Invest in Spirits: Scotch Whisky

 

Scotch Whisky versus whiskey:

For a whisky to be called Scotch Whisky there are certain conditions that need to be met. The “new make spirit” must be aged in an oak cask for a minimum of 3 years and when a cask is filled the spirit strength must meet a certain level of 63.5% as an industry standard. Once the whisky is ready for bottling, it can only be bottled in Scotland to be called Scotch Whisky. Whiskey on the other hand is largely sourced from the US and Ireland, and there are many more distilleries popping up across the world creating new “expressions” of whiskies.

The style of Scotch whisky can often be distinguished by the region it comes from.  There are 5 Scotch whisky regions – Campbeltown, Highland, Islay, Lowland and Speyside. Each offers a different style of Scotch Whisky. Speyside whiskies tend to be non-peated, with with Islay is known for fiery, smokey, saline whiskies.

Why Do People Invest In Whisky?

There are a few key reasons for investing in Whisky apart from the prestige and history that the spirit encompasses. Like the finest wines, the demand for premium Scotch whisky far outweighs supply. According to the Knight Frank Luxury Investments Index, rare whisky has risen in value by an incredible 564% between 2010 and 2020, significantly more than classic cars (194%) fine art (141%) or even wine (120%). Whisky continues to attract considerable attention due to the rarity and longevity of certain bottles and this in turn has driven investors to look at purchasing not just individual bottles but whole casks for long term returns. Investors are keen to collect well-established labels with special and limited releases of certain “expressions” created. Even distilleries that no longer produce whisky, such as Diageo’s Brora and Port Ellen, have found their stock value increasing due to the limited availability and appreciation gained from their stock.

Top brands to watch out for: Springbank, Brora, Glenugie, Bowmore, Ben Wyvis, Dalmore, Macallan, Port Ellen, Rosebank, Ardbeg.

 

How do you Invest in Whisky?

There are several different ways to invest in whisky, including in bottles, casks and even distillery shares. When investing in a bottle, either new or old, the brand, distillery and reputation are strong indicators of the potential returns. This can require a good amount of research and expertise to source potentially lucrative opportunities. An alternative investment in whisky comes from investing in the casks themselves.

Investing in Whisky Casks

Cask investment allows investors more freedom to sell it back to the distilleries or bottle their own produce with custom labels and branding. Key factors to remember when purchasing a cask is the storage fees associated with it, however this can be outweighed by the advantage of in-bond status, as there is no Duty or VAT to pay on the cask until the whisky is bottled. It is also exempt from Capital Gains Tax on sale as it is classed as a ‘wasting asset’ by HMRC. There are also many different forms of casks, with “new fill cask” to well-aged casks, types of oaks used for storage casks become more expensive as they gain maturity and in turn add to the value of the final product. More significantly, the different oaks used can also impart different profiles and flavours. European oak and American oak are the most sought after, with the rarer European oak giving off spicy and nutty flavours, and the more common American oak giving off vanilla and sweeter flavours. As the whisky from an American oak cask is more common, with around 90% of the Scotch market using these casks, a European cask can offer greater returns.

“The smaller the cask, the quicker the maturation, and the larger the cask, the slower the maturation” is a good rule to remember. As an example the 225 litre barriques from Bordeaux should be in their perfect drinking spot after 8 years. Whereas the 550 – 600 litre Sherry casks will hit their stride most likely between 15 -20 years, maybe longer. The longer you age the whisky the more valuable it becomes, however there is such a thing as over-ageing. Lastly, it is worth mentioning that there is a 2% evaporation of the liquid held in the barrel which happens each year, known in the whisky world as the ‘Angel’s Share.’

Contact our experts if you are interested in whisky investments.

 

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