Fine art has always been considered, ironically, the gold standard when it comes to commodities investment. The popular image for investing in physical commodities is nearly always wrapped up in the idea of fine art and jewels, the Manet and the Faberge.
However, the cold hard data coming out of the commodities investment market tells a very different story. It’s Macallan, not Manet that people are pouring their money into. Over the last decade, the Knight Frank Rare Whisky Index has shown an incredible 586 per cent growth. Debuting on the Frank Luxury Investment Index (KFLII) for the first time in 2019, whisky immediately displaced fine art as the top performer on the index.
While art showed a respectable nine per cent growth in 2018, whisky led the ‘investments of passion’ section with a staggering 40 per cent growth over the 12 months to the end of 2018. In fact, a recent Art Basel and UBS Report on the 2020 art market notes that global sales were down 22 per cent on 2019 and 27 per cent down on 2018, making 2020 the fourth consecutive year that sales of art have fallen.
By comparison, the Whiskystats Whisky Index (WWI), which tracks sales of the 500 historically most traded whiskies each month, saw an annual increase of almost 25 per cent during 2020.
New Markets and New Investors
A fundamental part of the current popularity of whisky as both an investment and a luxury item is the growth of demand from the Asian markets. Over the last twenty years, the total value of whisky exports to China has increased from £10 million up to £89 million.
China also isn’t the only country with a new and growing interest in rare and old whisky. Countries like Taiwan, Singapore and Malaysia have also massively increased their whisky imports.
The secondary market for whisky continues to thrive. In 2018 alone, whisky auctions set three world records, ending with the sale of a bottle of Macallan 1926, hand-painted by Irish artist Michael Dillon going for an astounding £1.2 million.
Additionally, market research has shown that Millennials would prefer to invest in whisky than in gold, art, stocks, or, despite what Elon Musk suggests, cryptocurrency.
By comparison, 42 per cent of art dealers predicted that art auction revenues would either stay stagnant or to continue their pattern of year-on-year decline.
The number of investors looking to buy art has also continued to fall, with the average number of clients per dealer down from 64 in 2019, to 55 in 2020.
While the Asian market for whisky is exploding, sales of fine art in Greater China actually fell 24% in 2020.
The Pandemic Effect
The economic turbulence caused by the ongoing Covid-19 pandemic has been investors across the world looking to diversify their portfolios and move away from property and stock and shares.
Whisky as an investment opportunity has become a leading choice for investors looking to diversify because of its combination of stability and strong returns.
To put that in context, the Rare Whisky 101’s Apex 1000 index has appreciated by 162.91% since 2014. This means that the index of the top 1000 whiskies has outperformed the FTSE by over 160% and gold, the high watermark for stable investments, by as much as 150%.
Bottle sales have seen a sharp increase in price, with bottles that would have cost between £100 and £250 around the millennium now being valued at between £2500 and £5000.
By comparison, the art market was already under pressure going into 2020. Geopolitical tensions and economic issues had already whittled away at most key art markets. Additionally, the art market is heavily reliant on events and travel and has been slow to adopt digitisation strategies, creating a situation where the declines in value seen in 2020 proliferated across all levels of the market.
Whisky Remains the King of the Commodities Market
Even in the wake of the pandemic, Whisky continues to outperform nearly every other asset, including gold, art, and property. With more and more investors looking for a safe haven away from the turbulence of the stock market, the interest in commodities investment has massively increased.
Within the commodities market itself, whisky continues to be the clear leader with a 586 per cent growth over the last ten years. Both avenues of whisky investment, cask and bottle, offer differing benefits for savvy investors.
Bottle prices for rare and old whiskies continue to climb, as evidenced by the £1.2 million Macallan sale. Huge interest from the Asian markets is driving up prices across the bottle market, with even modestly priced bottles turning a significant profit with a ten-year hold.
Cask investment offers significant tax benefits, as its potential designation as a wasting asset means no capital gains tax to pay.
Cask whiskies also continue to gain value as they age which, combined with the security of them being stored in HMRC bonded warehouses and low-end appreciation rate of at least 7 per cent, makes them a very attractive medium to long term investment.
By comparison, the art market continues to slump, with diminishing returns, fewer investors, and reduced interest from Asian markets, a sharp contrast to whisky’s recent successes.
The simple reality is that whisky’s lower buy-in price, stronger market, more consistent returns, and overall stability make it far more attractive than art as a medium to long term investment, especially during economic turbulence.
As part of a diversified portfolio, whisky offers savvy investors the stability of gold, the resilience of fine wine, and the potential for some staggering returns.