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Strategies for the Wine Market

Strategies for the Wine Market. Geraint Carter Bordeaux Index Investments. Objectives . Relative Value Consumption picture En Primeur Summary. Relative Value: Context. Wine investment is Principally a view on the asset class. Supply and demand Correlation Managing uncertainties:

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Strategies for the Wine Market

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  1. Strategies for the Wine Market Geraint Carter Bordeaux Index Investments

  2. Objectives • Relative Value • Consumption picture • En Primeur • Summary

  3. Relative Value: Context • Wine investment is Principally a view on the asset class. • Supply and demand • Correlation • Managing uncertainties: • Demand - consumption patterns • Demand - trigger prices and events • Supply - production • Supply – trigger prices and events

  4. Relative Value: Aims • What can we analyse? • Relative value not absolute value • Identify Chateaux or classes of Chateaux likely to out-perform market. • Intra-vintage comparison • Objective - Benefit from market rallies and limit the retreats.

  5. Relative Value: Discounting • What is Fair Value? • New release of a new 2006. Price? • Comparable 1996 at £1000 • Est. inflation at 2% - £1000 in 10yrs is £1219. • Discount for Interest (5%) and Storage (0.5%) • Price today - £713

  6. Relative Value: Maturity Analysis • We assume that the 2006 requires not 10 but 15 yrs to comparable maturity • Est. inflation at 2% - £1000 in 15yrs is £1345. • Discount for interest (5%) and storage (0.5%) • Price today of £603 • Negative maturity gap – 1986 vs. 1990 • Caution: Non-fungible

  7. Relative Value: Comparability • Comparing like with like: • Chateaux/Brand • Style • Maturity Profile • Production • Vintage Premium

  8. Relative Value: Application • En Primeur 2000 • Large increases on previous vintage • Context of slow market activity • 2000 vs. 1982 • Quality picture – 1st Growth Average 1982 (97.5) and 2000 (98.5) • Comparison of 2000 1st Growth release prices with prevailing 1982 • 1982/2000 ratio today

  9. Relative Value: Application • 2005 vs. 2000 • Again a good comparison with average 1st Growth score of 97.1 and strong vintage reputation • Comparison of 2005 1st Growth release prices with prevailing 2000 • 2005/2000 ratio today • Relative Value – Provides a framework for ‘inherent value’ against market price. • Watch the comparators: • Maturity profile • Production • Vintage

  10. Consumption picture: Market

  11. Consumption picture: Volumes

  12. Consumption picture: Qualitative • Public exchanges • Limitations of the numbers: • Traders holdings • Investment funds • Press and anecdote

  13. En Primeur: Genus • History • An historic practice • Cash flow and ownership • Fete de Primeur (consumer market) • The stories – 1982 1st Growths (£275) • Perception of value – Cheap vs. Value • Determinants of Price • Vintage hype and conditions • Sentiment in Bdx • Consumption pattern • Production and release • Parker • Context of recent vintages and economic environment

  14. En Primeur: Key risks • Score uncertainty – Inherent uncertainty of barrel tastings • 2005 Primeur –High aggregate score – >95 6% in 2005, 3.6% in 2003, 5.7% in 2000 and 2.4% in 1996.

  15. En Primeur: Further risks • Tied stock • Supplier risk – Celleret, Mayfair Cellars etc. • Disposal risk – limited market, in particular very little Asian participation. • Hubris – Cheval Blanc 2007, d’Yquem 2005 etc.

  16. En Primeur: Performance Returns – Select returns have been impressive but have consistently lagged the mature vintage market. Flat prices – trade through non-physical period and nothing thereafter.

  17. What’s the outlook? • Looking at a 20-25% correction • Principal victims are the most speculated stock – Non-flow 1st Growths and 2005s • Inherent strength in the drinking market

  18. Conclusion • Maturity Analysis • Consumption Picture • En Primeur is important as long as it’s important • Outlook

  19. Bordeaux Index Geraint Carter Investment Group 10 Hatton Garden London. EC1N 8AH Tel: +44 (0) 20 7269 0703 Fax: +44 (0) 20 7269 0701 geraint.carter@bordeauxindex.com www.bordeauxindex.com

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