Investors are seeking alternative investments to volatile equities and poor bond returns and turning to options such as whiskey. Cask whiskey’s sales have strengthened this year, with a total of 258.5 pallets of Scotch, Irish and American whisk(e)y being purchased since lockdown began, according to the Whiskey & Wealth Club, which has sold double this year (€7.8m) compared with the same period last year.
Significantly, the investments are strengthening the whiskey industry during this challenging time. Leading distilleries in the UK and Ireland that work with whiskey and wealth club receive an injection of capital. This helps cover overheads for the costly and labour intensive whiskey making process.
These asset-backed casks purchased as a great buy and hold strategy have become increasingly popular for investors, given the current economic climate. The investment in casks are not tied to financial markets and give investors full ownership and titles to the whiskey which is stored in excise warehouses for the ageing process, typically five to 10 years.
The popularity of whisk(e)y investment has soared in recent years. This year, rare whisky topped the Knight Frank Luxury Investments Index rising by 564% in value over the last decade. Recent research by Whiskey & Wealth Club found that 55% of investors would consider investing in cask whiskey.
Currently, the Scottish whisky secondary wholesale market is estimated at $40m according to drinks market analysts IWSR. Last year alone, exports grew to a record £4.9bn according to the Scotch Whisky Association. Irish whiskey is also amid a resurgence. Exports have grown by 300% in the past decade according to the Department for International Trade. TheUS market is worth $1bn.
Andy Simpson of analysts Rare Whisky 101 writing in the Knight Frank report said: “Significant over-supply and a softening in values for the market leader, The Macallan, made for a challenging start to the year, reflected in a half-year fall of 2.67% in our Knight Frank Index. As supply eased, the second half of 2019 fared much better, and the Index finished the year up 5%. Significant trends included the emergence of challenger brands in the secondary market, and growing interest in sherried Scotch. Collectors continued to seek out the oldest, rarest examples from iconic distilleries such as Dalmore, Springbank, Ardbeg, Lagavulin, Bowmore and Brora, and casks remained in huge demand. But, just as in 2018, the headlines belong to The Macallan, with a bottle of the distillery’s 1926 Fine & Rare fetching £1.2 million at Sotheby’s in October.
Scott Sciberras, chief executive officer and co-founder at Whiskey & Wealth Club said: “Despite the current predicament of global financial markets, cask whiskey investment bucks the trend. We’ve seen it go from strength to strength as it grows in favour with investors, which crucially is also supporting distilleries at this testing time.
“The value of these premium spirits is largely determined by age, but also by the quality of the distillery and the brands they release. While all whisky increases in value over time, some increase more than others. So working on an exclusive basis with leading distilleries really gives a strong value add to our clients. Combine this with the fact that cask whiskey is an asset based-investment not tied to financial markets makes it ever-appealing. With expected returns ranging depending on the length of the investment, we estimate conservative returns at 16.1% p/a or an annualized return on investment (ROI) at 10.11% p/a.
“This is based on a purchase price of £12,600 per pallet of whisky. A pallet contains six casks, therefore a cask price is £2,100. Using today’s exit price for 10 year old non branded single malt Scottish whisky at £33,000. The total ROI is 161.90% over 10 years. Your investment gain is £20,400 on top of your initial £12,600, which looks on the surface to be 16.1%, and most would present as such, but professional investors tend to use annualized ROI to help compare against shorter term investments. Given the 10 year hold time and compounding, this equates to an annualized ROI of 10.11% per annum. The good news is we do not sell non branded whisky which has the lowest exit price. We sell branded from premium distillers. To give you an exit price is speculative as there is many more exit options for branded whiskey over non branded.”
Further reading: Whiskey cask investments and the opportunities they hold