Irish Whiskey is back in fashion. With claims by the Irish Whiskey Association that it’s become a significant player in the high-end market, worldwide sales are up to 6 million 9-Liter cases in 2021 compared to 434,000 in 2002.
In fact, Irish whiskey sales are set to overtake scotch in the US by 2030, with scotch plateauing at around 8 million cases. Scotch is still dominating globally, but conquering the $1 billion US market is a big statement, particularly as they are seen as leaders in both IPA and bourbon.
Because of these sales numbers, Irish cask whiskey is back on the menu for investors. However, it’s not actually the sales numbers that are underpinning its value in a portfolio, but that it’s a tax-free asset, it’s tangible, and it’s a great hedge against inflation and the other investments within a portfolio also.
Stronger than ever after being on the brink of collapse
Irish whiskey was once on the verge of collapse. From the mid-19th century to the second world war, distilleries went from over 1,000 to just a mere 3. This makes their comeback story all the more compelling, but even in the lead-up to its collapse, Irish whiskey was still seen as high-end.
This shows that its collapse was nothing related to the product or its quality. A trade war with Britain meant that they lost all the markets within the British Empire, as well as high British taxation. In this sense, its comeback was inevitable.
From an investing standpoint, this collapse wouldn’t have been a particular threat. If anything, its increased scarcity would have likely driven the price up. But ultimately, it highlights the benefits of investing in a physical asset: you would have still owned the whiskey. Equity investors in the distilleries themselves, or the logistics surrounding it, were the ones that would have gotten stung.
Today, Irish whiskey is one of the fastest-growing spirits in the world, with exports up 300% in the past decade. It is this troubled and difficult history that plays into its story today. Even in 2010, there were only 4 distilleries. Today there are 42. In this time, sales have gone from 60 million bottles to 120 million bottles in 2017 with the help of new products and younger customers.
Cask whiskey vs bottling and returns on investment
Irish whiskey is both bought to drink and as an investment. When investing, it’s not just the liquid in the cup that’s important, as you can either buy cask or bottled. Casks are the wooden barrels that the whiskey is aged in before it gets bottled, and they come in different types of wood as well as different histories (i.e., the wood may have held different types of spirit before).
Investing in a cask avoids the costs involved in the bottling process. The costs are things like transportation, filling up the bottles, the cost of the glass and labels, and shipping. There is something nice about being in possession of the bottles in your own home, but the warehouse representative looks after your cask and is owed to you as a liability; it’s a way for the distillery to improve cash flow.
A cask is a lot of liquid, and it can be high-proof stuff too. Expect to pay anywhere between £1,000 and £60,000 for a cask. As for returns, it's estimated that over the past five years, Irish cask whiskey has yielded 13.4% annual compounded growth - seemingly beating the S&P 500 returns over this period.
The benefits of having physical assets in a portfolio
A physical asset like cask whiskey poses a few unique benefits in a portfolio. Generally, it’s less volatile and risky than stocks and shares, because its value isn’t relentlessly speculated on with innumerable variables. The asset is simpler in that regard, but its purpose is more resilient.
For example, the purpose of holding Lloyd’s bank may seem obvious, as it’s a useful high street bank that can serve customers for their banking needs. But we don’t know if high street banks will be needed in a decade because online banks are on the rise, or we don’t know if Lloyd’s will become insolvent and fail to fulfill its purpose. Or, people may simply speculate on these, which also affects the price.
Cask Irish whiskey on the other hand is much simpler. People have enjoyed it for many years and are highly likely to continue to do so. Beyond that, there’s not too much that can go wrong as it’s a physical good that only improves with age. Alcohol has been around since 5000 BC, and much like metals and property, it will continue to be desired by humans. But Tesla or Meta? Who really knows what even the next 5 years hold for these companies?
Because of these benefits, physical assets are often used as a hedge. Gold often goes up when the dollar goes down; in uncertain times, people cling to certainty, making cask Irish whiskey a good way to reduce volatility within a portfolio.
Many people say they hold physical assets in the portfolio, but when you ask them where it is, they point to a derivative receipt or a digital investing account. Cask whiskey isn’t just a tangible asset to hold, but it’s deemed to be a wasting asset by the UK government. In other words, it is deemed to have a lifespan of less than 50 years and thus is not subject to capital gains tax. Ironically, cask whiskey couldn’t be any further from wasting away over time, as the liquid matures inside the cask, it improves. So, the value of the whiskey rising isn’t just down to public sentiment and market trends; its inherent quality is improving over time.
Irish whiskey accounts for 5% of the global spirits market and this number is set to increase rapidly over the next few years. With the high returns over the past decade, many are viewing cask Irish Whiskey as an astute, tax-free addition to a portfolio; offering both 8-12% returns and diversification. Visit www.thomaskellyholdings.co.uk for further inquiries on how to get started when investing in Irish cask whiskey. You can also enquire here email@example.com