager) is at navigating against that current.

Beta: 0.431, meaning that the portfolio is less sensitive to the movements of the Liv-ex 100 benchmark, both when the movement is up or down.

Alpha: 0.73%, meaning that when the benchmark returns are zero, the portfolio is expected to have a return of 0.73%.

Volatility (Standard Deviation):

Provides a sense of the overall riskiness of a portfolio. It gives an idea of how much the returns of a portfolio can fluctuate.

• Portfolio: 4.89%

• Benchmark (Liv-ex 100): 4.21%

Tracking Error: 1.48%

The tracking error measures the performance deviation from its benchmark. If you have a passive investment strategy that aims to mimic a benchmark, a low tracking error is desired. If you have an active strategy, a higher tracking error might be acceptable, but it indicates that the portfolio is deviating from the benchmark, which could be good or bad depending on the performance outcome. In our case, the portfolio is definitely not trying to mimic the benchmark and therefore considered an active strategy.

While both volatility and tracking error measure risk, they address different types of risk: total risk versus active risk, respectively.

Maximum Drawdown:

Maximum Drawdown is a crucial metric for understanding the downside risk and the potential losses an investor might face, as it measures the largest decline from a peak.

• Portfolio: −7.00%

  This means that, at its most significant decline, the portfolio dropped 7% from its prior peak value. Investors who entered the portfolio at its peak would have experienced a 7% decrease in the value of their investment before the portfolio started recovering.

• Benchmark (Liv-ex 100): −10.75%

  The benchmark experienced a more pronounced decline, with a maximum drawdown of 10.75%. This indicates that the Liv-ex 100, during its worst period, lost over 10% of its value from a prior peak.

The portfolio's active drawdown is 3.75% less than that of the Liv-ex 100 benchmark. This suggests that the portfolio was relatively more resilient during downturns when compared to the benchmark. A smaller drawdown for the portfolio implies that it might be better positioned to recover and achieve new highs, as it has less ground to make up after a decline.

Value at Risk

Value at Risk (VaR) is a risk management tool used in finance to quantify the potential loss in value of a portfolio or investment over a specified period and for a given confidence interval. In simpler terms, VaR gives investors an idea of how much they could lose in a worst-case (or near-worst-case) scenario.

Using the historical method, the 1-month Value at Risk (VaR) for the portfolio is as follows:

• 95% Confidence Level: Potential loss of 9.99% over a month. This means that there is a 5% chance that the portfolio will experience a loss greater than 9.99% over a single month.

• 99% Confidence Level: Potential loss of 10.45% over a month. This implies a 1% chance that the portfolio will experience a loss greater than 10.45% over a single month.

This provides a perspective on the downside risk of the portfolio in terms of potential single-month losses. It's essential to consider this alongside other risk metrics and the broader context of the portfolio's investment strategy and objectives.

Diversification

Diversification in a portfolio is the distribution of investments among various assets or asset classes to reduce risk. The main idea behind diversification is that a variety of investments will, on average, yield higher returns and pose a lower risk than any individual investment within the portfolio.

While normally fine wine should account for a small amount of one’s total wealth intended as an investment portfolio (<10%), in the context of this model portfolio I worked with two asset classes: cash and fine wine.

As a rule, I want to “invest” in cash when:

• interest rates are rising and the risk-free interest rate is more than 1% above the inflation rate (the more above 1%, the more I want to invest in cash), and

• when the real interest rate is at or above the economy’s real growth rate — or more simply, when the interest rate is above the economy's total growth rate (i.e., inflation plus real growth). The more above the inflation rate and growth rate, the more I want to invest in cash.

On that basis, that’s why I like cash now. If you have followed me during the past year, you would have noticed that I kept more than 50% of the portfolio in cash most of the time and currently have 20.5% in cash. The fine wine market nosedive has lots to do with this economic dynamic: investors are capturing a pretty good rate without the risk of losing principal, and if rates keep rising they will get more and more because they didn’t fix their rate.

Number of securities (wines): 16

Concentration Index: 0.11

The closer this value is to 1, the more concentrated (or less diversified) the portfolio is. The closer it is to 0, the less concentrated it is. Based on the concentration index alone, the portfolio appears to be well diversified. Of course, it’s a simplified metric that only accounts for the weight of each wine. If we dig deeper, we would notice that the portfolio is highly skewed towards Bordeaux and within Bordeaux, towards St-Émilion.

Why?

St-Émilion weighs heavily in the portfolio for two reasons:

• Reclassification — I started this portfolio project just before the 2022 St-Émilion reclassification and I wanted to capture some of the positive returns that would have spurred from it if any of the châteaux had been upgraded.

• It’s in vogue. Perhaps because of the noise made by the reclassification or because prices (and wines) are more accessible than their Pomerol or Left bank peers, it’s a region that has seen increasingly greater attention.

In addition, the portfolio reflects what I believe to be interestingly underpriced wines and regions. As I mentioned a few times (here and, more recently, here), I believe Barolo 2019 and 2013 to be fantastically undervalued vintages, perhaps because they have to live in the shadow of 2016.

In terms of vintage selection, I am quite comfortable with the diversification and the breakdown. Over 60% of the portfolio is invested in ‘on-vintages’, which we know, will appreciate in value after bottling and rise strongly until maturity, while wines in ‘off-vintages’ have been purchased opportunistically.

Holdings

In absolute terms, the underperformance of this portfolio was driven by Ausone, while Figeac pared back some of the losses with its incredible rise to 1er Grand Cru Classe (1erGCC) A.

• Holding 33% of the portfolio (for most of the year it had accounted for nearly 50% of it) in one single château is not the best diversification strategy. However, I hold the conviction that Ausone is one of the most undervalued châteaux in St-Émilion when looking at fair value and when compared to its peers — Cheval Blanc, Angélus, Figeac, Pavie.

  

  One of the issues with fine wine investing is that one cannot buy smaller portions of wines and if you want exposure to a certain château with a high unit price, that’s the inherent risk that will weigh heavily on the diversification of the portfolio. I (incorrectly) held the conviction that, while outside the classification, the coverage of St-Emilion would benefit Ausone. It didn’t.

• I have added both Canon and Figeac to the portfolio ahead of the St-Émilion reclassification, thinking that they both had a chance to move up. Figeac contributed very positively to the portfolio — and for this reason, I sold half of my allocation to lock in some positive returns. This strategy added 3% overall to the yearly performance.

• I believe that Barolo 2019 and 2013 are undervalued vintages in the region. That’s why I added a few names from the Ravera cru. I could have added more — and I’ll probably will in the next few months. Stay tuned!

• All the other names didn’t have a region-wide theme behind them, I just believed them to be undervalued wines and added them opportunistically.

Final thoughts

When operating in a market with higher transaction costs, a more strategic, long-term approach to investing is necessary. Reacting to short-term market fluctuations can be detrimental, not just because of market unpredictability but also due to the increased costs associated with frequent trading.

Thanks for tuning in this week! This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

👋 Sara Danese

Comments, questions, tips? Send me a note

In case you missed it:

• Investment Ideas for Barolo 2019

• Has Fine Wine Hit Rock Bottom?

• The Ministry of Silly Pricing

• How's the Champagne market looking? (Jul 2023 update)

• My Fair Value a.k.a. Is Cheval Blanc Undervalued?

• The Earliest Harvest Ever

• Hunting for Barolo 2019 bargains

• Building a 36-bottle cellar, with ChatGPT

• 2023 Fine Wine Market Predictions

• The Price of Wine

Disclaimer

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.

A short article where I share a couple of gems I’ve picked up in this down market.

I came across an article written by Cru, a renowned wine merchant headquartered in London, explaining an interesting trading strategy for sideways and down markets: bidding. This strategy aims to generate profits by placing a high number of speculative bids, well below a wine's recent high print.

Following this article, Liv-ex presented a case where a bidder acquired 30 cases of Louis Roederer Cristal 2015 at 6.7% below its market price, as you can see in the blue line in the chart below.  

And another example — Lafite 2016.

Could this be the winning strategy in this market environment? And more crucially, which wines are prime candidates for this approach?

I’ll look at it within the context of the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform. You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

Portfolio Performance

The Saturnalia Model Portfolio (excluding cash) saw a decrease of -3.9% in July 2023. During the same timeframe, the Liv-ex 100 experienced a decrease of -3.1%.

A critical point of note: the portfolio's underperformance was largely due to a pricing discrepancy of Vietti Ravera 2019 in July 2023 (as per WineDecider Pro market pricing model) against the Liv-ex pricing in prior months. Had this discrepancy been non-existent, the portfolio would have reflected +3.2% positive returns, courtesy of its pronounced emphasis on high quality wines and vintages.

What happened in the fine wine market?

July marked yet another contraction for the fine wine market, with the Liv-ex Fine Wine 100 noting its fourth consecutive decline. A staggering 76 of the 100 wines listed experienced a depreciation in value.

In the latest article, we posed the question: Has the fine wine market plummeted to its lowest?

The pool showed a majority consensus — the descent is far from over!

Below you can find the full history of the Liv-ex 100 index. In the chart, you can also see that the red lines and markers represent the drawdowns, with each drawdown's start and end dates connected by a red line.

Historical data reveals that the most significant drops in the fine wine markets occurred in 2011 (-35%), 2008 (-22%), and 2002-2003 (-9.9%). You can take drawdowns as investment risk, showing potential investor losses for the principle that history tends to repeat itself. The current drop stands at -10.1%, and despite a better global economy than in 2008 or 2011, a prolonged downturn is likely. Why? I’ve written a loooooooong market analysis last month — you can skip to the end to read about the reasons I believe we will still experience some weakness.

Updated technical analysis now underscores that the Liv-ex 100 is firmly entrenched in oversold territory — a potent harbinger for a potential reversal.

In fact, reports such as the ones from Cru and Liv-ex only underline that some buyers have started building positions in bargains. Investors typically view downturns as golden opportunities, adhering to the buy low, sell high mantra. When markets nosedive, assets may be undervalued, paving the way for amplified returns upon market resurgence.

Perfectly timing a bottom is impossible — yet, a calibrated approach in incrementally building positions during market downturns can be fruitful. This approach, called dollar-cost averaging, consists in building a position by systematically invest a predetermined amount. This ensures that fewer units are procured when prices increase and more units are acquired during a slump, thereby optimising the average cost per unit over time. This strategy is admittedly more difficult to implement strictly when investing in non-fungible assets (no two ones are alike), such as fine wine.

In addition, in down markets, it’s best to focus on quality investments as opposed to going all out on so-called value traps — assets that appear cheap but are cheap for a reason. Instead of just focusing on price, it's essential to look for quality investments that have become undervalued due to the broader market downturn. A quality investment refers to assets that exhibit a set of favorable, enduring attributes, often making them well-poised for consistent, long-term returns. These attributes might include robust financial health, a sustainable competitive advantage, seasoned management, and, above all, a track record of resilience against economic downturns. A comparable asset in the equity market would be Apple , which serves as a prime example of a quality investment. Its strong brand loyalty, innovative product lineup, vast global retail network, and substantial cash reserves have not only allowed it to command significant market share but also to weather economic storms and industry shifts.

In the current fine wine market, it's prudent to gravitate towards back vintages of prominent châteaux.

Here are two gems I've added to the Saturnalia portfolio:

★ ★ ★ ★ ☆ 2015 Vintage

Overall the 2015 Bordeaux vintage was marked by unique growing conditions resulting in wines of diverse styles, with some areas producing outstanding wines, while others were more variable in quality. While universally acclaimed Bordeaux vintages, such as 2000, 2005, 2009, 2010 and 2016, offer prestige, vintages that, while not universally lauded, still possess great quality and individual character, such as 2015 and 2020, can create the opportunity for bargains. Antonio Galloni gives the vintage a 97/100 on Vinous for the Right Bank and a 95/100 for the Left Bank. The 2015s are aging slower than the 2014s but faster than the 2016s. The 2016s, having closed down, are expected to have the longest life among the trio.

˗ˏˋ ★ ˎˊ˗ Ch Mouton Rothschild, 2015

As mentioned above, selecting quality names that play a defensive role in the portfolio is key in this kind of market environment — however, a strategy putting a 50% bid on MR 2016 it’s unlikely to be successful.

What’s more likely to succeed is to identify vintages and wines that may already offer great value, at the current prices, or that are trending downwards. One such example is Ch Mouton Rothschild, 2015.

In the WineDecider Pro analysis below you can observe that:

• The rating attractiveness, which measures the users interest across three aspects: the first letter is for the wine, the second for the château, and third for the appellation or region, is AAA.

