KFLII - can it be applied to whisky casks?

Knight Frank Luxury Investment Index - can it be applied to whisky casks?

In 2019, bottles of rare whisky were included in The Wealth Report of the British company Knight Frank for the first time, outperforming gold, art and jewelry. While their presence in the Luxury Goods Investment Index confirms the attractiveness of whisky as an investment, bottle performance cannot be directly applied to Scotch whisky casks.

In this article, we’ll explain what the Knight Frank Luxury Investment Index is, what is the essential difference between bottles and casks of whisky, and how the bottle performance can be related to your Scotch whisky cask investment.

What is the Knight Frank Luxury Investment Index?

Knight Frank Luxury Investment Index is a proprietary index published in the annual report called "The Wealth Report", which analyses the global real estate market and property distribution from the last 12 months. The publication provides detailed information on the collector's performance of luxury assets such as works of art, classic cars, wine and whisky.

The indicators included in the report are widely recognised as a reliable source of knowledge about luxury and collectible assets. Knight Frank was founded in London in 1896 and currently has approximately 500 offices around the world.

Scores of rare whisky indicators

The first specific data on rare whisky appeared in The Wealth Report in 2019. The authors reported that the increase in the value of the rare whisky index in 2018 was 40%, far ahead of assets such as coins, works of art and wine (growth respectively: 12%, 9% and 9%). In the next edition of the 2020 report, the increase in the rare whisky ratio was 5%, while the 10-year results amounted to as much as 564%, ahead of all other luxury goods.

Comparing diamonds to rings

However, the indicator used by Knight Frank applies only to rare bottles, which are a completely different product from Scotch whisky casks.

Whisky bottles are a finished product, and the increase in its value is no longer related to the maturation time or the type of used casks. Their value is greatly influenced by branding, marketing activities and speculation on the collectors' market. Moreover, they are usually not bought for consumption, but rather as an investment or status symbol. Their value is much more subjective than that of casks. Additionally, the collector's bottles to which this indicator applies constitute only a fraction of the global whisky market and the increase in their value has no direct impact on the entire whisky cask market.

When you buy a cask of whisky, you are buying a product which value increases with age. This increase is influenced by qualitative factors (to put it simply - the taste of the distillate improves with the maturation time in the cask), as well as quantitative factors (almost 90% of casks are bottled before reaching 12 years of age, which results in the high rarity of casks older than 12 years.). The casks themselves, however, do not have a collector's value - only bottling them and releasing them to the market makes them acquire such value, but then they are no longer distillate in casks.

How to relate the indexes of luxury bottles to casks

The indicators for rare whisky bottles do of course have their reference to investments in whisky casks. The increased value and collectors interest in rare bottles create opportunities for cask owners - this situation makes bottling and launching limited editions of Scotch whisky on the market profitable and gives hope for achieving a high return on investment in whisky casks. However, it should be remembered that there is also a much larger part of the whisky market - blended whisky producers, who also constitute a significant part of the market for whisky cask owners. So in the event that the rates of rare whisky casks start to drop unexpectedly, this should not be a distraction for the cask owners, as they only cover a tiny fraction of the large and prospering whisky market.

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