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Understanding Scotch Whiskey Investments in 2022

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Georgie Harris, CEO, Founded Hackstons by bringing together a wide range of physical asset experts to make investing accessible.

Over the past two decades, the rise of cask Scotch whiskey has been seen as a tangible asset no longer limited to the super-wealthy. Based on my conversations and dealings with people in this industry, I hope to describe why many investors are excited about this market and where it could go in the future.

Scotch and other spirits

When I started my company, we started researching which minds make the best investments. Wine has traditionally been a popular choice; however, due to the fact that it can have good and bad years, it lacks the consistency of something like Scotch. While investment in whiskey barrels may be affected by reduced demand, it is highly unlikely that a cask will lose value over the long term due to poor quality ingredients.

We specifically chose Scotch as it is the most established whiskey market. Irish whiskey, while older, has much less active distilleries, most of which were established in the 2010s. Other world whiskeys, while they taste great, can be riskier or less accessible than Scotch in terms of an investment. For the rest of this article I will refer specifically to investing in Scotch whiskey.

Properties of barrel investing

Cask investing was once limited to the super-wealthy due to exorbitant storage costs and a lack of established brokers to facilitate barrel transfers. However, over the past two decades, and especially since the pandemic, there has been a shift in the market as it opened up to the wider investor population. Scotch investment works on a simple principle, and this is a big part of its charm: the more whiskey consumed, the higher the long-term value of that cask.

Because Scotch whiskey is tied more to sheer consumer demand than to the stock market or other global economic systems, this can be a gate in the storm. Casks can be used to complement a portfolio of traditional stocks, bonds or properties, giving investors peace of mind while focusing on riskier ventures.

Scotch investing isn’t fast, so I always tell my clients to keep their barrel for at least five years. Instead, it’s a patient investment that grows steadily from acorn to oak, as one of my senior portfolio managers puts it. Other inflation-proof assets such as luxury watches and gold are certainly powerful hedges, but whiskey casks have the added benefit of being a commodity, meaning they are becoming rarer at a much faster rate as similar casks are bottled and drunk.

Inflation Protection

This is especially useful now that UK inflation is at its 40-year high of 9%† This is why investors are turning to inflation-proof asset classes such as tangible assets such as Scotch whiskey.

In general, the price of tangible assets increases along with inflation due to its physical nature. The value of the asset is not tied to the success of the business or the fixed interest they pay, the value of the item is the inherent value of its properties. There is also always a ready market to sell as many distilleries buy back barrels from the secondary market.

Stability in Scotch

Scotch and other luxury goods enjoy further protection from economic instability, as the ultimate end users of these investment items are typically among the wealthiest. Even during the instability of Covid-19, luxury brands such as Rolls-Royce enjoyed their highest profit in decades as the consumption habits of the super-rich remained unchanged or even increased during this period. Scotch also experienced a similar boom, with the most expensive bottles being drunk twice as much in the past year as normal.

prices

This stability within the Scotch whiskey investment market is also made possible by the extensive support the UK government provides to the whiskey industry. This comes in the form of whiskey leading the way in every trade deal the UK negotiates. For example, in the latest trade talks with India, the abolition of the 150% tariffs on Scotch is a top priority.

Official government releases called this trade agreement a “golden opportunity” for Scotch, and this couldn’t be better news for investors in Scotch casks. With cheaper prices for Indian consumers, the pace of consumption is clearly accelerating, causing barrels to rise as demand rises. Last year, the UK also made deals with Australia and the US to eliminate tariffs on Scotch, which helped boost demand for Scotch.

Changing Cultures: Millennials and Generation Z

Another factor driving the growth of the Scotch whiskey investment market and tangible assets in general is their increasing popularity among millennials and Gen Z.

After reaching their first years of wealth during the 2008 financial crash, there is a great distrust of traditional financial institutions, with 45%, as surveyed by the World Economic Forum, actively distrust them. Instead, they move to less traditional assets.

My company has seen more of these millennial investors. They tend to hedge against traditional markets as a way to secure their wealth so that they can be optimistic in other areas such as cryptos and stocks.

Conclusion

A confluence of factors has led to Scotch’s strong position. One risk to keep in mind, however, is that while the political will is certainly there for many of these trade agreements, as always with politics, the situation could change and these agreements could be watered down. However, I see the market as a whole as resilient even without these upcoming trade deals.

For investors, casks of Scotch whiskey can be a strong and sustainable alternative to more traditional investments. Pay attention to the markets and upcoming trade deals to take full advantage. For example, when President Biden released tariffs on Scotch in 2021, I noticed a huge increase in demand, on top of the already high demand from the negotiations with India. The recent trade deals signed by the UK government, along with an increasingly turbulent economic environment, make cask whiskey a promising tangible asset.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.


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