  This highlights that Ch Mouton Rothschild, 2015 is a highly coveted wine from a widely recognised appellation and château.

• The market price (developed by WineDecider Pro with proprietary algorithm that includes B2B offers, price and stock levels) is lower than the average value (the average of market prices over 15 vintages).

  This indicates a wine that is trading below historical prices and has the potential to appreciate.

• Finally, Saturnalia’s fair value model also highlights that the 2015 is currently trading at a discount of fair value.

  Other vintages from Mouton Rothschild are also trading at a discount — see 2014, 2017 and 2021; however, picking from lesser vintages might not be the right strategy during a market where also a lot of on-vintages are trending downwards.

PS: from the chart above, you can see that 2019 also seems to be greatly undervalued. The 2019 vintage was also unquestionably a Left Bank vintage. The price seems to be trending downwards and certainly is an interesting one to follow.

★ ★ ★ ★ ☆ 2020 Vintage

The 2020 Bordeaux vintage is highly praised, recognised as the most consistent of Bordeaux's trilogy spanning 2018 to 2020. The wines are of excellent quality across various price points and Antonio Galloni gives the vintage a 98/100 on Vinous for the Right Bank and a 97/100 for the Left Bank. The wines from 2020 reflect advancements in vineyard and cellar practices, suggesting that they might surpass the aging potential of previous acclaimed vintages like 2005.

˗ˏˋ ★ ˎˊ˗ Cheval Blanc, 2020

Cheval Blanc 2020 may just well be another undervalued gem.

Saturnalia’s fair value model suggest it’s trading at a 33.4% discount. Other arguments similar to those for the Ch Mouton Rothschild, 2015: AAA attractiveness score and a market price that’s below the average price.

Neither one of the two wines above come at a cheap price. And the reason why bidding can be a successful trading strategy has more to do with psychology than with rational market forces.

Of course, bidding can take advantage of a sideways, down or simply volatile market in fine wines where the prices of the wines do not necessarily follow a clear upward or downward trend, instead fluctuating between certain price levels. And, this combined with a lower liquidity in the market can result in a greater spread between the highest and lowest prices for any given wine, which can obscure the true market price (a.k.a. fair value) of the wine, leading to potentially profitable opportunities.

However, in uncertain or down markets, market participants tend to be fearful and may want to protect themselves by holding cash — the safest asset. Some investors might decide to liquidate some assets in order to meet unexpected liquidity needs or to have a margin of safety and some other will not invest in assets that are illiquid or perceived as risky, such as fine wine. This could lead high-value fine wines, such as the two discussed above, to be a great potential for liquidation, which can make them great buys for intelligent investors.

A summary of bidding …

Here's a breakdown of how the strategy works:

1. Identifying Opportunities: Look for wines trading significantly below their recent high prices. The rationale is that some wines' prices have dropped more than what is justified by their quality or demand, indicating a potential undervaluation. It is often the case with some top Champagnes (Dom Perignon 2012, for example) or the two mentioned in this article.

2. Making Bids: You should have a higher number of bids than usual out in the market. These bids should be on the lower end of the new trading range, but still realistic. The goal here is to "pick off" any stray low offers that might occur as the market fluctuates. You're essentially trying to buy the wine at a discount.

3. Speculative Bids: In addition to bids at prices you believe are fair, you should also place a number of 'speculative' bids. These are bids at prices which are even lower, hoping that a seller might accept your bid in a moment of desperation or a sudden drop in price.

4. Understanding the Market: It's important to understand the wine market and the particular wines you're bidding on. This can help you decide on the best prices to bid at. For example, you would not expect to win a bid that's 50% lower than the current price for a popular wine like Mouton Rothschild 2016.

The end goal of this strategy is to purchase fine wines at prices below their intrinsic value due to market volatility.

Of course, for the purpose of the model portfolio, I just used the current price; however, in reality it’s worth spotting quality wines and try to place both realistic and speculative bids in case the owner of those wines might be interested in selling at reduced prices.

Thanks for tuning in this week! This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

👋 Sara Danese

Comments, questions, tips? Send me a note

In case you missed it:

• Has Fine Wine Hit Rock Bottom?

• How's the Champagne market looking? (Jul 2023 update)

• My Fair Value a.k.a. Is Cheval Blanc Undervalued?

• The Earliest Harvest Ever

• Hunting for Barolo 2019 bargains

• Building a 36-bottle cellar, with ChatGPT

• 2023 Fine Wine Market Predictions

• The Price of Wine

You know I love ChatGPT, perhaps as much as I love Saturnalia, if that’s even possible!!!

In the last week, ChatGPT released a new Code Interpreter (available only to us Plus members, of course). Using this new plugin, one can upload data and then ChatGPT will analyse it with plain English commands. So, I decided to test it to see if it can discern what trends in the Liv-ex 100 were telling us about its likely path, based on financial technical analysis. Specifically, I want to understand if the fine wine market has reached its bottom, if it’s oversold and if so, which pockets of the market look the most attractive. I’ll look at it within the context of the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform.

You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

Portfolio Performance

The Saturnalia Model Portfolio (excluding cash) saw an increase of 0.8% in June 2023. During the same timeframe, the Liv-ex 100 experienced a decrease of -2.9%. Comparatively, the portfolio surpassed the index by 3.7% — demonstrating that at times, inaction can indeed be the most effective strategy.

What happened in the fine wine market?

The market is evidently contracting — the Liv-ex Fine Wine 100 (the industry standard) decreased by 2.93%, reaching its lowest point since December 2021. As we noted last month, the Liv-ex 100 fell below its support line, suggesting a change in market sentiment and a possible significant shift in the market's trend.

The question is, how low can the fine wine market go?

Here’s what I asked ChatGPT:

Here is the monthly time series for Liv-ex 100 going back to 2001. Can you analyse it using technical analysis to interpret the next likely move of the index?

ChatGPT response really impressed me.

(Copy & Pasted below)

The data appears to contain two columns: "date" and "Liv-ex". The "date" column contains the timestamps for each data point, and the "Liv-ex" column contains the corresponding value of the Liv-ex index.

To conduct a technical analysis, we will:

1. Visualize the time series data.

2. Identify any trends or patterns, such as upward or downward trends, cyclical patterns, or significant spikes.

3. Apply technical analysis indicators, such as Moving Averages (MA), Exponential Moving Averages (EMA), Relative Strength Index (RSI), etc.

4. Interpret the results of these indicators to predict the next likely move of the index.

Let's start by visualizing the time series data.

The plot shows the Liv-ex index over time. There are clear upward and downward trends at different periods. We can also see that the index experienced significant growth after around 2005, followed by a steep decline during 2008-2009 (most likely due to the global financial crisis), then a rebound and a fairly stable period after around 2015.

Let's now apply some technical analysis indicators to this time series. We'll compute:

1. The simple moving average (SMA) with a window of 12 periods. This will help us identify the overall trend in the index.

2. The exponential moving average (EMA) with a window of 12 periods. EMA gives more weight to recent data and thus responds more quickly to price changes.

3. The relative strength index (RSI) with a window of 14 periods. RSI is a momentum oscillator that measures the speed and change of price movements. It is primarily used to identify overbought or oversold conditions in a market.

After calculating these indicators, we'll plot them alongside the original time series to help us interpret the data.

The above plots present the original Liv-ex index data along with the Simple Moving Average (SMA), Exponential Moving Average (EMA), and Relative Strength Index (RSI).

In the first plot, the SMA and EMA provide a smoothed version of the original data, helping us to identify the overall trend. The EMA being more responsive to recent changes can be seen as it diverges from the SMA during periods of volatility.

The RSI is shown in the second plot. This is an oscillator that moves between 0 and 100. A common interpretation is that an RSI over 70 suggests the index is overbought (and may be due for a price fall), while an RSI under 30 suggests the index is oversold (and may be due for a price rise). The 50 level is often seen as a confirmation of a trend; above 50 is considered an uptrend, and below 50 a downtrend.

To determine the next likely move, let's analyze the most recent data:

1. The last point of the Liv-ex index.

2. The last points of the SMA and EMA.

3. The last point of the RSI.

The most recent data is as follows:

• Liv-ex index: 393.82

• Simple Moving Average (SMA): 414.43

• Exponential Moving Average (EMA): 407.88

• Relative Strength Index (RSI): 38.22

Let's interpret these numbers:

• The last value of the Liv-ex index is below both the SMA and EMA. This indicates that the recent movement has been downward, as the index is lower than its average over the past 12 periods.

• The RSI value is below 50 but above 30. This suggests that the index is somewhat oversold but not extremely so. It may indicate a potential for price increase, but it's not a strong signal as it's not below 30.

In summary, technical analysis suggests that the Liv-ex index has been in a downtrend recently. However, the RSI indicates that it may be approaching oversold conditions, suggesting the possibility of an upward reversal in the future. However, these indicators should be used in conjunction with other forms of analysis, such as fundamental analysis, to get a complete picture of the market conditions.

I conducted the same experiment with the Liv-ex 1000 and the results were strikingly similar. (It's worth noting the difference between the two indices: the Liv-ex 1000 has a broader scope as it tracks the performance of 1000 wines instead of 100).

What ChatGPT is suggesting about the market is that the fine wine market is nearing its lowest point, but it hasn't quite reached it yet. However, timing a market bottom (the point at which asset prices have hit their lowest before starting to rise again) is notoriously challenging, and it's generally considered virtually impossible to do so consistently and accurately.

In addition to examining indicators like the Relative Strength Index (RSI), which aids in detecting an oversold asset, or like trading volume (a metric that Liv-ex does not openly disclose), or observing when the price surpasses a significant moving average as a signal of a trend reversal, there's also Sentiment Analysis. This method identifies periods of intense negative sentiment, which often align with market bottoms and relies on the contrarian belief that when the general mood is pessimistic, it could be an opportune moment to invest.

Sentiment in the fine wine market has crossed pessimist to reach to sour. Although looking at the average critic scores, the 2022 vintage ranks higher than any other dating back to 2005, the Bordeaux En Primeur 2022 has left many collectors puzzled and hasn’t helped drive interest in the vintage or the region.

A similar sentiment is evident in the 2014 and 2015 Champagne releases, which were priced higher than the Champagne houses’ respective 2013s.

Collectors have stood their ground and shown that they are not ready to buy at any cost.

Now, let's examine the performance of each region to see if any are more poised than others for a rebound.

Burgundy 150

Burgundy shook collectors with its dramatic price surge, so much so that The Economist declared a bubble in 2019. From the time of that article until the index peak in October 2022, the Burgundy 150 soared an additional 60%.

Despite arguments of limited supply, the price trends in the region have been largely propelled by a surge in demand from Asia. However, recent macro-economic data suggests that Asia may not continue to support these high prices as it has over the past decade.

Technical analysis shows that the Burgundy 150 is currently in a downward trend, recording a significant drop of -8.3% since the start of 2023 and -9.6% from its peak.

Some of it could be down to seasonality, as Burgundy En Primeur takes places in the second half of the year. The 2021 could be an interesting vintage to watch in the Côte d’Or — not one for the annals, as pHs are on the high side, but “[ … ] supple, fleshy and perfumed, at their best uniting the concentration of low yields and surprisingly good phenolic maturity with the vibrant, perfumed profiles of a cooler vintage. Their pHs are relatively high, so the wines are broad, open and charming. They’re unlikely to shut down. A cleaner, more concentrated version of the 2000 vintage“ writes William Kelley in The Wine Advocate.

Given that producers in the region have been steadily increasing release prices each year, if they take cues from recent Bordeaux and Champagne releases, there might be opportunities for astute collectors.🤞

Champagne 50

A quick look at the regional chart above shows that Champagne, as measured by Liv-ex, has experienced the most significant fluctuations, ranging between its long-term performance (+71.7%) and its year-to-date (2023) correction (-10.3%).

Technical analysis indicates that the Champagne 50 index is currently on a downward trend. However, the Relative Strength Index (RSI) suggests that it might be nearing oversold conditions, though it hasn't quite reached that point yet.

Among the Grandes Marques Champagnes, the 2013 vintage stands out as a potential value buy. I've explored this topic further, along with recent releases in Champagne, in a guest article for Six Atmospheres.👇🏼

Six Atmospheres | Champagne & Sparkling Wine

How's the Champagne market looking?

