While whisky as an investment is much more common in the United Kingdom (UK), there is a growing popularity for investing in whisk(e)y here in Australia. According to UK-based data collected by Lloyds Private Banking, the majority (88%) of people investing in whisky are satisfied with how their assets have performed over the last year.
More whisky investors are happy with their returns than those who invest in fine wine (66%), sports and film memorabilia (62%) and watches (61%). Compare this to the 53% of investors who won’t touch the Australian sharemarket which as seen a sapid decline in share ownership in the past 5 years…
Markus Stadlmann, CIO at Lloyds Private Banking in London UK, said: ‘Often tangible assets, such as whisky, retain their value and are not eroded by inflation. Over the long-term, these types of assets do not closely correlate with more traditional equity and bond markets, and therefore offer diversification opportunities.’
However, when it comes to reasons behind making investments, only 44% of whisky investors are driven by personal interests compared to 53% for art and 50% for antiques.
Stadlmann added: ‘In investment terms, work and play do not need to be mutually exclusive, and with the right investment approach it is possible to make your interests pay.
‘Investing in what you love is not a new phenomenon. Savvy investors have always looked to profit from personal interests. However, it is vital to remember that you are dealing with predominantly private markets.
‘It is therefore highly important that before you invest in your favourite whisky, car, watch or wine, you do your research.’
According to whisky analyst and broker Rare Whisky 101, rare whisky had a ‘record year’ at auction in 2015, outperforming other investments including wine and gold. The Lloyds Private Banking study revealed the average top-end spend on a bottle of whisky in the UK was £27,000.
The study also predicted that whisky will attract further investment over the next decade, with spending increasing by £5,700 in one year’s time, £8,600 in five years and £9,300 in 10 years.
Rare Whisky 101 reported the value of rare whisky, measured by the company’s Apex 1000 Index, has grown 361% since 2008, and predicted whisky investments will yield a return of 41% over the next 10 years.
Co-founder of Rare Whisky 101 Andy Simpson said the growth of the secondary market for rare single malt whisky, in terms of volume and value, has exceeded all expectations.
Simpson said: ‘While the sustainability of these volume increases could be called into question, we know for certain that the true rarities will only become rarer.
‘Should demand for these rare treasures continue on its current trajectory, as is fully expected, Scotch’s credentials as a viable passion investment asset class continue to look particularly attractive.’
Scarcity is a major driver of the economics of supply and demand, with investors having to battle against speculators eyeing a quick turn.
Old whisky laid down in barrels at Scottish distilleries decades ago loses around 3 per cent of its volume in evaporation each year – a loss often termed ‘the angel’s share’ – and this compounds low levels of supply and therefore increases scarcity, experts say.
Bottles of very high end whisky are sought after by investors who place the asset in their self-managed super fund. Those investors are looking for an asset class that is a world away from traditional shares, bonds and deposits, similar to investing in classic cars or art. Investors see these classes of asset as more stable than shares.
It should be noted that tasting is NOT allowed for investors. Deloitte partner John Randall says those using self-managed super funds face strict conditions.
“You can’t store or display it at home, and must have a document why you have invested in that asset, and insure it,” he says. “You can’t have an existing bottle of whisky and bring that into your fund, it has to be brought from a third party into the fund.”
Randall says self-managed funds typically follow wider investment trends, and expensive whisky in the $30,000 to $50,000 range is a collectible item. But there are big risks.
These investments need to be held over a long time to show capital growth.
“If you are in your mid 70s it’s probably not appropriate to have that as a new investment in your fund,” he says.
“All it does is transfer the bottle of whisky. It’s not good for paying pensions. It’s only good for a lump sum.”
Conversely, someone in their 30s may reap the benefits of investing in a vintage whisky, as long as they know their whiskey and it is part of a diversified portfolio.
“When it comes to collectibles – whether it’s a car, art or whisky – there’s always a risk factor,” Randall says.
“Diversity or no cash flow are things investors need to think about when people are out there trying to convince them that this is the next big thing. Investors have to step back and think, ‘I won’t have cash flow, what’s my risk?’
“He or she also needs to take some responsibility to know whether it is an appropriate investment for them, rather than get pushed into it. People can often get caught up in the tide.”
Malt Whisky Society of Australia chairman Craig Daniels says collecting is rising in popularity, and the scarcity factor has triggered a rise in speculators entering the market. Though we should point out that it’s not just Scottish single malts that are targeted for investment, there is also a growing market for American bourbons and Australian Single Malts.