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Discussing alternative investments: Whisky, Wine and Crypto

Outside of traditional investment products such as stocks and bonds, there are a number of other assets that offer their own share of benefits

KR1 PLC - Discussing alternative investments: Whiskey, Wine and Crypto
Whisky casks are often seen a secure investment disconnected from the volatility of global markets

Most investors will be aware of the ‘traditional areas’ to put one’s money, namely equities, bonds, or commodities such as gold.

However, other alternatives in the market may be less apparent and offer their own share of benefits.

This piece covers three key alternative investment areas; whisky, fine wines and cryptocurrency.

Whisk(e)y

While buying a (Scottish) whisky or (Irish) whiskey cask is often seen as a novelty reserved for buyers who like a personal batch to mature and then enjoy a decade or so down the line, the classic spirit can also present an investment opportunity outside of a pleasant drink.

Jay Bradley, the co-founder of whiskey cask investment firm Whiskey & Wealth Club (WWC), says that one of the benefits of investing is whiskey is that it will always increase in value over time, provided you buy it at the right price.

Although producing the spirit itself can be “very capital intensive” for distilleries, to alleviate this cost burden, and allow investors a chance to put their money into whiskey casks, WWC buys huge volumes of freshly distilled whiskey at a wholesale price and then sells it in smaller groups of around six or more casks, known as ‘pallets’, at a small margin.

While buying individual casks can cost punters up to £8,000, Bradley says a cask of their Single Malt Whisky distilled at the premium Bladnoch Distillery in the Scottish Lowlands can be bought through WWC’s offering for £1,950.

From previous data, he speculates that an investment such as this could see a growth rate of around 22% per annum over ten years, resulting in a potential pay out of around £6,500 after 10 years of maturation.

And while the value of the casks could be subject to supply and demand in whiskey markets, Bradley says that an investment such as this offers “substantially diminished risk” when compared to more traditional assets.

“It’s an investment that you can sit on and lock away in a secure bonded facility with full insurance in place”, he says, adding that more recently some investors have been selecting whiskey as a long-term play as part of pension funds and other strategies.

Fine Wine

Like whisky, fine wines can offer investors another method of storing their money in assets that are mostly disconnected from global markets.

Investment advisory firm Cult Wines, which manages over £120mln in assets, says a fine wine investment can provide similar levels of profitability to riskier assets but with much lower levels of volatility, as well as “resilience in tough market conditions” as wine is often insulated during periods of economic uncertainty but can benefit in the ‘good times’ as wealth creation fuels increased spending on luxury goods.

For example, in 2018 fine wine provided an annualised return of around 8.98%, similar to the 7.94% return provided by real estate. However, volatility for fine wine was only 5.08% compared to the latter’s 20.84%.

The firm adds that broadening interest from developing economies in China, Africa and South-East Asia means the outlook for the market is “promising” as emerging markets give rise to a newly monied middle class.

“Rising wealth, weakened [sterling] and a continued interest in fine wine within China and other non-traditional wine markets, will continue to strengthen growing demand for wines with strictly limited supply. The subsequent impact on pricing will continue to support positive trends in the market over the short long term”, the firm said in a recent report.

Cryptocurrency

One of the newest, and most volatile, additions to the investing world is cryptocurrency, which has boomed in popularity since the foundation of the original crypto, Bitcoin, in 2009.

While Bitcoin’s volatility is well-known and evidenced by the fact that its value so far this year has fluctuated between around US$3,300 to nearly US$13,000, its price is driven mostly by the adoption of the technology behind cryptocurrency, blockchain, and as such is mostly separate from the wider fluctuations of global markets.

Mike Edwards, the executive chairman of Bitcoin mining group Argo Blockchain, says that Bitcoin and other cryptocurrencies such as Ethereum and Ripple are becoming more attractive to ‘millennial’ investors who deem crypto as a “non-correlated asset” similar to gold, which is often bought and held during periods of economic uncertainty.

Aside from cryptocurrencies themselves, there are also companies on the market that offer methods of investing in blockchain technology indirectly through more traditional fund structures.

One of these, NEX-listed fund KR1 PLC (LON:KR1), backs early-stage blockchain and cryptocurrency funds and allows investors to track the performance of the technology developed through its portfolio by buying shares in the firm.

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