Listen to this article
Readers partial to a “wee dram” as the autumn nights close in may now stimulate their portfolios along with their taste buds.
An alternative investment market in whisky is opening up to investors following the launch of an online platform allowing people to buy and sell units of the “water of life” as it matures in the barrel for as little as a few pounds.
The launch of WhiskyInvestDirect comes as the sector for rare whiskies is booming. Record numbers of bottles of rare whisky were sold at auction in the UK during the first half of the year, according to the consultancy Rare Whisky 101, which compiles a range of indices on the secondary market for Scotch.
The consultancy said that 20,638 bottles of single malt were sold on the open market in the UK — 35 per cent more than in the first half of 2014.
The growth in interest reflects whisky’s emergence as a luxury item, says Martin Green, head of whisky at Bonhams, the auctioneers.
“Interest in whisky has been growing steadily for many years,” he explains. “One reason is the increasing wealth in the Far East where whisky is seen as a premium product and an indication of taste and sophistication.”
But he adds that there are many people who collect whisky simply because it “fascinates them, they are captivated by its history and romance and, of course, because they like drinking it.”
Buy at auction
The first standalone whisky sales started in Glasgow 15 years ago, when interest in it as an investment sector really started to take off in the UK. Until then whisky was always sold in a mixed sale usually with wine and other spirits. Since then, the market has grown steadily and strengthened year-on-year.
Mr Green believes that the fact that Bonhams sells around 90 per cent of its stock at each of its four dedicated whisky sales — and has done consistently over the years — speaks for the health of the market.
This year the focus has been on Japanese whisky at auction, he says. In August a bottle of 1960 Karuizawa sold for $HK918,750 (£77,735) at Bonhams in Hong Kong, setting an auction record for a Japanese whisky.
“Japanese whisky for many years lived in the shadow of Scotch whisky which has always had — and I think always will have — a special place in drinkers’ and collectors’ hearts across the world,” says Mr Green. “A huge amount of hard work has, however, gone into developing premium Japanese brands and collectors both in Japan itself and increasingly internationally have started to take notice.”
However, investors should take note that auctioneers will typically charge up to 25 per cent of the value of whiskies in order to sell them. Online auction houses may be cheaper — often closer to 10 per cent — but could fail to attract the same attention. Meanwhile, whisky transportation and storage costs can also be high.
Not all buyers take the auction route. In 2011, a bottle of The Dalmore 62 was sold at Changi Airport in Singapore for a world record £125,000, following the sale of a bottle of Dalmore 64 at Harrods for £120,000. But one of the most expensive whiskies ever sold is a 64 year old Macallan in a unique Lalique “Cire Perdue” crystal decanter, which was bought at auction in the US for $460,000.
The trick, say experts, is to identify limited edition bottles that are likely to rise in price once sold out. As with most rare goods, reputation, scarcity and exclusivity are crucial.
Returns can vary greatly, though, and headline figures for whisky returns often fail to factor in the high transaction costs involved in buying and selling it, creating the impression that returns are higher than they really are.
WhiskyInvestDirect gives investors access to the whisky market via its online platform to buy and sell the spirit at wholesale prices for as little as £2 a litre.
Investors need to register with the site to open an account, then transfer funds into it to purchase whisky at wholesale prices. There is no minimum investment and no minimum length of time that investors have to hold the whisky. All whisky bought and sold on the online platform is stored in barrels in bonded warehouses.
“Our clients see it as a diversifier for their other investments. It has low correlation to other asset classes, such as bonds or property, and because 93 per cent of Scotch whisky is exported, it provides a hedge against weak sterling,” says Rupert Patrick, chief executive and co-founder of WhiskyInvestDirect.
Patrick Connolly, adviser at Chase de Vere, says the new platform should provide greater liquidity for the market — with no irony intended. “It is important to spread risks within an investment portfolio and this is an interesting initiative which can allow more people to invest in whisky, an asset for which there is an ongoing demand.”
Mr Connolly also points out that these investments are unregulated, which means that investors cannot fall back on the Financial Services Compensation Scheme (FSCS) or any other body if their investment goes wrong.
Buy a fund
You could outsource the selection process by investing in a fund where the manager will choose companies and bottles on your behalf.
There are no UK funds doing this so you would have to look to an offshore investment such as the Hong Kong-based Platinum Whisky Investment fund.
Whisky does not need the cool, cellar-like conditions often required for wines. Bottles must be stored upright and kept in pristine condition but they can be kept in almost any environment. The value can drop dramatically if there is damage to the bottle or labelling or if the fill level drops, indicating poor closing and evaporation. Once bottled, whisky can be stored indefinitely.
While certain brands are doing well, there is also a risk of steep declines if you buy the wrong bottle. Rare Whisky 101 has a negative index, which shows how poorly some whisky bottles have performed in value. While the index of the 1,000 best performing bottles was up 13 per cent in value in the year to end of August, the worst performing fell by 9 per cent.
The charges for investing in maturing whisky are also high, says Mr Connolly. “While a buying and selling charge of 1.75 per cent might not be excessive, storage costs can make this very expensive, especially for smaller investors, and mean that whisky will need to perform well simply to give a positive return,” he explains.
“Remember that whisky doesn’t produce any earnings or income and so price fluctuations are based solely on supply and demand. This means there can be some big upward or downward price movements if there are changes in the economic environment or as it comes in or out of favour.”
Mr Connolly does not recommend any alternative or other “collectable” or “hobby” investments to his clients. “For the vast majority of investors, a combination of cash, equities, fixed interest and property, will be more than adequate to meet their investment needs,” he explains.