Welcome, bubbleheads. A guest post today from Sara Danese of In The Mood For Wine: Last Autumn, Sara and I took a look at what was going on with Champagne Investments: Nine months on, how are things looking? Over to Sara:Six Atmospheres | Champagne & Sparkling Wine is a reader-supported publication. To receive new posts and support my work, consider becom…

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3 years ago · 2 likes · Tom Hewson

California 50

Out of all the regional indices, the California 50 (which encompasses 10 vintages from Dominus, Harlan Estate, Opus One, Ridge, and Screaming Eagle) appears to be the most oversold, with a Relative Strength Index (RSI) of 28.57. A figure below the 30 threshold is frequently seen as a bullish signal, suggesting a potential for a price increase.

To put it simply, now is an excellent opportunity to invest in Californian wines.

But which ones should you consider?

• Among the California 50's worst 12 performers over the past year, eight are from Screaming Eagle and three are from the challenging 2011 vintage.

• The 2011 vintage in Napa Valley was particularly difficult, surrounded by three spectacular vintages. From a pricing standpoint, it may not be worthwhile to consider 2011, as the prices do not seem to account for the challenges of that year.

• In contrast, the adjacent years 2010, 2012, and 2013 are celebrated for their exceptional quality, producing a wealth of world-renowned wines. When considering age, the 2012 and 2010 Screaming Eagle vintages currently trade at similar prices.

• Sticking with Screaming Eagle, the 2015 vintage appears to be a better deal than its 2016 counterpart, although neither seems to be a particularly cheap option.

• In terms of value, the Dominus 2018 features prominently.

Italy 100

Italy presents a conundrum. While the Italy 100 index has quadrupled in the past two decades, Italian wines, with the exception of a few well-known Super Tuscans and a handful of Barolos, often struggle to find traction in the secondary market. The absence of an En Primeur system likely contributes to this situation.

Could it be that collectors prefer to actually consume Italian wines compared to their French counterparts? 🤷‍♀️

It's unsurprising, therefore, that Italy's regional index has shown the least price volatility. This stability is likely aided by the release of the impressive Barolo 2019 vintage earlier this year at reasonable, balanced prices, as well as the impressive Bolgheri 2020.

While I may be showing a bit of bias here (🇮🇹🤌), I firmly believe that some Barolos, Barbarescos, and Tuscan wines currently offer the longevity that top collectors expect, but at more competitive prices compared to their French counterparts.

Bordeaux 500

Last but not least, Bordeaux.

We’ve been dwelling on Bordeaux EP for far too long (see The earliest harvest ever & My Fair Value a.k.a. Is Cheval Blanc Undervalued?) — so I’ll keep this regional analysis brief.

Liv-ex reported that the average release price during the En Primeur campaign rose by 20.8% compared to 2021, a stark contrast to the 7% increase that Liv-ex members had forecasted. Interestingly, even before the campaign had concluded, offers on the market were appearing at up to 15% lower than their opening price.

Liv-ex indices don't include any En Primeur wines or wines that haven't been bottled yet. However, as Liv-ex noted, this represents "another missed opportunity", not just to provide working capital for châteaux that need it, but also to draw the attention of new and younger generations of collectors to current or previous vintages.

Final Thought

It's evident that the fine wine market is currently in a significant downturn.

However, it's less obvious whether we've hit rock bottom and can expect a rebound in prices anytime soon.

Based on my understanding, I believe we haven't reached the bottom just yet.

• Firstly, I don't see any imminent releases that would stimulate the market enough to reverse the prevailing negative sentiment.

• Secondly, collectors haven't adapted to the inflation-adjusted release prices, and the Bordeaux EP campaign did little to help.

• Lastly, on a macroeconomic scale, persistent inflation continues to rise in most of the wine-buying regions; the UK and a large part of Europe are likely to face an economic slowdown in the next year or two. This is not promising news for luxury markets such as fine wine.

What’s your view? Let me know!

As always, thanks for being here!

This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

Sara Danese

Share in the mood for wine

Disclaimer

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.

Hello wine lovers,

In the world of finance, where numbers dance and markets sway, it's time to meet "My Fair Value". Just as Eliza Doolittle blossomed under Professor Higgins' guidance, investors seek the fair value that reveals the hidden potential of their financial endeavours.

The Fair Value unravels the intrinsic worth of an investment; it transcends the ephemeral market fluctuations, guiding investors towards a more accurate evaluation; it harmonises the fundamental aspects of an asset, painting a vivid picture of its true worth. It represents the price at which an asset should theoretically trade in a perfectly efficient market, where buyers and sellers can access all relevant information. Or at least, that’s the goal.

However, determining fair value is not always straightforward, as it requires making assumptions and judgments based on available past information, which can introduce some subjectivity into the process — each investor has various valuation techniques, such as discounted cash flow analysis (more for stocks than wines…), comparable market analysis, or the use of mathematical models, considering factors such as future cash flows, risk, growth prospects, and market conditions.

In a recent article, Dr Philippe Masset, an Associate Professor of Finance at the École Hôtelière de Lausanne, delves into the concept of Bordeaux Fair Value and shares insights from his own model. Specifically, he explores the fair value of this 2022 Bordeaux season, which I’ll look at within the context of the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform.

You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

Portfolio Performance

The Saturnalia Model Portfolio (ex-cash) retracted by -1.5% in May 2023. The Liv-ex 100 also fell by -2.0% during the same period. In relative terms, the portfolio outperformed the index by 0.5%.

What happened in the fine wine market?

The market is softening again — the Liv-ex Fine Wine 100 (the industry benchmark) was down 2% to its lowest level since March 2022. Not only that, but also the Liv-ex 100 broke below its support line, indicating a shift in market sentiment and a potential decisive change in the market’s trend.

Breaking a support line is often seen as a bearish signal, suggesting that selling pressure has increased and buyers are less willing to support the market at higher prices. It may trigger additional selling as investors perceive the breach of support as a signal to sell their positions or avoid entering new positions.

You may have noticed that I haven’t added wines to the portfolio in the last few months — that’s because I was expecting a stronger signal that the market was going one way or another.

This, once again sets the stage for …

…En Primeur 2022

The sentiment surrounding the current En Primeur campaign is marked by confusion. Some view it as tedious and erratic, while others struggle to comprehend it. In the last pool, 83% of you said they haven’t bought EP and they don’t intend to — not a scientific survey, but it sets the mood.

Some châteaux might deliberately overprice their wines to safeguard or enhance their brand value in a challenging fine wine market. Despite a decline in Liv-ex indices, release prices continue to climb. The original appeal of En Primeur, acquiring wines at the lowest price, is questioned given improved storage conditions and the availability of ex-château stock of excellent quality.

Although many fine wine collectors have already formed their opinions on current pricing, it is worth delving into the use of mathematical models to assess whether they have made the correct decision.

Step 1: A Financier's Elocution Lessons

To ascertain fair value, financiers embark on a journey akin to Professor Higgins' elocution lessons. They meticulously analyze market data, scrutinize financial statements, and decipher economic indicators. This step is crucial, akin to refining Eliza's speech, as it lays the foundation for uncovering the investment's underlying potential.

Dr Philippe Masset’s model uses regression analysis to estimate the relationship between the price of wines already on the market and three variables: quality, age, and château reputation. The analysis distinguishes between Premier Crus Classés and other Bordeaux crus, taking into account expert ratings and the quality of the vintage.

1. Quality of the wine (↑) is defined by a combination of three scores: Global Wine Score (GWS), The Wine Advocate (TWA) and Saturnalia (SAT).

2. Age (↑), the older the wine (the more ageing the wine underwent), the more valuable it becomes.

3. Château reputation (↑), thanks to their special status, first growths and alike are clearly more expensive than all other crus.

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Step 2: A Market Ascot Opening

Just as Eliza made a stunning entrance at the Ascot races, fair value unveils itself on the market stage. Here, investors witness the convergence of market sentiment and fundamental analysis. It's a grand spectacle where fair value emerges, captivating the crowd and separating the gems from the ordinary.

This analysis brought to our attentions, these three facts:

1. The wine critic effect is weaker for established premier cru names with scores close to or below 95 points. Scores close to 100 points translate into clearly higher prices.

2. Ageing translates into a price increase of around 2% per additional year of cellaring for Premier Crus Classés, while for other wines, the effect is just over 4% appreciation per year in the cellar. This effect accumulates over time, leading to substantial premiums for wines aged 10 years or more.

3. Here’s the pecking order of Bordeaux châteaux:

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Step 3: The Enchanting Transformation

In the final act, fair value works its magic, transforming an investment into its truest form. Similar to Eliza's metamorphosis into a refined lady, fair value brings forth the investment's hidden attributes, including its growth prospects, cash flows, and long-term potential. It guides investors towards wise decisions, enabling them to embrace the allure of undervalued assets.

The result of Dr. Masset are truly enchanting indeed. To my surprise, the model found that Cheval Blanc 2022 was released at a discount.

What? Really? How?

In the last article, we analysed both Angélus and Cheval Blanc👇

While Angélus appears to be too expensive (+24%) as a consequence of “a positioning strategy, combined with low quantities brought to market”, Cheval Blanc may be a bargain: released at -16% of its estimated fair value, this discount is entirely explained by the fact that this wine stands out as the great success of the vintage among the Premier Crus Classés and alike.

In other words, if its scores were closer to 95 than 98, the release price would no longer be particularly attractive, but just right.

What’s more, also Saturnalia’s Fair Price regression model suggests that Cheval Blanc was released at a 9% discount! The Saturnalia’s Fair Price is calculated using a regression model that takes into account two main hypotheses. Firstly, it correlates the Vintage Score and is computed algorithmically based on factors like vineyard position, weather data, and satellite trends, with prices.

The model assumes that wines with higher scores should have a correspondingly higher price trajectory.

Epilogue: Embracing the Fair Value Ball

As the curtains fall, investors waltz through the ballroom of fair value, empowered with insights that transcend market noise. Just as "My Fair Lady" enchanted audiences with its timeless charm, fair value captivates investors, helping them make informed choices and discover the true essence of financial success.

The million$-dollar question — is Cheval Blanc undervalued? Shall I buy some for the Saturnalia Model Portfolio?

While this fair value model does consider the previous release market prices and more generally the ˗ˏˋsupply´ˎ˗ side of the equation, it fails to account for the ˗ˏˋdemand´ˎ˗ in the context of the current economic environment. It’s not a criticism (all models are simplifications of reality) but merely an observation, and a key variable that needs to be accounted for when drawing our conclusions.

This model would probably work better in a stable/rising market — such as the one that we have experienced in the last decade; however, the current investment decisions are affected by the following:

(PS: I analyse the 🇬🇧 market, but similar conclusions can be drawn for the 🇺🇸 and 🇪🇺)

• High inflation — with a rate of inflation at 8.3% and a similarly elevated figure across the traditional fine wine-hungry regions, collectors and investors are faced with the erosion of purchasing power as wage growth is still below inflation.

• Raising interest rates — when interest rates are high, investors may seek other financial instruments or assets that offer (maybe) higher returns and (definitely) higher liquidity. This increases the opportunity cost of investing in fine wine, as the funds tied up in wine purchases could potentially be put to more productive use elsewhere.

• Declining fine wine market prices — as discussed above, the Liv-ex 100 declining is a sign of market sentiment. It also makes it more convenient to buy back vintages than the current unbottled (and therefore, of dubious quality) wines.

In this cases, I find it very interesting to make a comparisons with the past: looking through examples of economic periods in the UK that faced high inflation and rising interest rates, we can consider the 1970s, the early 1980s, the early 1990s and the late 2000s/early 2010s. After careful analysis, the early 1990s offer the most similar market and economic environment to the current one.

📖✏️💼🏫 (history class)

In the late 1980s, the UK experienced an economic boom under the chancellorship of Nigel Lawson (the Lawson Boom). The government pursued expansionary fiscal policies, leading to a surge in consumer spending and a booming housing market. However, these policies fuelled inflationary pressures, and interest rates were raised in an attempt to control inflation. The boom ultimately led to an economic downturn in the early 1990s.

During this period spanning from 1989 to 1992, the fine wine market experienced a significant downturn. This period marked the end of a speculative boom in the late 1980s, fuelled by surging demand for investment-grade wines, particularly Bordeaux. However, the market subsequently faced a series of challenges that led to a decline in fine wine prices.

To curb inflation, the Bank of England raised interest rates sharply, reaching a peak of 15% in 1989 (hopefully we don’t get to this point!🙏). The increase in borrowing costs contributed to a subsequent period that was characterised by a slowdown in economic growth, rising unemployment rates, and, ultimately, a decrease in consumer spending — a severe recession, which lasted until 1992.

The speculative boom in the late 1980s had led to an influx of investors into the fine wine market. However, as the market became saturated, the dynamics shifted. The excessive speculation and overinflated prices became unsustainable.

