Knight Frank Luxury Investment Index update: Rare Whisky

When we introduced rare Scotch whisky into our luxury investment index (KFLII) at the end of 2018 it immediately overtook classic cars as the front-running passion asset.

But how has it fared since the Covid-19 pandemic swept the world? Well, not too badly it seems, according to the Q1 2020 results of the Knight Frank Rare Whisky Index compiled for us by sector specialist Rare Whisky 101.

Since the beginning of the year, the index, which tracks the auction results of a basket of rare Scottish single malts, has risen by 3%. Over the past 12 months it’s up 11%, and if we look back ten years growth has been a staggering 586%.

So it seems rare whisky is indeed “liquid gold” – a safe-haven asset that will ride out even the worst global crisis. “Not so fast,” cautions Rare Whisky 101’s Andy Simpson. 

“Although some research we undertook with the University of South Africa in 2019 showed that Scotch whisky, when used as an investment, had no correlation with traditional markets, it’s a bit too early to tell if that will be the case this time.”

As Andy points out the cancellation of a number of auctions due to the pandemic has seen the volume of whisky sold in Q1 drop for the first time in 10 years. 

“People are still getting in touch with us every day about bottles and casks, although there is a certain nervousness about spending too much on a single bottle. People don’t want to be seen to be vulgar at such a time.”

Looking forward there are potential negative and positive drivers that could shape the direction of the market over the rest of the 2020, he adds. “The next two months will be critical in shaping what will be the ‘new-world’ for the global secondary market for rare whisky.

“We are in unprecedented times but we are (very) cautiously optimistic that while rare whisky might not escape completely unscathed - certain distilleries may lose their appeal stronghold over this time - this is a truly finite market for bottles and also casks.” 

On the upside

• A number of rare whisky auctioneers have indefinitely postponed their current/future auctions. This will remove a significant amount of supply
• Sterling remains relatively weak, which could increase appetite from buyers outside the UK
• Buyers will potentially have more time on their hands. This could result in the increased time-ability to bid online for bottles
• Operational auctioneers are still physically sending bottles to their global customers. The ability for a buyer to take delivery of a prized bottle is still very much possible
• The possibility of many ultra-rarities being opened and fittingly consumed when the crisis is over could remove a significant pool of stock from the future market 

On the downside

• It can be assumed that a number of buyers will have less disposable income and their propensity to spend on collectable bottles could be severely impacted
• When life starts to return to normal, there is the risk of over-supply. Investments and collections could be liquidated in significant volumes where there is a requirement for cash by the owners 
• Bars, pubs, restaurants and clubs are now closed. We know many of these establishments who sell rare whisky by the dram would buy at auction. As preservation of cash has become important, this buyer-type can be assumed to be a far smaller pool.