25 Jan Why alternative investments are becoming increasingly appealing
In the past decade, the alternative investment sector has grown consistently – with assets under management (AUM) more than doubling between 2008 and 2017. Predictions suggest this will jump by more than 50% to 2023. In 2020, alternatives became even more enticing due to an increasingly volatile market amidst the impacts of the Coronavirus pandemic.
Alternatives are variously described, but are generally those investments that fall outside traditional categories such as stocks, bonds and currency — and are often physical assets. More familiar alternative investments include antiques, wines, art and rare coins.
However, as a lesser-known alternative, rare whiskey has outperformed all other categories over the past decade, with its value increasing by 582%. So, the question raised is – could cask whiskey be the next big alternative investment?
Beating the volatile market
The 2020 Whiskey & Wealth Club Cask Whiskey Buyer Report surveyed 505 investors with at least £100,000 to invest. The report showed that concerns around market instability during a global pandemic was front of mind for investors, with over 30% fearing losses owing to market volatility.
This has led to creative thinking based on diversification, often away from traditional investment options. In the current risk environment, the bulk of investors reported that they were looking for average risk with average reward. Perhaps surprisingly, however, a quarter of investors seek high/above average rewards alongside high/above average risk— which chimes with their ambitious required ROI.
Interestingly, cask whiskey buying could offer potential buyers the risk levels they are comfortable with, alongside the more generous returns they seek.
Perception vs reality
As the new kid on the alternatives block, Irish whiskey and Scotch cask buying feature in the bottom three of all favoured buying choices of those investors surveyed in the Cask Whiskey Buyer Report. Recording just 12% and 19% respectively. However, as the Knight Frank Luxury Investment Index found in 2019, whiskey is the star alternative performer.
While cask whiskey is a relatively new phenomenon, the trading of whiskey is long established — specifically premium and rare varieties. The outstanding performance of rare whiskeys suggests that there is a disconnect between perception and reality.
The worldwide whiskey market is booming. American, Canadian, Irish, Japanese and Scottish brands are experiencing strong growth, in both retail and wholesale markets. Quantity does not come at the cost of quality, in fact, just the opposite. Distilleries are innovating as never before, creating some of the finest whiskeys in the history of the industry.
An alternative for the future
In uncertain times, whiskey has proven itself to be a savvy investment. The 2020 Knight Frank Wealth Report finds that rare whiskey has risen in value consistently and significantly over the past decade — up by 564%, to leave more familiar alternative options such as automobiles (+194%) trailing in its wake.
While it is important not to confuse rare whiskey with premium whiskey, the exceptional performance of the former does suggest the direction of travel in terms of the latter. Making it a lucrative alternative investment opportunity for 2021 and beyond.