The euphoria surrounding the fine wine market in the late 1980s gave way to a more cautious and skeptical sentiment. Investors became wary of the speculative nature of the market and the potential risks involved. This shift in sentiment led to a decrease in demand and subsequently impacted prices.

In addition, the introduction of the en primeur system as we know it today in Bordeaux allowed consumers to purchase wines before they were bottled, based on futures contracts. However, some châteaux adopted aggressive pricing strategies, setting high release prices for their wines. This led to a disconnect between market demand and the perceived value of the wines, resulting in lower sales and price declines.

Lastly, the outbreak of the Gulf War in 1990 created geopolitical tensions and economic uncertainties worldwide. The conflict disrupted global trade and financial markets, leading to a decline in consumer confidence and investment activities. The luxury goods sector, including fine wines, was particularly affected as international demand diminished.

Any of this sound familiar?

While the Bank of England exercises caution in its approach to interest rate hikes, it prompts us to ponder the potential impact on fine wine prices amidst similar economic circumstances.

This reinforces the skepticism surrounding the current En Primeur prices, making it difficult to believe that they are anything but excessively high.

One final comment: each wine collector and investor should arrive at their conclusion of what they believe to be a wine’s fair value. In the above, we have illustrated one way to estimate it and on Saturnalia’s platform, you can find their estimated value, which I use as a soundboard in my portfolio analysis but shouldn’t be taken as the absolute truth. The reason? They are based on mathematical models and are subject to both simplifications and a number of assumptions.

For those of you that made it till the end, what do you think? Is Cheval Blanc undervalued?

Thanks for being here! I hope you found the article rife with useful information to navigate this EP season and more generally the fine wine market.

This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

Sara Danese

Share in the mood for wine

Useful Resources for Bordeaux En Primeur 2022

• Lisa Perrotti-Brown, the founder of TWI, decided to make her coverage of Bordeaux En Primeur 2022 free for all 🤩 — 2022 Primeurs Early Releases and 2022 Primeurs

• Colin Hay on The Drinks Business — Bordeaux 2022: ‘a miraculous and truly exceptional vintage’

• Antonio Galloni on Vinous ($) — 2022 Bordeaux En Primeur: Balance Imbalance

• Jane Anson ($) — En Primeur 2022: All Notes and Scoring System

• William Kelley on Wine Advocate ($) — No Smoke Without Fire – En Primeur 2022

• Liv-ex (free if you share e-mail address) — Critic scores, the latest Bordeaux En Primeur 2022 scores & Key prices for Bordeaux En Primeur 2022

• Bordoverview (free)

• I came late to the party, but this thread is worth a read (take 🍿) — Bordeaux 2022, Wine Talk

Disclaimer

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.

Hello wine lovers,

En Primeur 2022 started with a ˗ˏˋbang´ˎ˗ Or more like, with a 30% increase in prices. Will other châteaux follow suit? Will there be an appetite from collectors for this 2022 vintage?

I’ll share my financial thoughts on this vintage and what I am planning to add to the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform. You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

Portfolio Performance

The Saturnalia Model Portfolio (ex-cash) retracted by -2.5% in April 2023. The Liv-ex 100 also retracted by -0.5% during the same period. In relative terms, the portfolio underperformed the index by 2.0%.

What happened in the fine wine market?

Generally speaking, all names in the portfolio took a beating in April, with a few marginal exceptions.

The market is softening again.

Is it driven by demand-supply offers? A few new offers have encountered scepticism on prices.

Has the fine wine market caught on to the macroeconomic drivers? Unexpected persistent inflation seems to be pushing the central banks to raise interest rates yet again in June 2023.

Or is it, that the fine wine market is holding its breath ahead of the releases of Bordeaux En Primeur 2022?

One thing is for sure: wine collectors can afford to be picky.

En Primeur 2022…

Angélus and Cheval Blanc were the two high-profile châteaux among the early releases in the market. They set the pace for the EP season and these are the key takeaways:

1. Critics scored the vintage, generally speaking, behind 2019 and 2020 but ahead of 2018 and 2021

2. 2022 EP isn’t cheap and the first releases point at an average 20-30% increase on 2021 EP

3. The 2022 release price comes at a premium to the previous vintage latest prices

The Wine Critics.

Critics unanimously agree that this is not just a good vintage, but a great one. I can concisely summarise the majority of the wine critics' reviews I have read so far into three key points:

• Overall, the vintage is exceptional, exhibiting high quality in leading appellations. However, there is significant variation between top-tier and lesser wines.

• The vintage presents paradoxes, as it combines excessive heat and drought to produce remarkable freshness. This paradoxical outcome was made possible by the implementation of transformative practices in vineyard management and winemaking in recent years. These adaptations were aimed at addressing climate change and emphasising the expression of terroir. The vintage posed technical challenges and favoured vineyards with old vines and the best terroirs.

  Canopy management primarily involved careful and sparse de-leafing. Some winemakers reported applying a "sunscreen" made from naturally existing clay or talc on the leaves and berries at specific intervals during the hottest periods.

  During the later stages of the harvest, the focus was on sorting to eliminate dried, shrivelled, over-ripe, and under-ripe berries, often caused by vine blockage. The process was demanding, resulting in significantly reduced yields. Additionally, the prevailing winemaking technique agreed upon in 2022 was super-gentle extraction. This included chilling down grapes before fermentation, cooler fermentation temperatures, and reduced pumping-over.

• When considering purchasing the 2022 vintage en primeur, caution is advised due to varying alcohol levels. Balancing acidity is crucial, particularly in high-alcohol wines. Lisa Perrotti-Brown highlights that the limestone plateau of Saint-Émilion and areas with limestone off this plateau were standouts in the vintage. Wines produced in these regions showcased a shimmering quality, lower pH levels, higher acidity, and a pronounced sense of freshness and energy.

  Many wine critics have focused on the pH levels of the wines. While the average pH of Bordeaux Grand Cru Classé wines can vary depending on the specific vintage and wine characteristics, Bordeaux wines generally exhibit pH levels ranging from 3.4 to 3.8. As always, Wine Folly comes to the rescue to provide an explanation.

  

Due to these factors, the vintage has received better scores on average than initially anticipated.

You can find a table on Livex that lists scores from well-known wine critics. Saturnalia also offers a score on their platform. This score uses an average rating from reputable wine critics to train their artificial intelligence (AI) to evaluate vineyard position, weather data, and all available trends obtained through satellite information. Importantly, this evaluation process does not involve any actual tasting.

The Initial Release Prices.

And due to the prevailing narrative surrounding quality, it comes as no surprise that the 2022 EP (en primeur) is not going to be inexpensive. Initial releases indicate a price increase of around 20-30%, with Angélus showing an even higher increase of approximately 45%.

At the beginning of 2023, the Bordeaux industry witnessed these remarkable achievements, alongside limited production volumes resulting from the extensive sorting process. This sparked optimistic discussions about pricing. However, the current situation has undergone a change as concerns regarding high-interest rates and global economic uncertainty have solidified. These factors have dampened overall sentiment, with Bordeaux wine merchants realising that they may face challenges in selling a vintage that doesn't resonate well with the final consumer.

Furthermore, Liv-ex has reported that the next generation of buyers, who are accustomed to transparency and readily available information, are growing skeptical of the En Primeur process, as they perceive reduced upside and potential opportunity costs.

In reality, purchasing wines en primeur, or in futures, is advantageous only when it allows buyers to secure highly sought-after wines before their release to the market and at a lower price compared to their future release price—similar to buying a house off-plan.

However, we are aware that scarcity is not a significant issue in Bordeaux. Additionally, regarding the second point, an intriguing chart created by Liv-ex demonstrates how the investment value of buying en primeur has diminished (and even turned negative!) over the past decade.

And a more granular view, on who’s taking all the margins:

Playing devil's advocate, it is true that this technically challenging vintage came with its own costs, which have undoubtedly rewarded those who possess the expertise, human capital, and financial resources to execute with precision. Controlling vinification temperatures, employing the gentlest extraction techniques, vinifying wines by parcel, and other similar practices do not come without a significant price tag.

One could argue that these costs represent the new normal for producing exceptional, age-worthy wines in an evolving Bordeaux climate that is progressively becoming warmer.

Price Analysis.

Now, diving deeper and taking a closer look at financial analysis of this En Primeur season along three axis:

• Release Prices

• Gain/Loss since release and, generally, price levels of previous vintages

• Critics score

Take a look at Angélus and Cheval Blanc:

And Cheval Blanc:

For both wines, particularly Angélus, the release price surpasses the latest market price of all previous vintages, including the highly acclaimed 2019 vintage. What does this imply for wine collectors?

It signifies a risky investment. From my perspective, the potential downside in financial terms outweighs the upside.

Will I buy any EP 2022?

William Kelley writes in The Wine Advocate:

Consumers who purchased 2009s and 2010s, which were more expensive en primeur than they are today, will surely remember that it is not always necessary to purchase great Bordeaux as futures. Many of the wines reviewed in this report come very warmly recommended, but it will be up to readers to decide when it makes most sense to buy them. 

Considering the current prices, along with the perceived desperation among wine merchants who are being less selective in their offers, as well as the high inflation environment, it may not be advisable to purchase en primeur. It could be worth waiting a couple of years to see what these wines have to offer.

Aside from these general considerations, one particular château that has captured my attention is Beausejour (Duffau-Lagarrosse). I already own their 2019 vintage in the Saturnalia portfolio. Not only did the wine receive top reviews from all critics, but it also achieved a promising pH level of just 3.50. In previous years, the exceptional quality of the site may have been overshadowed by an excessive use of new oak. Additionally, a significant portion of the estate's Cabernet Franc was typically excluded from the final blend. However, Joséphine Duffau Lagarrosse has initiated a transformation by incorporating a substantial 31% of Cabernet Franc in this vintage's blend. Depending on their release price, I might consider adding a case or two to my collection.

Nonetheless, if I missed a bargain, please let me know in the comments or by replying to this email 😉 Have you bought any bargains yet?

Thanks for being here! I hope you found the article rife with useful information to navigate this EP season.

This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

Sara Danese

Useful Resources for Bordeaux En Primeur 2022

• Lisa Perrotti-Brown, the founder of TWI, decided to make her coverage of Bordeaux En Primeur 2022 free for all 🤩 — 2022 Primeurs Early Releases and 2022 Primeurs

• Colin Hay on The Drinks Business — Bordeaux 2022: ‘a miraculous and truly exceptional vintage’

• Antonio Galloni on Vinous ($) — 2022 Bordeaux En Primeur: Balance Imbalance

• Jane Anson ($) — En Primeur 2022: All Notes and Scoring System

• William Kelley on Wine Advocate ($) — No Smoke Without Fire – En Primeur 2022

• Liv-ex (free if you share e-mail address) — Critic scores, the latest Bordeaux En Primeur 2022 scores & Key prices for Bordeaux En Primeur 2022

• Bordoverview (free)

• I came late to the party, but this thread is worth a read (take 🍿) — Bordeaux 2022, Wine Talk

Disclaimer

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.

Have you noticed that the market seems unsettled? Aimless, up, down, then up and down again. Since mid-2022, the fine wine market halted its unstoppable upward 2-year trend and started going … sideways.

What is a sideways market? And how does a sideways market impact the price of fine wine? More importantly, how to take advantage of such market conditions?

I’ll share some insights I’ve learnt through my finance years and how I apply them to the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform. You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

Portfolio Performance

The Saturnalia Model Portfolio (ex-cash) retracted by -0.8% in March 2023. The Liv-ex 100 recorded positive gains of 0.2% during the same period. In relative terms, the portfolio underperformed the index by 1.0%.

What happened in the fine wine market?

While the Liv-ex 100 recorded a positive movement in both February and March, the year started on a weak note. After 26 months of unstoppable monthly gains between May 2020 and June 2021, the fine wine market (here, Liv-ex 100) seems to be indecisive.

Sometimes, it goes up — following interesting releases, such as Bolgheri 2020 in February. Sometimes it goes down — such as in the second half of 2022, normally the busiest half of the year.

In financial terms, there is a name for such inconclusive movements — it’s called a sideways market.

A sideways market, sometimes called sideways drift, refers to when asset prices fluctuate within a (tight) range for an extended period of time without trending one way or the other.

In fact, this indecisiveness is the overarching theme impacting the Saturnalia portfolio.

Taking a look for example at Figeac, in the time series below created by Saturnalia with Liv-ex data — the market seems to have behaved in a schizophrenic manner, especially in the last year or so. Figeac 2019’s price lost nearly 20% in January; last month we reported that the price advanced by 26%, while in March the strong gains reverted, partially, by -8.3%.

