Cask vs Bottles: Which is a Better Investment?
We have seen an increase in the debate between casks and bottle investments in the whisky investment space. There is a clear trend in whisky funds leaning towards casks at the moment, giving every reason under the sun as to why that is, and why it is better than investing in individual bottles. At SVC we don’t see it that way and we don’t believe there is a right or wrong approach. Both are great investments. It really just depends what your investment objective is.
Looking at casks, an investor can almost guarantee a return on an investment year after year. We believe it would be safe to assume an investor could expect a 12% annual return on most casks from most distilleries, and probably notch that return up a few basis points if they are lucky enough to get casks from more desirable distilleries. However, what most funds don’t tell investors are some of the drawbacks to buying casks.
When it comes time to sell or exit your cask investment, it is critical that there is a buy back clause from where the cask was purchased. The reality is that the distillery or bottler is not going to offer an investor a premium to buy back their casks. They are a business after all, and will try to get the best possible value for the asset. Some distilleries or brokers won’t even buy the casks back, especially if it hasn’t matured well. There are a lot of other costs that aren’t mentioned that come with owning casks: storage, insurance, tax and bottling, just to name a few.
If an investor decides to go down the route of bottling for their exit, most of these costs will be incurred. By bottling a cask, it is also critical to have a route to market to be able to move all the bottles that will come from that project. Remember that an investor will also need to sell all the new bottles at a premium to realise their returns. Achieving that premium becomes difficult if auctions are flooded with +200 bottles, which likely won’t help fetch the desired returns on the exit. Getting casks from sought-after distilleries is not an easy feat. Bowmore, Springbank, Macallan, Highland Park are not offering casks in the current market. Certain distilleries don’t sell to private investors anymore, and an investor’s only route is sourcing from independent bottlers who have already added their premium to the price of the casks, making the asset unreasonably priced and therefore unprofitable at exit. Bottling and then selling 200 bottles of a Springbank 30 year old is definitely not an easy task! Ultimately casks can be useful in a portfolio if you have the means to move it on for the desired profit for your investors, but it can prove complicated and very risky.
For bottles, their price can fluctuate greatly over a period of a year, so you have to spend more time and attention in tracking auctions and evaluating bottles. However, investors can definitely realise a large, and often quicker return than casks. The route-to-market for bottles is established and the market is much more liquid to realise quicker return. Even though bottles might not provide a guaranteed return year-on-year due to ever changing dynamics in the auction environment, if you buy the right brands at the right price you will never lose on bottles (as explained in our recent article on our investment approach at SVC).
Bottle prices do fluctuate often due to many factors. For example, a collector may be searching for a certain bottle that hasn’t been on auction for a while so they are willing to pay a premium for that bottle. Private, or smaller more custom auctions will always see bottles fetching more than in normal public auctions. These are auctions that are specific in what they offer: it could be a seller’s private collection, brand specific or even region specific. This greatly affects the number of collectible bottles in that auction, which drives demand and price. It is a lot easier to liquidate a bottle for the right premium than it is a cask.
At SVC we rely on both bottles and casks in our investment strategy. We trust our route-to-market and understand the dynamics of the whisky category deeply enough to make sure we will always get the best return for our investors – be it cask or bottle.
Please don’t hesitate to reach out to us if you would like to know more.