After The Bell has extensively documented the phenomenal global increase in whisky consumption. This month we look into rare Scotch whisky as a distinct alternative investment asset class.
Our guide to the world of exceptional rare whiskies is Andy Simpson, the renowned scotch authority at Scotland-based Rare Whisky 101. Andy is among the select few to be honored with the designation of Keeper of the Quaich — an exclusive international society of Scotch whisky experts. The information that follows appears in his mid-2017 report on the European rare whisky secondary market and auction trends, which is a reliable leading indicator for U.S. auction prices.
As for the two lots? Buying at least two bottles of desirable whisky at a time is the advice we consistently hear from whisky experts. One for long-term appreciation, the other for immediate appreciation.
Hobby Investment or new asset class?
Evidence shows a broad–based acceleration of interest in alternatives and investments of passion. This was borne out by a report by Lloyds Banking Group in late 2016, which illustrated the average holdings of high-net worth investors among those that hold “hobby” investments in their portfolios (see “exotic collectibles” below).
But it has gone beyond hobbies into real indexing. “Beating the benchmarks,”(page 50) illustrates Scotch whisky’s performance as an alternative asset class in its own right.
Longer term, the Liv-Ex Fine Wine 100 out-performs all but scotch, while ADR shares of British Diageo plc (DEO), the world’s largest producer of spirits and a key producer of beer, out-performs the broader traditional equities market. Solid gold, as opposed to liquid gold, comes in a close second over the first half of 2017. However, scotch remains at the helm from a pure investment perspective over both the first six months of 2017 and the longer term.
As the secondary market for rare scotch continues to mature, we are seeing increased liquidity in what was once a relatively illiquid market. The trading costs associated with selling rare whisky are reducing as auctioneers compete for the best stock. Bottles are easier than ever to sell and prices are at all-time highs, so it is little surprise that we are seeing such significant increases in the number of
bottles sold. Through the first half of 2017, the market for rare whisky has experienced unprecedented growth.
The number of bottles of Single Malt Scotch whisky sold at auction in the UK increased by 47.25% to 39,061. The value of collectable bottles of Single Malt Scotch whisky sold at auction in the UK rose by 93.66% to an all-time high. As would be expected, the average per-bottle price has risen to a new record of $370, up from $282 just 12 months prior.
The Macallan’s secondary market dominance extends and it now accounts for almost 30% of every dollar spent at auction in the UK. The brand now has a 12.71% share of all bottles sold and 28.90% share of the dollar value. The incredible rise in recent times for The Macallan 18- and 25-year-old indexes shows no sign of slowing with the vintage 18-year-old index adding 142.10% in value in 2016, and the 25-year-old index delivering 77.83%.
The volume of bottles of rare, desirable whisky sold on the open UK auction market is at an all-time high. We continue to see online and traditional whisky retailers starting their own auctions in order to compete in an increasingly crowded space. The days of retailers being able to snap up private collections at less than market value, add on a hefty margin, and retail them are now long gone. There appears to be seemingly limitless demand for and interest in the old, rare and exclusive bottles of scotch no longer available through traditional retail outlets. No matter how many bottles are sold at auction, demand continues to outstrip supply.
Compared to the same six months last year, the first half of 2017 has seen a near 50% increase in volumes, and a 100% increase in the value of bottles sold. For the full year, 2017 is expected to be another record breaker as the charts and forecasts show.
What does it mean?
Scotch’s lengthy bull-run clearly looks like it wants to continue. But speculators should keep a close eye on a significant dip in prices for the less desirable bottles. In May 2012, a bottle of Glengoyne “Fly Fishing” sold for $650. In June 2017 a bottle sold for just $60; a loss of 90.8% and a clear reminder that selecting the wrong bottle can be as surprising and punishing as any illiquid investment.
We remain optimistic about scotch’s credentials as an alternative investment,
but only, for the right bottles.