While, of course, Figeac’s reclassification is partially to blame for the increased buy-and-sell activity of the most recent vintages, these large swings in price can be observed in other wines also.

Lynch Bages below:

Generally speaking, all names in the portfolio took a beating in March, with one notable exception: Canon.

• Canon 2014, +5.3%

• Canon 2016, +0.5%

• Canon 2019, +1.7%

Earlier in the month, the results of Bordeaux 2020 In The Bottle came out and Château Canon 2020 was awarded 100 points by both Antonio Galloni and Jane Anson. Previously, Galloni scored the wine, during the En Primeur tasting season, 95-97 points but upgraded it in bottle. This large improvement could be the reason for the positive momentum across all of the château’s vintages.

Overall, as presented by Liv-ex in their March report, the châteaux awarded the top scores in the Bordeaux 2020 In The Bottle experienced an uplift, with Pomerol’s legends experiencing the largest price improvements.

Château Ausone, on the other hand, didn’t benefit from these high praises. Across the vintages held in the portfolio, Ausone 2016 was down -1.9% and Ausone 2019 remain unchanged.

Among the Grand Crus superstars, Ausone is systematically undervalued, as can be observed in Saturnalia’s “Fair Prices” as compared to the “Last Price”.

(For a more detailed explanation of how to read the Fair Price, you can read: Fair Price: the most convenient Bordeaux wines at a glance.)

How to behave in a sideways market …

Going back to sideways markets, three characteristics distinguish these transition periods:

1. Indecision among market participants: investors often struggle to identify trends or make predictions about future price movements. This can be due to a lack of significant news or events, or conflicting signals from economic indicators.

2. Low trading volumes: trading volumes may be lower than in a more active market, as traders and investors may be less likely to make significant trades. This can be due to the lack of clear trends or signals in the market, as well as the uncertainty and indecision among market participants.

3. Limited price movement: the price of the asset moves within a relatively narrow range. The price may fluctuate slightly up or down, but overall, there is little or no significant price movement in any particular direction.

In recent months, as shown above, the fine wine market has certainly experienced increased volatility (1), with periods of both upward and downward price movements.

Trading volumes (2) are notoriously difficult to track but the last year has been marked by uncertainty in China over Covid restrictions as well as a high-interest rate regimen which led many investors to shift their attention to safer asset classes (such as government bonds) as their returns started to become more attractive.

Lastly, in terms of price (3), we can do some so-called technical analysis on the price of the top-traded fine wines in the world, using Liv-ex 100 as a proxy.

The narrow price range mentioned above is called the consolidation range and can be established using technical analysis tools such as the support (bottom) and the resistance (top) levels, which are price levels that the asset has difficulty breaking through in either direction. While this kind of analysis best works with more frequent trading data, we can clearly observe the 3% range that the fine wine index has been trading in the last 9 months.

A breakout in a sideways market occurs when the price of the asset breaks out of the narrow range it has been trading within and moves significantly in one direction or the other.

A breakout can be either bullish (if increases past its resistance level) or bearish (if prices fall below the support), indicating a potential trend reversal or continuation.

If Liv-ex 100 moves beyond the upper or lower boundary of the consolidation range, we can expect that prices will soon move with some emphasis and momentum in that direction. In addition, a breakout is often accompanied by a significant increase in trading volumes. This indicates that market participants are taking action in response to the new market conditions.

However, perhaps most importantly, significant news or events such as releases, political developments, or company announcements can trigger breakouts in a sideways market. Therefore, it is important to stay informed of any relevant news or events that could affect the market.

Q2 is invariably one of the busiest times for the fine wine market, specifically during the Bordeaux En Primeur 2022. Bordeaux En Primeur is always a cause for increased appetite for fine wine buying — and therefore it will be an interesting event to monitor along with price and volume movements.

However, on the balance of probabilities, other macroeconomic factors indicate that a sideways or, worst case, weak fine wine market is to be expected. One such consideration is high-interest rates. Since the middle of 2008 global interest rates have been hovering around zero, and in some instances even turned negative. This has meant that for commodities in general, and fine wine specifically, the cost of owning commodities has been extremely cheap.

Not anymore.

From a consumer’s point of view, the new higher interest rate regime is likely to mean that over the coming years, there will be push-back from négociants who aren’t in a position to take every allocation that they are offered. By extension, this will lead to more conservative price-rises from the châteaux, as well as increased availability of well-priced parcels of mature stock from négociants.

This is a positive outlook for wine collectors looking to find new bargains: new releases will have to give buyers more potential upside than has been the case over the past decade where the châteaux have fully priced wines, taking all of the price-growth potential.

I must admit that this edition was a little technical, but I hope you found it rife with useful information to navigate this odd transition period in the fine wine market. This newsletter is free for all readers and the best way to keep it free is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

Thanks for being here!

Sara Danese

Other things you may want to read …

• Nelson Pari — Speak No Evil. 5 things worth sharing this month. kindly included In the mood for wine's Barolo 2019 report in it. As you may know, some of the ideas shared in the report were taken from Nelson’s 2019 Barolo del Comune report, an extensive view of some of the most interesting (and overlooked) gems from the MGAs (read, crus) of the Barolo town. What’s more, if you are a member of 67 Pall Mall, Nelson Pari and Federico Moccia will present the best wines featured in the report 😲 There are still some tickets available for the masterclass.

• The Economist — What to read to understand wine

Disclaimer

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.

Have you heard?

Barolo 2019 is a classic.

With Burgundy 2021 out of reach for mere mortals and the upcoming Bordeaux En Primeur 2022 expected to be tepid, suffice to say that I’ve spent all my time (and $$$) on Italian wines.

Last month, I focussed all my attention on Barolo 2019, which turned out to be a spectacular vintage; Bolgheri 2020 boosted my hopes further for a strong year of Italian releases. I’ll share the few gems I’ve purchased this month for the Saturnalia Model Portfolio, built using the Saturnalia wine investment platform. You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

What happened in the market?

The Saturnalia Model Portfolio (ex-cash) advanced by 1.4% in February. The Liv-ex 100 recorded positive gains of 0.4% during the same period. In relative terms, the portfolio outperformed the index by 1.0%.

While the Liv-ex 100 recorded its first positive move, after several months of decline since September 2022, the market hasn’t turned just yet — the Liv-ex Fine Wine 100 was the only major index to see a positive movement in February, driven by impressive gains from some of the usual Tuscans (Tignanello 2019 +4.7%, Masseto 2018 +4.5% and Sassicaia 2019 +2.8%) probably riding the wave of new releases.

Portfolio Performance

The major movement that impacted the Saturnalia portfolio was:

• Figeac 2019, + 26%↑

Once again, Figeac 2019 was the largest mover and shaker of this portfolio. What a ride! After a poor January, it seems that the recently upgraded château is back in favour. The Saturnalia model now shows the Figeac 2019 as over-valued.

However, I am not selling it, for two reasons.

The first one, I think it’s essential to retain exposure to the newly-upgraded château, at least until we see what’s the new pricing for the 2022 En Primeur season. I am expecting an upgrade in price in line with the promotion and the consequences on back vintages may be, on the balance of probability, positive. That’s because the 2022 vintage is likely to be an ‘off-vintage’; therefore, market participants may find past ‘on-vintages’ value-for-money.

And secondly, a very simple point which may resonate with a few wine collectors: this wine will be spectacular to drink in 10 years’ time.

Barolo 2019 & Other Bargains …

Do you remember when I was trying to convince you that Barolo 2013 was a great (undervalued) vintage?

It seems as though, many wine merchants draw comparisons between the critically acclaimed 2016 vintage and the recently released 2019, for obvious price reasons. Barolo 2019 is undoubtedly a classic, one of the best vintages in recent history. However, many respected Italian wine critics seem to be more convinced of its similarities with 2013.

The main reason is that 2013 and 2019 both experienced similar weather patterns.

The most significant difference with 2016, in fact, comes from the rainfall pattern. 2013 saw less abundant rain in winter when it’s crucial to create a long growing season; instead, it was more abundant in the months leading up to harvest, when the risk of flavour dilution is highest.

At the risk of sounding like a broken record, rising temperatures are something that perhaps we need to get used to — in fine wine, for sure. A prolonged summer and a few heat waves in late winter somewhat hindered this vintage finesse.

However, all three, 2013, 2016, and 2019, can be considered classic vintages of the last decade — however, 2016 is more classic, perhaps the benchmark vintage.

All this to say: when hunting for a bargain in the 2019 Barolo, I think it’s crucial that the price point of 2019 be comparable to those of 2013, rather than 2016.

And, of course, because of the hype created by wine merchants to prop prices up, it isn’t an easy feat! Take for example Vietti Brunate 2019. Vinous’ Antonio Galloni scored it 98 points — it’s priced at a very small discount from the better 2016 vintage and at a great premium from 2013.

Note that, while Galloni scored the Vietti Brunate 2016 also a 98-point and the 2013 a 96-point, the discrepancy in price still doesn't account for storage costs. In this case, I’d be inclined to say — buy the Vietti Brunate 2016!

💎 Vietti, Ravera 2019 & 2013 Barolo

More generally, Vietti was the big winner of the 2019 Barolo campaign — and their Ravera (a commune in the Novello cru) was awarded 100-points from Antonio Galloni at Vinous.

The price for the 2019 still comes higher than the 2013 but lower than 2016. All three vintages have been awarded the maximum score by Antonio Galloni. The latest trade pins the price of the 2019 at £206/bottle while the 2016 is currently at £242/bottle and 2013 at £150/bottle.

My thesis is that the 2013 is, simply, a bargain. The 2019’s future price trajectory may be pushed upwards by the positive press of Vinous and other press, and more generally, by wine merchants, comparing this vintage to the 2016.

Because of these reasons, I’ve added both 2019 and 2013 to the portfolio.

💎 Elvio Cogno, Ravera 2013 Barolo

You know I am a big fan of Elvio Cogno — their 2016 Vigna Elena is quite a bargain! And I couldn't add a Vietti Ravera, without adding Elvio Cogno’s Ravera too. They own a range of vineyards in this Ravera cru, the best spot in the Novello MGA, the commune where you’ll find the estate. Walking across the hillside, you’ll know their vineyards because they’ve got the healthiest vines.

The pricing of their wines is fairly stable; however, their 2019 isn’t yet available (at least not in the UK). 2016 and 2013 are priced at respectively at £75/bottle and £50/bottle. For the time being — I’ve added the 2013 vintage to the portfolio and, depending on its pricing, I may add some of 2019.

It’s still hard to find pricing and available offers on the market, as Italian fine wines don’t seem to follow the standard dynamics of the Bordeaux and more generally French fine wine market. While a few large brands do (Tenuta San Guido, for instance), the vast majority of wines are still sold by winemakers without accounting for vintage quality (and demand).

However, times are changing.

For once, wine merchants have already started applying different mark-ups based on the predicted demand for a wine/vintage.

In addition, a combination of insanely outrageous pricing in Burgundy and Champagne and a streak of upcoming not-so-great vintages in Bordeaux, have turned collectors’ heads to other wine regions — Italy’s Piedmont & Tuscany among those.

The last couple of years’ Barolo En Primeur trials may also signal a mentality shift among the Italian regional associations.

All in all, I strongly believe that investing in Italian wine still offers great value, especially when combining more established brands with some niche wines. As they come on the market, I will be sure to add some more to the portfolio — Burlotto, Paolo Scavino, Ceretto are on my radar. In addition, Nelson Pari’s Barolo review showcases some hidden gems.

Note: if you are a wine merchant and want to share some Barolo or Bolgheri offers with the readers of In the mood for wine, please hit reply.

This newsletter is free for all readers. The best way to support me is to subscribe, re-share it with your wine-lover friends, and follow me on Instagram.

Thanks for reading this!

Sara Danese

Resources

($) = behind a paywall

• Saturnalia — Barolo 2019 Analysis ($), sign up here for a free trial

• Jancis Robinson — Barolo 2019 the tasting notes and Barolo 2019 a classic in the making ($)

• Vinous — Barolo 2019 reviews and 2019 Barolo: Back on Track ($)

• Nelson Pari — for more niche wines and creative (though very thorough) reviews, you should follow Nelson’s substack and read his 2019 Barolo del Comune report (it’s free!)

Disclaimer

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only.

Are you panicking because you see offers for your wines coming through well below market price?

Don’t!

Rejoice!

The market is finally softening!

Time to pick up some bargains!

