A record number of investors are expected to attend next month’s Whisky Show in London – not just to enjoy a wee dram but to learn more about how to make money from this most liquid of assets.
Bottles of rare whisky rose in value by 5 per cent in the 12 months to the end of July. But over the past decade they have climbed in price by 500 per cent, according to the Rare Whisky Icon 100 Index – a measure of the value of the 100 most sought-after bottles.
Despite these compelling numbers, investors should understand that generating returns from whisky is not straightforward, nor guaranteed.
The investment market focuses on single malt whisky picked from the most highly regarded distilleries in Scotland. Investment starts from about £150 for a standard 70 centilitre bottle
Trading costs are high with auctioneers demanding up to 30 per cent of the hammer price of a bottle as commission.
In addition, the market is awash with fraudsters passing off fake whisky as rare malts, making it crucial to pay for the services of a reputable broker.
It is also an unregulated market, meaning those who believe they have been cheated cannot seek redress from the Financial Services Compensation Scheme.
Martin Green is whisky specialist at auction house Bonhams.
He believes that for most people whisky should be a drink to be enjoyed. Only those who are prepared to do some homework should consider it as an investment.
He says: ‘It is important that a potential investor studies how whisky is traded, scours specialist publications, and seeks advice from a professional whisky broker before handing over any money.’
Most investors put their money into bottled Scotch, not buying it when still in the barrel
Investment quality whisky tends to start from about £150 for a standard sized 70 centilitre bottle. The investment market focuses on single malt whisky picked from the most highly regarded distilleries in Scotland.
Single malt is not to be confused with blended whisky where spirits from different distilleries are put together. Blended whisky accounts for about 90 per cent of all Scotch consumed. Among the best distilleries are Ardbeg, Balvenie, Bowmore, Bruichladdich, Dalmore, Highland Park, Glenfiddich, Macallan, Springbank and Talisker.
Most investors put their money into bottled Scotch rather than buying when still in the barrel. They also concentrate on buying limited batches that have perhaps been aged in a barrel for 20 years or more.
Once bottled the whisky can be stored indefinitely, making it ideal for investors. A 12-year-old whisky put aside for 100 years should taste much the same – and will still be a 12-year-old whisky. It should be kept upright and away from direct sunlight.
The spirit must be kept in a barrel at least three years before it can be officially called whisky. It usually stays in the barrel at least a decade before bottling.
This gives whisky its colour and flavour. But the extra time it is stored in a bottle can also add to the rarity and appeal of a purchase.
Bonhams’ Green says: ‘Reputation for quality, scarcity and exclusivity are important. Many leading distillers produce special limited editions of their finest whisky that can become valuable collectors’ items.’
Last year, Bonhams broke the world record on three occasions for the price of a bottle of whisky fetched at auction. A 60-year-old bottle of Macallan, illustrated by artist Peter Blake, sold for £752,000 in May. An hour later another bottle of Macallan, this time illustrated by artist Valerio Adami, went under the hammer for £814,000.
Then, last October, another bottle of Macallan ‘Adami’ sold for £849,000. One reason these whiskies were valued so highly was that only a dozen bottles illustrated by each artist was ever produced.
Andy Simpson is co-founder and director of Rare Whisky 101. He says whisky from a distillery that has closed down can have investment appeal because of diminishing supply. Historic distilleries that are no longer open include Brora, Dallas Dhu, Glen Flagler, Rosebank and Port Ellen.
Simpson says bidding at auction is the best way to buy investment quality whisky – more than 100,000 whisky bottles a year are auctioned, to the value of £40 million. For tracking down a specific bottle of rare whisky, Rare Whisky 101 charges a 10 per cent buyer’s premium on top of the bottle’s price.
Specialist online auction houses include Scotch Whisky Auctions and Whisky Auctions – which also charge a 10 per cent fee on top of the sales price. McTear’s Auctioneers charges a buyer’s premium equivalent to 28.8 per cent of the hammer price while Bonhams levies a 30 per cent buyer’s premium. Fees will also eat into profits when it comes to realising the investment. For example, McTear’s charges an 18 per cent fee to the seller.
Although the vast majority of investors buy their whisky bottled it can also be purchased in the barrel and kept in a bonded warehouse. This enables an investor to avoid any duties or VAT if it is later sold back to the producer. But novice investors are advised to start with bottles and only consider barrels after they have gained experience in trading whisky.
Alexander Johnson, founder of the Whisky Cask Company, says a 225-litre casket of whisky can be purchased for £5,000 – enough for 300 bottles of the spirit. But storage charges and insurance can cost £100 a year while two per cent of the whisky – deemed the angels’ share – may evaporate each year.
He says: ‘A master taster will make regular checks on the cask and if required make changes to the process – for example, putting whisky into a different cask (re-racking) or keeping it ageing longer for the flavour to further develop.’
Johnson believes investors can enjoy a 10 per cent annual return on their cask investment, but this is before costs – and returns are not guaranteed.
The Whisky Show takes place on September 28 and 29 at Old Billingsgate, London. Tickets cost £110 which include a two-course meal, a choice of some 600 whiskies to sample, and master classes on favourite tipples.