Forget shares, invest in whisky?
With the FTSE 100 falling below 6,000 yesterday, middle class investors everwhere ar up in arms at the fall in value of so-called 'blue chip' companies. But as some of the more recent 'big names' to lose a lot of value, such as Tesco, have proven, no company is immune from the effects of the stick market. So, if you happen to have some spare cash, and you don't want it to earn practically no interest in a bank, could investing in whisky be the thing for you?
Of course, slightly alternative investments have been around for a while, and those so inclined could store their money in dusty old bottles of wine or huge and unsightly artworks as they saw fit. Certain other markets, however, have been limited to instutional investors- huge funds with even huger piles of cash to invest meaning each transaction would be similarly massive- and retail investors, as most individuals are considered, have been left out in the cold. The market does seem to be changing though-this time last year, the Royal Mint jumped into the retail market, allowing ordinary folks to buy bullion in person-sized holdings, later refining their offering to permit people to buy a mere piece of a gold bar as well as various gold and silver coinage- you can now invest in precious metals from as little as £20.
Now some bright spark has done the same thing with whisky. The idea is relatively simple- the distillers make the golden liquid that will, after years of proper sitting around in barrels, become that glorious malt people pay lots of money for. However, making this pre-whisky costs quite a bit, and if we’re talking about serious single malts, it could be over a decade until the distiller gets a return on that money. So instead, investors (through a set up like WhiskyInvestDirect) buy the pre-whisky from the producer, who still actually keeps the stuff and charges for its storage, and then sells it back to the distillery before bottling and onward sale. Note that the major consumers of Scotch are not actually the Scotch- it (almost) all goes out to emerging markets, with over 90% is exported to the likes of China and Russia, as well as Nigeria, Venezuela, Turkey and other growing economies.
The investment works in terms of buying Litres of Pure Alcohol (LPA) and you can invest now if you like- current opportunities include one, two and three year old whiskies from Ardmore, Blair Athol, Glen Spey, Inchgower and five other distilleries, with most labels owned by firms like Diageo.
Prices start at £2.70 per LPA, and the WhiskyInvestDirect promises that "new stock lines are offered at less than a 2pc mark-up." But note that, as with many things, while you can get in if you’re a small drinker, the cost of that tipple might be prohibitively high owing to the costs. You can buy just one LPA but trading costs are 1.75%of the value either selling or buying but topped with storage costs of £0.15 per litre per year - but with a £3 per month minimum.
But is it a good investment? While any investment has some element of risk, and past performance is no indiciation of future returns, this type of asset class has no retail investment history to look back upon. Nevertheless, the website now offering whisky boasts of a 13.5% annual return, netted down to 9.5% after charges on an 8 year malt sold annually between 2005 and 2014 . But this depends on having an 8 year malt to sell every year, i.e you've invested every year. If you dig a little deeper and look at selling after eight years, figures from the Telegraph show that the level of return depends on when you sell, and selling in the early 2000's would have given you a negative return- maxing out in 2005 with a loss of around 20%. Selling in 2014, however, would have doubled your money. Still, as investments go, whisky might have an advantage over the stock market- if it all goes belly up, at least you'll have something to drink...