Every month, I share a report that analyses the qualitative and quantitative investment thesis of fine wines in the Saturnalia Model Portfolio built using the Saturnalia wine investment platform.

You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

Performance

During January, the Saturnalia Model Portfolio (ex-cash) lost -2.4%. During the same period, the Liv-ex 100 lost -1.4%. In relative terms, the portfolio underperformed the index by 1%.

[Please note that I calculated the portfolio return ex-cash. That’s because the ‘cash allocation’ is not strategic but is instead a £50,000 yearly budget allocated to fine wine investment, which parallels the way in which some wine collectors/investors think about their yearly allocation to fine wine.]

Attribution

Why did the Saturnalia Model Portfolio perform worse than the Liv-ex 100 in January?

For a similar reason that the Liv-ex 100 did worse than the Liv-ex 1000 —concentration.

In investment terms, concentration is the opposite of diversification. The Liv-ex 100 index is made of 100 wines, while the Liv-ex 1000 is made of (you guessed it!) 1000 wines. And the Saturnalia Model portfolio has 10.

• Portfolios with a large number of positions tend to experience shallower lows — because individual positions in the portfolio account for a smaller portion of the whole.

• At the same time, they don’t experience the same highs that a punchy concentrated portfolio does.

Diversification is a risk management tool, if you will. Warren Buffet said that diversification may preserve wealth but concentration builds wealth. In fact, top investors, generally, tend to adopt a concentrated investing approach, and it is this concentrated approach which empowers them to focus and invest only in their best ideas.

In the world of wine collecting and investment, concentration can be a by-product of both how fine wines are released on the market and personal taste.

1. For example, the Saturnalia Model Portfolio is heavily concentrated in St. Emillion simply because of timing. We started this project just ahead of the 2022 St. Emillion reclassification and it was important to capture the potential upside of upgrades. More generally, whenever a vintage from a certain region is released, buyers ‘bulk buy‘ from that release, leading to unwanted concentration.

2. Wine collecting isn’t just an investment such as buying shares in Apple — it has a hedonistic side too. In the last edition, we discussed the importance of diversifying away from strictly what we like at the moment to factor in that a palate will evolve over time.

While concentration may be an unwanted side effect of wine investing, the more important question to answer is whether the portfolio behaves as we would expect it would. In the case of the Saturnalia Model Portfolio, the 10 positions faced a negative downturn in line with the trend of the wider market in January. However, because of concentration, two positions, Figeac ‘19 & Canon ‘19, were responsible for the majority of the losses.

The three major movements that impacted the portfolio were:

Figeac 2019 ↓

Figeac was by far the biggest contributor to the portfolio losses. Just in the month of January, Figeac 2019 lost -19.5% and -25.8% from its highs in October, when I sold it at £2,550 / 12 bottle case.

(60% of my readers told me not to do this, I wonder if they still think it was a crazy idea? 😜)

In addition, the concentration of the portfolio comes with a regional bias, as all 10 positions are within Bordeaux and most of them are St. Emillion bets. This means that the portfolio has systemic risk, i.e. the risk that derives from the market and not a position itself, especially when compared with a broader index.

St. Emillion, as a region, performed well following the reclassification. And because of it, it can be expected to be more impacted by a market downturn.

Canon 2019 ↓

We are experiencing a similar dynamic for Canon 2019 as we have for the Figeac from the same vintage.

Indeed 2019 seems to have been hit pretty hard in general. If we take a look at the first growth index Liv-Ex 50 (which includes the latest 10 vintages of each châteaux), we can see that among the worst performers for January we can find four 2019s. Why?

My guess is that as 2019 came out in bottle a year ago and received widely positive reviews, in contrast with disappointing En Primeur 2020 and 2021 campaigns. The release price was also more competitive than 2020 and 2021 vintages — allowing for a surge in demand for 2019s in the last couple of years.

In terms of vintage diversification, however, this is broadly what I want to have in my portfolio: mostly on-vintages and some smaller positions on off-vintages. That’s because vintage quality drives long-term appreciation.

Portfolio Changes

Finally, the market started to soften — which means it may be time to pick up some wines here and there.

First — Figeac & Beausejour Duffau Lagarosse are on my priority list as potential buys.

At this point, the Saturnalia Fair Value model shows incredible upsides from the latest prices to their model “fair value“, especially when it comes to 2019 vintages: Ausone 60%, Canon 48%, Beausejour Duffau Lagarosse 30% and Figeac 13%.

Although Ausone shows a larger potential upside, I am not considering it as a potential buy, because of the already sizeable position in the portfolio.

The same for Canon.

I am cautiously waiting to see what Figeac and Beausejour Duffau Lagarosse will do in the next couple of months to see if prices will free-fall or hold out.

What about you? Have you panicked or picked up any gems? Let me know in the comments or privately…

Best,

Sara Danese

Directory of All Investment Cases

in the mood for wine

Directory of Investment Cases

Wine lovers, I’ve put together a list of all the investment cases discussed in In the mood for wine, classified by region. If you are new, you can join here to receive straight to your inbox updates about this project, WineLeaks, a curated overview of the wine market, and other in-depth reports…

Read more

4 years ago · 1 like · Sara Danese

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DISCLAIMER:

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only. 

After a long break over the holidays, let’s take a quick look at what happened in 2022 in the wine market — and more importantly what to expect from the year to come.

Those who invested in fine wine may feel smug right now — making 6% in absolute terms and 20% over a crippled 2022 stock market.

However, that’s not the full story: interest rates have seen the fastest acceleration, in terms of both magnitude and pace, since 1980 and 1981. Returns on bonds and deposits (virtually risk-free investments) have increased to 4-5%, justifying a flight to safer asset classes.

Inflation was at the centre of attention during 2022, especially since the Fed started increasing interest rates in March. It has certainly been more persistent than most economists predicted, as Blackrock’s chart below highlights.

2022 Fine Wine Market Recap

• Split between the first part of the year (↑) and the second half (↓)

The fine wine market continued with its unrelenting climb in the first half of the year, which prompted many to hail wine as the best inflation hedge investment. However, the second half started showing signs of deceleration. Still a few wine-related (St-Emillion reclassification) and economic (the collapse of the £) events temporarily propped up prices in August and September.

• St-Emillion Reclassification

The undisputed star of the St-Emillion 2022 reclassification was Figeac — finally promoted to well-deserved Premier Grand Cru Classé A. As Liv-ex highlights — Figeac dominated its competitors in the Right Bank, in terms of price gains.

Figeac index rose 7.9% in the month prior to the announcement: many bet on its promotion. Since then however, the composite Figeac index didn’t move, undoubtedly because most of its gain were already discounted and some of it because of a stagnant fine wine market.

Figeac 2019 (a holding in the Saturnalia Model Portfolio) went from £141 / bottle to £212.5 / bottle (+50.7%) in a matter of weeks, which prompted me to review my position and ultimately sell half of the position at the end of October.

• Unstoppable Champagne & Burgundy

Eight out of Liv-ex top-10 performers in 2022 were Burgundy or Champagne. In 2022, Liv-ex Burgundy 150 (+26.7%) and Champagne 50 (+18. 7%) outperformed by at least 15% most of other wine regions.

Why? Back in January 2022, William Kelley correctly predicted this buoyant market for Burgundy, highlighting the biggest drivers.

What of the market for 2020 Burgundies? Early indications are that we’re witnessing a perfect storm: insatiable demand from affluent buyers who want to acquire the wines no matter the price, notable increases in ex-domaine tariffs and the prospect of an extremely short crop in the 2021 vintage are combining to drive Burgundy prices to new heights. Is this likely to precipitate some sort of crash in the near future? I don’t think so, as for now there appear to be plenty of consumers willing to open and drink bottles at these prices. But it will certainly stimulate reflection among producers about how they can better control the distribution of their wines, both to capture more of the value of their product and to ensure that their wines end up in the hands of genuine consumers, not speculators. On the consumer side, the soaring prices of the most sought-after wines of the Côte d’Or will surely be an incentive to look at less glamorous appellations more seriously; and as I have argued in these pages on numerous occasions, careful shoppers looking for bargains will find excellence as well.

As far as Champagne is concerned, Six Atmosphers’ Tom Hewson and I tried to make sense of the market. Bloomberg even says that a large increase in Champagne prices is a forward predictor of recessions. However, one of the most convincing reasons for the excitement has more to do with specific dynamics to Champagne: the rollout of vintages and stock levels. Tom Hewson explains:

It looks like the only vintage since 2013 likely to go down as a classic will be 2019. Furthermore, a number of these were badly frost-affected, so quantities of whatever Prestige releases there are may be relatively small. What’s more, with the exception of some 2014s, none of these vintages promise a cool, long-lived character; at best they are likely to come out rather sunny and generous. […] Perhaps investors know that we may all be feeling a little starved of top vintages in a few years’ time.

What does 2023 have in store for us fine wine lovers? Here’s a few predictions.

Prediction #1: Burgundy EP 2021 is scarce & pricey still

Taking a look back at 2021 in the Burgundy vineyards, it was one of the most difficult growing seasons in living memory and it will be remembered for the frost in the first week of April that decimated the crop.

• Early spring budburst

• Hard frost in spring followed by snow

• Rain and cool temperatures resulted in mildew & grey rot

• Not very warm until August

• September was not hot, but it was warm enough to drag the small crop of fruit that remained on the vines to sugar levels and potential alcohols that were halfway decent.

Quality? While the frost decimated the quantity, cool weather made critics and winegrowers worried that tannins may be a bit ‘vegetal’ and the wines may be a bit thin and unidimensional. Jancis Robinson said it will be a comeback to cool-weather Burgundy, with some doubts over their longevities. Most of the drinking windows are 10 - 15 years.

Prices? There doesn’t seem to be an end to price increases in Burgundy. The EP 2020 saw a huge increase in prices, many said because it was to make up for what was an already disastrous 2021 vintage. But of course, this year EP prices increased still. So far, offers from Lay & Wheeler, BBR & Jeroboams (and others) have somewhat disappointed. Some of the allocations may be certainly up a notch — but it won’t make up for the horribly tiny quantities and yet another ~25% price hike.

Not only have I purchased the membership for Jasper Morris - Inside Burgundy, but I’ll also have the chance to taste a few from some merchants in the coming weeks. Stay tuned for individual names.

Prediction #2: Look out for that Barolo 2019

If you want to allocate some $$$ in fine wine, make sure you reserve some for the excellent forthcoming vintages from Piemonte, 2019 Barolo and 2020 Barbaresco.

While winegrowers in Barolo are currently dealing with the effect of climate change, specifically the horribly dry and desert-like conditions of 2022, the vintage presented at the Grandi Langhe on 30th-31st January will be the much-awaited 2019.

More on that in February 2023.

Prediction #3: Brace for a desert-like Bordeaux EP 2022

While tastings of the barrels won’t happen until late spring, Saturnalia already published its predictions based on rainfall, average temperatures, diurnal range, and their own proprietary models.

Summarise 2022 in a few words? Dreadfully hot and dry.

• Water stress had an impact on berry concentration

• Nights weren’t cool = low diurnal variation could cause the loss of freshness and acidity in grapes.

  

• Looks like similar conditions as 2020 but slightly worse

I think these charts tell most of the story. SVI maps are developed using satellite images that give an objective view of the water content of the vine overlayed with Saturnalia’s proprietary mathematical model. Without going too much into details — yellow and brown spots on the map indicate that the vine may be in water stress, in this vintage because of the desert-like conditions. The top image in each shows the 2022 vintage, while the one underneath shows the same map for 2021. It’s clear that, across each appellation, a much larger portion of vineyard was in stress compared to the previous year.

The least affected appellation was St-Emilion.

Interestingly, Saturnalia also predicts a score for the EP 2022 wines, even ahead of the wine critics tasting and releasing their opinion.

How?

They simply use a machine learning model that accounts for past performance, brand recognition and current vintage condition, specifically to each châteaux, to come up with a predicted score. It’s surprising to see many château in appellations that may have suffered — but their reputation for high-standard and the location of their plots specifically may be the reasons. Nonetheless, I’d still bet on St-Emilion’s names.

Despite the desert-like conditions of the vintage, potential smoke taint issues are what makes me the wariest. Back in July, the CIVB wine bureau said that no vineyards had been impacted and that consultants were cautiously optimistic. That seems to be odd as Jane Anson wrote that even in central Bordeaux “they can smell and see the smoke”, then adding that “it is so strong that you can’t help but check and recheck your house for burning, before heading outside and seeing clouds of smoke hanging over the entire city.“

Smoke taint occurs when developing grapes are exposed to the smoke from wildfires for any period of time. A number of factors will determine the level of impact the smoke will have on the berries, including berry development, duration of exposure, and concentration of smoke. 

