En Primeur has often been mispriced

‘Fair value’ can measure the extent of any mispricing at En Primeur historically. The term ‘mispricing’ is used to mean pricing that was inconsistent with prices in the secondary market at that time. To be clear, En Primeur is not necessarily ‘mispriced’ just because prices subsequently fell and investors lost money. That is simply the risk that investors accept for an expected return.

Liv-ex has analysed the past eleven En Primeur releases for each of the wines in the Bordeaux 500 index. Using ‘fair value’ analysis, each release price was modeled against the past ten vintages of that wine in the secondary market at that time. Next, the difference between each release price and the price suggested by each wine’s trend line was calculated. Finally, the results across each vintage were averaged.

The results of this analysis are shown in the chart below. For example, the chart shows that 2005 En Primeur was the most overvalued vintage at En Primeur in the past eleven years. This is because it was released at an average of 32% above prices suggested by the trend line at that time. Conversely, 2008 En Primeur was the most undervalued En Primeur of the past eleven years. It was released at an average of 28% below prices suggested by the trend line at that time. Although, this might be partly accounted for by the fact that scores from Robert Parker were released late and were higher than expected.

It is interesting that 2010 En Primeur may not have been as overpriced as is commonly thought. Although it was released above the trend line, it was at least an exceptional vintage. That prices for the 2010s went on to drop significantly is unlikely to be due to any mispricing at En Primeur. Rather, it should be viewed in the context of price declines across the entire fine wine market.

En Primeur release price vs ten previous vintages at time of release (Bordeaux 500)*

So what does this analysis mean in practice? In short, it means that investors should have ignored an overpriced 2005 En Primeur and bought back vintages in the secondary market instead. In fact, the chart below shows that buying any of the three most recent back vintages for any of the First Growths would have outperformed 2005 En Primeur.

For example, let’s consider Mouton Rothschild in the chart below. An investment in 2005 En Primeur would now be yielding a 36.3% return. However, investments in the 2002 and 2003 back vintages at the same time would be yielding far higher returns of 344% and 189% respectively. Even the 2004, that was still En Primeur at the time, would be have yielded a far superior return of 352%.

Vintage returns if purchased at 2005 En Primeur release (June 2006)

In contrast, 2008 En Primeur outperformed any of the three most recent back vintages for any First Growth, as the chart below shows. Therefore, investors would have been well advised to participate in 2008 En Primeur.

It must be noted that 2008 En Primeur was unusual in that Robert Parker released his scores after wines had been priced. Parker’s scores were higher than the market had been expecting and prices subsequently increased sharply.

Vintage returns if purchased at 2008 En Primeur release (June 2009)

In the same way that ‘fair value’ analysis can be used to identify which vintages were over or underpriced on average at En Primeur, the model can also show how individual chateau have priced their releases historically.

The chart below shows which Chateau have historically overpriced or underpriced their releases the most, relative to other vintages from the same Chateau available in the secondary market. For example, it suggests that Palmer releases have been around 30% above their ‘fair value’ on average. On the other hand, Beychevelle has been underpriced by around 20% on average.[1]

Bordeaux chateaux: most overvalued and undervalued on average on release

[1] This analysis uses data from the most recent 11 vintages of each wine. For Latour, this is 2001-11, a different set of years than for other wines.

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Outlook for the 2016 vintage