Portfolio Update October 2022
What I bought & sold
Good morning Wine Lovers,
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:
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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
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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.