Smoke taint is insidious — as Lisa Perrotti-Brown pointed out — because “volatile compounds from smoke contact bind with sugars, forming more stable compounds known as glycosides. Glycosides are non-volatile, meaning that they can’t be smelled or tasted. Glycosides are, however, somewhat unstable. Contact with acids or enzymes can break the bond, and the smoke compound becomes detectable again. This bond can become undone during fermentation, when a wine has been in bottle over a period of time, or when the wine comes in contact with enzyme-containing saliva. Thus, smoke taint can exist masked in wine for a period of time before it becomes apparent.”

Here’s a list of some of its effects on wine:

• unpleasant classic aromas of campfire, ash and wood smoke on the nose and palate, with a persistent aftertaste long after the fruit has disappeared

• tannins appear harder and more astringent

• elevated levels of perceived alcohol

• the wine lacks character and complexity

• severely impacts longevity

Although skeptical, the true test will come from the EP season, which I’ll follow closely. It could be the case that many châteaux prefer using non-affected grapes and make their first wine in smaller quantities… More on this in May/June.

Prediction #4: Champagne on ice…

As incredible as it sounds, the Champagne 50 was the worst performer, down 2.4% in December, and for the second consecutive month in a row.

What’s more telling is that December is normally a great month for bubbles in general, which could be a signal of cooling-off. Not to despair — it could be a great chance to pick up some bargains.

Prediction #5: Is the Fine Wine Market Finally Softening?

Overall, I don’t think releases expected in 2023 will enthuse anyone, with of course few exceptions from Piemonte.

On the economic side, many investors and economists predict a likely recession. Others think that the cycle of outsized rate hikes will stop without inflation being back on track to return fully to 2% targets — a view that offers better prospects. Either way, we are staring in the eyes of a recession if inflation has to come down, which may not be as severe as 2008-11, but still.

These two factors combined may pull the breaks on the fine wine price rally that dominated the narrative in the past 2 years. Finally, I might add.

It won’t be a good time to offload some of your cellar but at the same time, it may be a good time to pick some gems.

Performance

Let’s have a look at the Saturnalia Model Portfolio performance.

In the four months since its inception (8 September 2022), the Saturnalia Model Portfolio returned 2.7%. During the same period, the Liv-ex 100 gained 0.73% and the Liv-ex 1000 (a broader index) was up 1.38%.

Focussing on the month of December the portfolio lost ground finishing at -0.4% (vs -0.2% of Liv-ex 100) on the previous month.

The negative performance was largely driven by Ausone 2016 (-1.5%) and Figeac 2019 (-4.1%). On the other hand, positive performance was driven by Canon 2019 which gained 12.3% in the month of December.

Please note that I calculated the portfolio return ex-cash. That’s because the ‘cash allocation’ is not strategic but it’s a £50,000 yearly budget allocated to fine wine investing, perhaps in the same way that some wine collectors/investors think about their yearly portfolio allocation to fine wine.

We already discussed why Figeac 2019 may see some softening in the coming months and years: large gains following their promotion may retract somewhat, especially if the fine wine market as a whole starts softening.

Ausone 2016 lost 1.5% in December — a small amount; however because of the high price per case, Ausone represents 13.4% of the total portfolio. This means that small movements in the price have a larger impact on the performance of the overall portfolio.

Canon 2019, which I had bought anticipating an upgrade to 1er GCC A, didn’t. However, many investors (such as myself!) may be looking at Canon (and in particular the 2019 vintage) and think it’s a great bargain! We may see more of those value-driven investments in 2023.

In the coming months, and in light of the somewhat disappointing releases ahead of us, I’ll be scouting for some past vintage gems to add to the portfolio. I’ll be sure to share them with you.

Happy New Year!

Thanks for reading In the mood for wine — it’s a privilege sharing my thoughts on fine wine with like-minded wine lovers. If you found this article interesting, why not share it?

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Regards,

Sara Danese

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DISCLAIMER:

My investment thesis, risk appetite, and time frames are strictly my own and significantly different from those of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services and should be regarded as information only.

You might have noticed that no WineLeaks was published this week —sorry, I was in Sicily trying some delicious wines from Sicilia DOC. It will be back on schedule next Monday.

Each first Thursday of the month, I share a report that analyses the qualitative and quantitative investment thesis of the fine wines in the model portfolio built using the Saturnalia platform. You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

If you are new, join here to receive straight to your inbox updates about this project, WineLeaks, a curated overview of the wine market, and other in-depth reports.

Performance

During November, the Saturnalia Model Portfolio (ex-cash) returned 0.4%. During the same period, the Liv-ex 100 lost -0.4%.

[Please note that I calculated the portfolio return ex-cash. That’s because the ‘cash allocation’ is not strategic but it’s a £50,000 yearly budget allocated to fine wine investing, perhaps in the same way that some wine collectors/investors think about their yearly allocation to fine wine.]

Attribution

The three major movements that impacted the portfolio were:

Figeac 2019 ↓

Last month, following a stellar performance of Figeac since its promotion to 1er GCC A, I decided to unwind 50% of the position (a 12-bottle case). Figeac went from £141 / bottle to £212.5 / bottle (+50.7%) in a matter of weeks, which prompted me to review my position.

That was because of two reasons. First, I wanted to lock in some profits. And secondly, because of Angelus’ and Pavie’s price gains in the three years following their upgrade in 2012. On average, they gained 42% and 23% respectively. That was tiny if compared to Figeac's 50% jump in price over a few weeks.

Figeac 2019 lost 5.9% in November, as the fine wine market as a whole turned more cautious.

Should have I sold more? In my view, no. It was a prudent decision to lock in some of the gains, but a long-term view favours Figeac 2019. Especially, when accounting for a streak of disappointing vintages thereafter (not specifically Figeac’s): 2020, 2021 and in all probability, 2022.

On this note, Saturnalia will release a vintage report on the 2022 vintage, which, let me tell you, will not enthuse anybody.

Ausone 2016 ↑

In early November, Liv-ex published a report on Ausone, confirming our view on its great value, both compared to peers and in terms of fair value.

On the Right Bank, in the last three years, Ausone underperformed both its St-Emilion’s neighbours (Château Angélus, Château Pavie and Château Cheval Blanc) as well as Pomerol’s superstars (Petrus, Le Pin, Lafleur).

In terms of Fair Value, the Liv-ex method shows that while 2019 is wildly underpriced, the 2016 seems to be overpriced. By Saturnalia’s analysis, on the other hand, both vintages are still underpriced (by 59% the 2019 and by 29% the 2016).

The difference is in the average critic’s scores.

Liv-ex’s average score for the 2016 vintage seems rather low — especially considering the major critics scored it all well-above 97: Decanter 99, Neal Martin 98-100, Jancis Robinson 18+, Wine Advocate 99. It’s fair to say that Saturnalia’s average score of 98.1 (2016) more accurately reflects the average score of most wine critics.

Perhaps because of this Liv-ex coverage, the Ausone 2016 increased in value during November, which was the major driver of positive performance for the portfolio this month.

Other wines ↓

Generally, the market trend for November was downward — certainly for Bordeaux. All the other names in the portfolio were pulled down by such market forces.

Portfolio Changes

During November, I explored the Bordeaux 2020 vintage, following a tasting at the Union des Grand Cru de Bordeaux. 2020 turned out to be a complicated vintage (favouring the Right Bank) and, more importantly, an expensive one!

Taking as an example Trotanoy, one of my favourite wines of the vintage: their 2020 vintage is selling for £311, while 2019 is for £253.

While Trotanoy 2020 was awarded some incredible scores, it’s important to consider the supply-demand rationale here. 2020 was a vintage that somewhat disappointed everywhere else and some, generally Right Bank, names stood out. Critics awarded the best scores and buyers jumped on them, inflating the 2020 (already high) prices even higher. Another similar example of this phenomenon was Canon.

2020 is a tough sell — and, because of this, probably one of the least traded vintages in Bordeaux.

In addition, my current portfolio allocation is skewed towards the Right Bank, except for Lynch-Bages (2.4% of the portfolio).

Looking elsewhere, you may remember the deep dive in St Estèphe 2014 & 2016, following Jane Anson’s report. In the report, it turned out that, while 2014 is considered an ‘off-vintage‘, it is widely seen to have over-performed specifically in the St Estèphe appellation because of low rain during summer, and a gorgeous late season that was again less disrupted by rainfall here than elsewhere. These conditions benefitted the Cabernet Sauvignon grape in particular.

Among most of the names, Montrose stands out, for a few reasons:

• 2014 is an off-vintage that might be offering some hidden value because it is still considered the best among off-vintages and because St Estèphe 2014 overperformed.

• Montrose 2014 trades at a 40% discount from Cos d'Estournel 2014. They are both second growth and both have very similar critics’ scores.

• Montrose 2016, however, doesn't seem to trade at a significant discount from Cos d'Estournel 2016 — highlighting that the gap isn’t normally that wide.

• Saturnalia’s fair price model shows Montrose 2014 to be undervalued.

In light of this, I’ve added 12 bottles of Montrose 2014 to the portfolio.

I’d love to hear your thoughts in the comments!

Best,

Sara Danese

Directory of All Investment Cases

in the mood for wine

Directory of Investment Cases

Wine lovers, I’ve put together a list of all the investment cases discussed in In the mood for wine, classified by region. If you are new, you can join here to receive straight to your inbox updates about this project, WineLeaks, a curated overview of the wine market, and other in-depth reports…

Read more

4 years ago · 1 like · Sara Danese

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DISCLAIMER:

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only. 

Each first Thursday of the month, I share a report that analyses the qualitative and quantitative investment thesis of the fine wines in the model portfolio built using the Saturnalia platform. You can read the background of this project here:

in the mood for wine

Can vintages be finally scored scientifically?

Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right! If you are new, you can join here to receive straight to your inbox updates about this project…

Read more

4 years ago · 3 likes · Sara Danese

If you are new, join here to receive straight to your inbox updates about this project, WineLeaks, a curated overview of the wine market, and other in-depth reports.

Performance

In the two months since its inception (8 September 2022), the Saturnalia Model Portfolio returned 5.8%. During the same period, the Liv-ex 100 gained 1.3% and the Liv-ex 1000 (a broader index) was up 2.3%.

Please note that I calculated the portfolio return ex-cash. That’s because the ‘cash allocation’ is not strategic but it’s a £50,000 yearly budget allocated to fine wine investing, perhaps in the same way that some wine collectors/investors think about their yearly portfolio allocation to fine wine.

Attribution

The main driver of the portfolio's positive returns was Figeac's incredible performance following the 2022 St-Emilion reclassification. Ahead of the event on September 8th, I bought:

• Figeac ‘19 (24 btls)

• Canon ‘14/’16/’19 (12 btls each)

• Ausone ‘16/’19 (12 btls each)

I put on the first two bets in anticipation of both châteaux being upgraded from 1erGCC “B“ to “A“. Alas, Canon didn’t get to jump ahead and Figeac alone was upgraded to 1erGCC “A“, now sharing the top position with Pavie. In addition to the two most likely candidates, I added Ausone ‘16 and ‘19 (at some price!) — believing that, while outside the classification, the coverage of St-Emilion would benefit.

In addition to these qualitative reasons, I used the Saturnalia Fair Price Model. The six wines purchased were undervalued: Figeac ‘19 was trading at a 12% discount, while the three Canon vintages were undervalued by 30% and Ausone ‘16 and ‘19 were undervalued by 30% and 54% respectively. You can see the values of the Fair Price (bottom middle) vs their market price (bottom left) at the time of the purchase.

Figeac

After their promotion, Figeac prices skyrocketed. The 2019 saw an increase of 50% in the space of a few weeks. Liv-ex reported that many of Figeac’s vintages have broken previous pricing records, including the 2008, 2009, 2013, 2014 and the more recent 2019 and 2020. Of these wines, the 2008 has been the best price performer, with its value up 263.6% since release.

And, this was the main driver of the positive performance of the portfolio, accounting for majority of the total positive performance.

It’s always easy to invest with hindsight — and some could say I should have invested much more on this one. Although many believed the Figeac upgrade was a done deal, there was inherent risk to the trade: the Saturnalia model didn't take into consideration a potential upgrade — and so, I added to the portfolio only those wines that were “undervalued“ even without the upgrade, in case it didn’t happen.

Canon

Despite some rumours, Canon wasn’t upgraded. I now look at this chart below and ponder whether some players in the market knew by July that Canon's promotion wasn’t going ahead. Is the lesson here — always to trust the market? Perhaps.

Since missing the upgrade, Canon’s prices haven’t moved significantly.

Ausone

Surprisingly or not, prices have decreased, albeit by a small margin. Immediately after the whirlwind from the classification, the speculations about the impact of such a decision on price were put to rest by a Liv-ex report concluding no discernible effect on the secondary market performance of Cheval Blanc, Ausone and Angélus. Still long.

Larcis Ducasse

It's a value play (still in St-Emilion) — their 2020 vintage is completely underpriced compared to other similarly-scoring vintages (e.g. 2010) and other 1er GCCs B (e.g. Troplong Mondot). An underachieving château that has received very positive coverage from both Jane Anson and The Wine Independent in the past few months. +2% increase in price, and exposure which I may increase in the future if I continue to see positive sentiment.

Lynch-Bages

Fifth Growth Pauillac château Lynch-Bages piqued my interest when Jane Anson upgraded her en primeur 2016 score from 95 to 99 points. So far, it posted a 3% return.

Beausejour Duffau Lagarrosse

By observing the Saturnalia map, it becomes clear that the vineyards of Château Beausejour Duffau Lagarrosse in St-Emilion (Premier Grand Cru Classé B) are intertwined with those of Château Angélus, making it an interesting château to watch.

This is a great estate producing extraordinary wines at incredible prices (less than £100/bottle).

What’s interesting here, is that my analysis disagrees with the one from Saturnalia Fair Value. That’s becuse I believe the vintage scoring is skewed towards US reviewers e.g. Neal Martin). Once US reviewers catch-up with the quality of this estate and their wines, I expect a great increase in prices.

Portfolio Changes

The question is — to sell or not to sell?

A disciplined investor would lock in the incredible returns recorded by that single wine. I can’t help but wonder whether keeping exposure to (at least) some of Figeac is a good idea — it’s always hard to let go of winners.

In September 2012, it was Pavie and Angélus's turn to be upgraded to 1er GCC — how has their price changed since? In a report published in 2015 (3 years after the upgrade), Liv-ex aggregated the 10 vintages before the upgrade of both châteaux. What does it tell us? Angelus’ prices have risen the most in the following three years – on average 42% as opposed to 23% for Pavie, as can be observed in the chart below. That is tiny if compared to Figeac's 50% jump in price over a few weeks.

However, a strong acceleration in prices started from the end of 2015 to 2016 and it affected not just these two names, but the whole fine wine market doubled.

In addition, the Saturnalia model now sees Figeac ‘19 overpriced at £212.5 / bottle (the model suggests that the fair price should be £178 / bottle).

Following this reasoning, I will unwind 50% of my holdings in Figeac ‘19.

Agree? I’d love to hear your thoughts in the comments!

Best,

Sara Danese

Directory of All Investment Cases

in the mood for wine

Directory of Investment Cases

Wine lovers, I’ve put together a list of all the investment cases discussed in In the mood for wine, classified by region. If you are new, you can join here to receive straight to your inbox updates about this project, WineLeaks, a curated overview of the wine market, and other in-depth reports…

Read more

4 years ago · 1 like · Sara Danese

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Got Feedback? Just Hit Reply

IG: In the mood for wine

DISCLAIMER:

My investment thesis, risk appetite, and time frames are strictly my own and are significantly different from that of my readership. As such, the investments covered in this publication and in this article are not to be considered investment advice nor do they represent an offer to buy or sell securities or services, and should be regarded as information only. 

Today I’ll treat you to a deep dive into science, aerospace & satellites. Yes, you read that right!

If you are new, you can join here to receive straight to your inbox updates about this project, WineLeaks, a curated overview of the wine market, and other in-depth reports.

Subscribe now

What does aerospace and wine got to do with one another?

Nothing.

Or so I thought, when Daniele De Vecchi, project manager of an Italian start-up called Ticinum Aerospace, contacted me.

I was puzzled, yet intrigued.

Daniele mentioned that he had read my newsletter, specifically the one where I write about the Barolo 2018 vintage, and that his company developed a platform (Saturnalia) that could help me. We planned a call for that following week. We chatted for longer than the scheduled 30 minutes and then we chatted three more times after that.

Once I better understood their models and the technology behind them, I was so excited that I talked about them to every single one of my friends. Alas, as Alder Yarrow quite poignantly reminded us in his article Pix – the inside story for jancisrobinson.com, the wine industry isn’t always open or forthcoming to change and new technology.

Nevertheless, or perhaps because of it, I decided that it was crucial to spread the word about Ticinum Aerospace’s technology — already widely adopted by the insurance sector.

The company

Ticinum Aerospace is a start-up based in Pavia (Italy), and their wine platform Saturnalia was conceived in 2016 on the back of the Space Camp App, an accelerator program organised by the European Space Agency (ESA).

Their idea?

Leveraging the latest advances in machine learning to make sense of the so-called Earth Observation technology gathered by ESA & NASA satellites. Earth Observation technology, through the use of satellites that carry imaging devices, is used to monitor and assess the status of, and changes in, the natural and manmade environment.

Ticinum Aerospace already successfully employs this technology to support insurance companies, by enabling them to rapidly assess risk of extreme weather events or other events such as human conflict.

And because of this success, the European Space Agency has continued to support Saturnalia with two grants, the latest one in 2020 for the development of a new platform, Saturnalia, this time solely designed for fine wines.

The technology

“Our problem“ said Daniele during one of our calls, “is that I don’t think we are explaining our technology very well.“

Indeed, I found myself scrambling through papers and papers worth of scientific jargon trying to piece together the information, sometimes puzzled, sometimes resigned.

And then, as I sat down to write about it for this piece, I did have the feeling that if I made it too simple it would sound like some mad conspiracy theory. So I’ll just explain it as I understand it hoping it won’t.

The Earth Observation satellite images used by Saturnalia capture photographs of the Earth with more information than standard photographs (in chart below, ‘Visible’), such as the presence of absorbed water by the vines (in chart below, ‘Near-Infrared’ and ‘Shortwave Infrared’).

Thanks to this data, the team behind Saturnalia have developed a suite of tools and mathematical models to scientifically analyse vintages, down to single vineyards and crops, with the ultimate goal of assessing the quality of a vintage and a wine.

How?

Using a set of tools available on their platform that, when considered altogether, give a picture of the wine and its journey from the vine (with maps, climatic data and their proprietary SVI and SEI indices) to its market price dynamics (fair price analysis and comparables).

Saturnalia and I agreed on a project whereby I’ll explore what their technology can do for wine investors when picking fine wines. Going forward, I’ll use their models and data when assessing wines in my WineLeaks or other pieces and below you can find the ones that I find most useful.

🔵 Climate Data

If you have read the latest edition of WineLeaks — The Nebbiolo Edition, you’ll be familiar with some of the data here.

In my pamphlet in favour of the 2013 vintage in Barolo, I use data such as the Precipitation, the Diurnal Variation and the Growing Degree Days to compare 2013 to exceptional vintages such as 2016.

This climate data offers a holistic view of vintages in a very specific area for specific producers, while at the same time contextualising it with average 10-year data.

And such data can be compared with other vintages or wines (you can see an example below in “Comparables“).

Why is it useful?

• When assessing a wine or a vintage, Saturnalia climate data offers a very localised overview of the plots that go into making the wine, down to precipitation, land temperature and diurnal variation.

🔵 The Maps

The maps are at the essence of what Saturnalia does. While other companies can only offer static drone views, the data offered here is very detailed and, more importantly, constantly updated from the satellite into the platform.

Why is it useful?

• First and foremost, I use it as a visual aide for my studies to understand and visualise wine regions to individual crus.

• In addition, I find invaluable details of vineyards and their ‘vicinity bonus‘ information for property value. For example, by observing the map above, it becomes clear that the vineyeards of Château Beausejour Duffau Lagarosse in St Emilion (Premier Grand Cru Classé B) are intertwined with those of Château Angélus, making the former an interesting château to watch (given the much lower price).

🔵 Indices (SEI & SVI)

Here is where it gets a bit complicated.

In short, combining data from the satellite images with machine learning, Saturnalia has developed two mathematical indices which monitor the quantity of chlorophyll, mesophyll, and the amount of water in the vine as a distribution (SVI) and through a time series for a specific vintage (SEI), with the ultimate goal of summarising the data from the satellites.

The goal is to evaluate a vintage as impartially as possible, translating the weather data and the images received from the satellites into a score.

The visual satellite images such as the one above is then translated into a distribution of values such as the two below from Lafite’s 2013 (one of the worst vintages in the last decade) and 2016 (one of the best).

The SVI index, as exemplified below, shows that:

• better vintages are centred around lower SVI values (or ‘positively skewed’), and

• better vintages are more narrowly distributed around a single point.

The second index, the Saturnalia Evolution Index (SEI), charts the yearly time series evolution of the SVI, and shows how “green“ a vine is throughout the year. With that information we can deduce whether it has suffered from water stress or conversely, if rain has diluted flavours. More importantly, one can visually compare the evolution of the vines across vintages.

The summer of 2021 in St Estephe, for example, was characterised by heavy rains and conversely, the previous year 2020 was a particularly dry one.

Why are they useful?

Although they may not feel very intuitive at first, these two indices make for detailed vintage analysis. Crucially, it become easy to compare one vintage with another one or with the average to understand:

• if / when there was too little or too much rain. The timing of rainfall, is crucial when analysing the chart: spring rain is welcomed — not so much just ahead of harvest.

• effects of spring frosts and hail stones.

• how homogeneus a vintage was.

🔵 Fair Price

Saturnalia has also developed a few indicators to help understand the price dynamics of specific wines. In addition to Release price and Liv-ex latest price, one can compare it to an “Estimated Fair Price”.

The model behind it is a statistical regression model that, at stated level of confidence (see model confidence below), calculates a “Fair Price” by aggregating critics’ scores and the price performance of previous vintages.

The Fair Price model also considers the “Price per Point”. It explains which brands command a stronger market price ‘for each point’ of wine critics — a concept similar to that of ‘price per square meter’ in real estate.

Angélus commands a unit price much higher than both Canon and Figeac (see table below). Perhaps the gap between Angélus and newly promoted Figeac will narrow? If this thesis is correct, Figeac 2019 is currently very undervalued.

Why is it useful?

• While the model doesn’t consider the market and momentum or mean reversion, it can help identify bargains based on critics’ scores and undevalued brands.

🔵 Comparables

To find pockets of value, another useful tool for wine collectors is the ability to compare two (or more) producers, two (or more) wines or two (or more) vintages side by side.

Most data is summarised in this table below — from the release price to the composite average score to the climate data and fair price estimate.

For example, if analysed carefully, the table below makes the case for investing in ‘off’ vintages as the châteaux and négociants seem to be coming out with a higher release price in ‘on’ vintages, eating into the profits of secondary market investors.

Why is it useful?

• A snapshot, comparing a wine with ‘benchmark vintage‘ and/or with a ‘benchmark estate‘.

The project — A Model Portfolio

The idea behind the partnership with Saturnalia is to put together a fine wine model portfolio with the help of the tools offered by their platform, which are powerful but can sometimes appear daunting and technical in nature.

My mandate is to show how I would go about using the Saturnalia platform alongside other tools to build my own wine portfolio. I made it available via GoogleSheets here: 🔗 Link to the portfolio

Asset under Management (AUM): £50,000

Universe: Bordeaux, Burgundy, Barolo, Bolgheri & Montalcino.

Names currently in the portfolio:

• Ausone, 2016 and 2019 (before 2022 reclassification)

• Figeac, 2019 (before 2022 reclassification)

• Canon, 2014, 2016 and 2019 (yes, I was expecting it to get upgraded!)

• Clos Dubreuil, 2019 (after their reclassification)

• Larcis Ducasse, 2020 (WineLeaks #12)

• Lynch-Bages, 2016 (WineLeaks #12)

What’s Next?

This project is both something new and a work-in-progress.

The plan is to provide an update on a monthly basis (the first Thursday of the month) with a small monthly update on buys/sells and big movers (positive & negative) as well as a more in-depth quarterly update (first one due on Jan, 5th).

Some of the ideas behind my buys are discussed in the WineLeaks or other long-form pieces; others will be discussed separately.

Please share with me what you’d like to see/know about Saturnalia.

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Until next Monday,

In the mood for wine (a.k.a. Sara Danese)

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In the mood for wine nor this article represent investment advice or any kind of professional counsel, nor does it represent an offer to buy or sell securities or investment services.